[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2017 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          
          
          Title 12

Banks and Banking


________________________

Parts 230 to 299

                         Revised as of January 1, 2017

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2017
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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[[Page iii]]




                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter II--Federal Reserve System (Continued)             3
  Finding Aids:
      Table of CFR Titles and Chapters........................     633
      Alphabetical List of Agencies Appearing in the CFR......     653
      List of CFR Sections Affected...........................     663

[[Page iv]]


      


                     ----------------------------

                     Cite this Code:  CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 231.1 refers 
                       to title 12, part 231, 
                       section 1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2017), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
exercised by the user in determining the actual effective date. In 
instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
the revision date stated on the cover of each volume are not carried. 
Code users may find the text of provisions in effect on any given date 
in the past by using the appropriate List of CFR Sections Affected 
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Affected'' is published at the end of each CFR volume. For changes to 
the Code prior to the LSA listings at the end of the volume, consult 
previous annual editions of the LSA. For changes to the Code prior to 
2001, consult the List of CFR Sections Affected compilations, published 
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not accidentally dropped due to a printing or computer error.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
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This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
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alphabetical list of agencies publishing in the CFR are also included in 
this volume.

[[Page vii]]

    An index to the text of ``Title 3--The President'' is carried within 
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the revision dates of the 50 CFR titles.

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INQUIRIES

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    Oliver A. Potts,
    Director,
    Office of the Federal Register.
    January 1, 2017.

                                
                                      
                            

  

[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of ten volumes. The parts in 
these volumes are arranged in the following order: Parts 1-199, 200-219, 
220-229, 230-299, 300-499, 500-599, 600-899, 900-1025, 1026-1099, and 
1100-end. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of January 1, 2017.

    For this volume, Ann Worley was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of John Hyrum 
Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                  (This book contains parts 230 to 299)

  --------------------------------------------------------------------
                                                                    Part

chapter ii--Federal Reserve System (Continued)..............         220

[[Page 3]]



             CHAPTER II--FEDERAL RESERVE SYSTEM (CONTINUED)




  --------------------------------------------------------------------

     SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 
                               (CONTINUED)
Part                                                                Page
230

[Reserved]

231             Netting eligibility for financial 
                    institution (Regulation EE).............           5
232             Obtaining and using medical information in 
                    connection with credit (Regulation FF)..           6
233             Prohibition on funding of unlawful internet 
                    gambling (Regulation GG)................          11
234             Designated financial market utilities 
                    (Regulation HH).........................          21
235             Debit card interchange fees and routing.....          33
237             Swaps margin and swaps push-out.............          52
238             Savings and loan holding companies 
                    (Regulation LL).........................          75
239             Mutual holding companies (Regulation MM)....         119
240             Retail foreign exchange transactions 
                    (Regulation NN).........................         194
241             Securities holding companies (Regulation OO)         208
242             Definitions relating to Title I of the Dodd-
                    Frank Act (Regulation PP)...............         209
243             Resolution plans............................         217
244             Credit risk retention (Regulation RR).......         228
246             Supervision and regulation assessments of 
                    fees (Regulation TT)....................         270
248             Proprietary trading and certain interests in 
                    and relationships with covered funds....         276
249             Liquidity risk measurement standards 
                    (Regulation WW).........................         320
250             Miscellaneous interpretations...............         354
251             Concentration limit (Regulation XX).........         383
252             Enhanced prudential standards (Regulation 
                    YY).....................................         388
261             Rules regarding availability of information.         459
261a            Rules regarding access to personal 
                    information under the Privacy Act 1974..         477

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261b            Rules regarding public observation of 
                    meetings................................         481
262             Rules of procedure..........................         487
263             Rules of practice for hearings..............         495
264             Employee responsibilities and conduct.......         542
264a            Post-employment restrictions for senior 
                    examiners...............................         542
264b            Rules regarding foreign gifts and 
                    decorations.............................         544
265             Rules regarding delegation of authority.....         547
266             Limitations on activities of former members 
                    and employees of the Board..............         566
267

[Reserved]

268             Rules regarding equal opportunity...........         567
269             Policy on labor relations for the Federal 
                    Reserve banks...........................         602
269a            Definitions.................................         607
269b            Charges of unfair labor practices...........         608
               SUBCHAPTER B--FEDERAL OPEN MARKET COMMITTEE
270             Open market operations of Federal Reserve 
                    banks...................................         617
271             Rules regarding availability of information.         618
272             Rules of procedure..........................         625
281             Statements of policy........................         627
       SUBCHAPTER C--FEDERAL RESERVE SYSTEM LABOR RELATIONS PANEL
290-299

[Reserved]

Supplementary Publications: The Federal Reserve Act, as amended through 
  December 31, 1976, with an Appendix containing provisions of certain 
  other statutes affecting the Federal Reserve System. Rules of 
  Organization and Procedure--Board of Governors of the Federal Reserve 
  System. Regulations of the Board of Governors of the Federal Reserve 
  System. The Federal Reserve System--Purposes and Functions. Annual 
  Report. Federal Reserve Bulletin. Monthly. Federal Reserve Chart Book 
  Quarterly; Historical Chart Book issued in September.

[[Page 5]]



     SUBCHAPTER A_BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 
                               (CONTINUED)



                           PART 230 [RESERVED]



PART 231_NETTING ELIGIBILITY FOR FINANCIAL INSTITUTION 
(REGULATION EE)--Table of Contents



Sec.
231.1  Authority, purpose, and scope.
231.2  Definitions.
231.3  Qualification as a financial institution.

    Authority: 12 U.S.C. 4402(1)(B) and 4402(9).

    Source: Reg. EE, 59 FR 4784, Feb. 2, 1994, unless otherwise noted.



Sec. 231.1  Authority, purpose, and scope.

    (a) Authority. This part (Regulation EE; 12 CFR part 231) is issued 
by the Board of Governors of the Federal Reserve System under the 
authority of sections 402(1)(B) and 402(9) of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4402(1)(B) and 
4402(9)).
    (b) Purpose and scope. The purpose of the Act and this part is to 
enhance efficiency and reduce systemic risk in the financial markets. 
This part expands the Act's definition of ``financial institution'' to 
allow more financial market participants to avail themselves of the 
netting provisions set forth in sections 401-407 of the Act (12 U.S.C. 
4401-4407). This part does not affect the status of those financial 
institutions specifically defined in the Act.



Sec. 231.2  Definitions.

    As used in this part, unless the context requires otherwise:
    (a) Act means the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (Pub. L. 102-242, 105 Stat. 2236), as amended.
    (b) Affiliate, with respect to a person, means any other person that 
controls, is controlled by, or is under common control with the person.
    (c) Financial contract means a qualified financial contract as 
defined in section 11(e)(8)(D) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(e)(8)(D)), as amended, except that a forward contract 
includes a contract with a maturity date two days or less after the date 
the contract is entered into (i.e., a ``spot'' contract).
    (d) Financial market means a market for a financial contract.
    (e) Gross mark-to-market positions in one or more financial 
contracts means the sum of the absolute values of positions in those 
contracts, adjusted to reflect the market values of those positions in 
accordance with the methods used by the parties to each contract to 
value the contract.
    (f) Person means any legal entity, foreign or domestic, including a 
corporation, unincorporated company, partnership, government unit or 
instrumentality, trust, natural person, or any other entity or 
organization.



Sec. 231.3  Qualification as a financial institution.

    (a) A person qualifies as a financial institution for purposes of 
sections 401-407 of the Act if it represents, orally or in writing, that 
it will engage in financial contracts as a counterparty on both sides of 
one or more financial markets and either--
    (1) Had one or more financial contracts of a total gross dollar 
value of at least $1 billion in notional principal amount outstanding on 
any day during the previous 15-month period with counterparties that are 
not its affiliates; or
    (2) Had total gross mark-to-market positions of at least $100 
million (aggregated across counterparties) in one or more financial 
contracts on any day during the previous 15-month period with 
counterparties that are not its affiliates.
    (b) If a person qualifies as a financial institution under paragraph 
(a) of this section, that person will be considered a financial 
institution for the purposes of any contract entered into during the 
period it qualifies, even if the person subsequently fails to qualify.
    (c) If a person qualifies as a financial institution under paragraph 
(a) of this section on March 7, 1994, that person

[[Page 6]]

will be considered a financial institution for the purposes of any 
outstanding contract entered into prior to March 7, 1994.

[Reg. EE, 59 FR 4784, Feb. 2, 1994, as amended at 61 FR 1274, Jan. 19, 
1996]



PART 232_OBTAINING AND USING MEDICAL INFORMATION IN CONNECTION WITH 
CREDIT (REGULATION FF)--Table of Contents



Sec.
232.1  Scope, general prohibition and definitions.
232.2  Rule of construction for obtaining and using unsolicited medical 
          information.
232.3  Financial information exception for obtaining and using medical 
          information.
232.4  Specific exceptions for obtaining and using medical information.

    Authority: 15 U.S.C. 1681b.

    Source: 70 FR 70682, Nov. 22, 2005, unless otherwise noted.



Sec. 232.1  Scope, general prohibition and definitions.

    (a) Scope. This part applies to creditors, as defined in paragraph 
(c)(3) of this section, except for creditors that are subject to 
Secs. 41.30, 222.30, 334.30, 571.30, or 717.30.
    (b) In general. A creditor may not obtain or use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit, except as 
provided in this section.
    (c) Definitions. (1) Consumer means an individual.
    (2) Credit has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (3) Creditor has the same meaning as in section 702 of the Equal 
Credit Opportunity Act, 15 U.S.C. 1691a.
    (4) Eligibility, or continued eligibility, for credit means the 
consumer's qualification or fitness to receive, or continue to receive, 
credit, including the terms on which credit is offered. The term does 
not include:
    (i) Any determination of the consumer's qualification or fitness for 
employment, insurance (other than a credit insurance product), or other 
non-credit products or services;
    (ii) Authorizing, processing, or documenting a payment or 
transaction on behalf of the consumer in a manner that does not involve 
a determination of the consumer's eligibility, or continued eligibility, 
for credit; or
    (iii) Maintaining or servicing the consumer's account in a manner 
that does not involve a determination of the consumer's eligibility, or 
continued eligibility, for credit.
    (5) Medical information means:
    (i) Information or data, whether oral or recorded, in any form or 
medium, created by or derived from a health care provider or the 
consumer, that relates to--
    (A) The past, present, or future physical, mental, or behavioral 
health or condition of an individual;
    (B) The provision of health care to an individual; or
    (C) The payment for the provision of health care to an individual.
    (ii) The term does not include:
    (A) The age or gender of a consumer;
    (B) Demographic information about the consumer, including a 
consumer's residence address or e-mail address;
    (C) Any other information about a consumer that does not relate to 
the physical, mental, or behavioral health or condition of a consumer, 
including the existence or value of any insurance policy; or
    (D) Information that does not identify a specific consumer.
    (6) Person means any individual, partnership, corporation, trust, 
estate cooperative, association, government or governmental subdivision 
or agency, or other entity.



Sec. 232.2  Rule of construction for obtaining and using unsolicited medical 
information.

    (a) In general. A creditor does not obtain medical information in 
violation of the prohibition if it receives medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit without 
specifically requesting medical information.
    (b) Use of unsolicited medical information. A creditor that receives 
unsolicited medical information in the manner described in paragraph (a) 
of this

[[Page 7]]

section may use that information in connection with any determination of 
the consumer's eligibility, or continued eligibility, for credit to the 
extent the creditor can rely on at least one of the exceptions in 
Sec. 232.3 or Sec. 232.4.
    (c) Examples. A creditor does not obtain medical information in 
violation of the prohibition if, for example:
    (1) In response to a general question regarding a consumer's debts 
or expenses, the creditor receives information that the consumer owes a 
debt to a hospital.
    (2) In a conversation with the creditor's loan officer, the consumer 
informs the creditor that the consumer has a particular medical 
condition.
    (3) In connection with a consumer's application for an extension of 
credit, the creditor requests a consumer report from a consumer 
reporting agency and receives medical information in the consumer report 
furnished by the agency even though the creditor did not specifically 
request medical information from the consumer reporting agency.



Sec. 232.3  Financial information exception for obtaining and using 
medical information.

    (a) In general. A creditor may obtain and use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit so long as:
    (1) The information is the type of information routinely used in 
making credit eligibility determinations, such as information relating 
to debts, expenses, income, benefits, assets, collateral, or the purpose 
of the loan, including the use of proceeds;
    (2) The creditor uses the medical information in a manner and to an 
extent that is no less favorable than it would use comparable 
information that is not medical information in a credit transaction; and
    (3) The creditor does not take the consumer's physical, mental, or 
behavioral health, condition or history, type of treatment, or prognosis 
into account as part of any such determination.
    (b) Examples--(1) Examples of the types of information routinely 
used in making credit eligibility determinations. Paragraph (a)(1) of 
this section permits a creditor, for example, to obtain and use 
information about:
    (i) The dollar amount, repayment terms, repayment history, and 
similar information regarding medical debts to calculate, measure, or 
verify the repayment ability of the consumer, the use of proceeds, or 
the terms for granting credit;
    (ii) The value, condition, and lien status of a medical device that 
may serve as collateral to secure a loan;
    (iii) The dollar amount and continued eligibility for disability 
income, workers' compensation income, or other benefits related to 
health or a medical condition that is relied on as a source of 
repayment; or
    (iv) The identity of creditors to whom outstanding medical debts are 
owed in connection with an application for credit, including but not 
limited to, a transaction involving the consolidation of medical debts.
    (2) Examples of uses of medical information consistent with the 
exception. (i) A consumer includes on an application for credit 
information about two $20,000 debts. One debt is to a hospital; the 
other debt is to a retailer. The creditor contacts the hospital and the 
retailer to verify the amount and payment status of the debts. The 
creditor learns that both debts are more than 90 days past due. Any two 
debts of this size that are more than 90 days past due would disqualify 
the consumer under the creditor's established underwriting criteria. The 
creditor denies the application on the basis that the consumer has a 
poor repayment history on outstanding debts. The creditor has used 
medical information in a manner and to an extent no less favorable than 
it would use comparable non-medical information.
    (ii) A consumer indicates on an application for a $200,000 mortgage 
loan that she receives $15,000 in long-term disability income each year 
from her former employer and has no other income. Annual income of 
$15,000, regardless of source, would not be sufficient to support the 
requested amount of credit. The creditor denies the application on the 
basis that the projected debt-to-income ratio of the consumer

[[Page 8]]

does not meet the creditor's underwriting criteria. The creditor has 
used medical information in a manner and to an extent that is no less 
favorable than it would use comparable non-medical information.
    (iii) A consumer includes on an application for a $10,000 home 
equity loan that he has a $50,000 debt to a medical facility that 
specializes in treating a potentially terminal disease. The creditor 
contacts the medical facility to verify the debt and obtain the 
repayment history and current status of the loan. The creditor learns 
that the debt is current. The applicant meets the income and other 
requirements of the creditor's underwriting guidelines. The creditor 
grants the application. The creditor has used medical information in 
accordance with the exception.
    (3) Examples of uses of medical information inconsistent with the 
exception. (i) A consumer applies for $25,000 of credit and includes on 
the application information about a $50,000 debt to a hospital. The 
creditor contacts the hospital to verify the amount and payment status 
of the debt, and learns that the debt is current and that the consumer 
has no delinquencies in her repayment history. If the existing debt were 
instead owed to a retail department store, the creditor would approve 
the application and extend credit based on the amount and repayment 
history of the outstanding debt. The creditor, however, denies the 
application because the consumer is indebted to a hospital. The creditor 
has used medical information, here the identity of the medical creditor, 
in a manner and to an extent that is less favorable than it would use 
comparable non-medical information.
    (ii) A consumer meets with a loan officer of a creditor to apply for 
a mortgage loan. While filling out the loan application, the consumer 
informs the loan officer orally that she has a potentially terminal 
disease. The consumer meets the creditor's established requirements for 
the requested mortgage loan. The loan officer recommends to the credit 
committee that the consumer be denied credit because the consumer has 
that disease. The credit committee follows the loan officer's 
recommendation and denies the application because the consumer has a 
potentially terminal disease. The creditor has used medical information 
in a manner inconsistent with the exception by taking into account the 
consumer's physical, mental, or behavioral health, condition, or 
history, type of treatment, or prognosis as part of a determination of 
eligibility or continued eligibility for credit.
    (iii) A consumer who has an apparent medical condition, such as a 
consumer who uses a wheelchair or an oxygen tank, meets with a loan 
officer to apply for a home equity loan. The consumer meets the 
creditor's established requirements for the requested home equity loan 
and the creditor typically does not require consumers to obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product in connection with such loans. However, based on the consumer's 
apparent medical condition, the loan officer recommends to the credit 
committee that credit be extended to the consumer only if the consumer 
obtains a debt cancellation contract, debt suspension agreement, or 
credit insurance product from a nonaffiliated third party. The credit 
committee agrees with the loan officer's recommendation. The loan 
officer informs the consumer that the consumer must obtain a debt 
cancellation contract, debt suspension agreement, or credit insurance 
product from a nonaffiliated third party to qualify for the loan. The 
consumer obtains one of these products and the creditor approves the 
loan. The creditor has used medical information in a manner inconsistent 
with the exception by taking into account the consumer's physical, 
mental, or behavioral health, condition, or history, type of treatment, 
or prognosis in setting conditions on the consumer's eligibility for 
credit.



Sec. 232.4  Specific exceptions for obtaining and using medical 
information.

    (a) In general. A creditor may obtain and use medical information 
pertaining to a consumer in connection with any determination of the 
consumer's eligibility, or continued eligibility, for credit:

[[Page 9]]

    (1) To determine whether the use of a power of attorney or legal 
representative that is triggered by a medical condition or event is 
necessary and appropriate or whether the consumer has the legal capacity 
to contract when a person seeks to exercise a power of attorney or act 
as legal representative for a consumer based on an asserted medical 
condition or event;
    (2) To comply with applicable requirements of local, state, or 
Federal laws;
    (3) To determine, at the consumer's request, whether the consumer 
qualifies for a legally permissible special credit program or credit-
related assistance program that is--
    (i) Designed to meet the special needs of consumers with medical 
conditions; and
    (ii) Established and administered pursuant to a written plan that--
    (A) Identifies the class of persons that the program is designed to 
benefit; and
    (B) Sets forth the procedures and standards for extending credit or 
providing other credit-related assistance under the program;
    (4) To the extent necessary for purposes of fraud prevention or 
detection;
    (5) In the case of credit for the purpose of financing medical 
products or services, to determine and verify the medical purpose of a 
loan and the use of proceeds;
    (6) Consistent with safe and sound practices, if the consumer or the 
consumer's legal representative specifically requests that the creditor 
use medical information in determining the consumer's eligibility, or 
continued eligibility, for credit, to accommodate the consumer's 
particular circumstances, and such request is documented by the 
creditor;
    (7) Consistent with safe and sound practices, to determine whether 
the provisions of a forbearance practice or program that is triggered by 
a medical condition or event apply to a consumer;
    (8) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a debt cancellation contract or debt suspension 
agreement if a medical condition or event is a triggering event for the 
provision of benefits under the contract or agreement; or
    (9) To determine the consumer's eligibility for, the triggering of, 
or the reactivation of a credit insurance product if a medical condition 
or event is a triggering event for the provision of benefits under the 
product.
    (b) Example of determining eligibility for a special credit program 
or credit assistance program. A not-for-profit organization establishes 
a credit assistance program pursuant to a written plan that is designed 
to assist disabled veterans in purchasing homes by subsidizing the down 
payment for the home purchase mortgage loans of qualifying veterans. The 
organization works through mortgage lenders and requires mortgage 
lenders to obtain medical information about the disability of any 
consumer that seeks to qualify for the program, use that information to 
verify the consumer's eligibility for the program, and forward that 
information to the organization. A consumer who is a veteran applies to 
a creditor for a home purchase mortgage loan. The creditor informs the 
consumer about the credit assistance program for disabled veterans and 
the consumer seeks to qualify for the program. Assuming that the program 
complies with all applicable law, including applicable fair lending 
laws, the creditor may obtain and use medical information about the 
medical condition and disability, if any, of the consumer to determine 
whether the consumer qualifies for the credit assistance program.
    (c) Examples of verifying the medical purpose of the loan or the use 
of proceeds. (1) If a consumer applies for $10,000 of credit for the 
purpose of financing vision correction surgery, the creditor may verify 
with the surgeon that the procedure will be performed. If the surgeon 
reports that surgery will not be performed on the consumer, the creditor 
may use that medical information to deny the consumer's application for 
credit, because the loan would not be used for the stated purpose.
    (2) If a consumer applies for $10,000 of credit for the purpose of 
financing cosmetic surgery, the creditor may confirm the cost of the 
procedure with the surgeon. If the surgeon reports that the

[[Page 10]]

cost of the procedure is $5,000, the creditor may use that medical 
information to offer the consumer only $5,000 of credit.
    (3) A creditor has an established medical loan program for financing 
particular elective surgical procedures. The creditor receives a loan 
application from a consumer requesting $10,000 of credit under the 
established loan program for an elective surgical procedure. The 
consumer indicates on the application that the purpose of the loan is to 
finance an elective surgical procedure not eligible for funding under 
the guidelines of the established loan program. The creditor may deny 
the consumer's application because the purpose of the loan is not for a 
particular procedure funded by the established loan program.
    (d) Examples of obtaining and using medical information at the 
request of the consumer. (1) If a consumer applies for a loan and 
specifically requests that the creditor consider the consumer's medical 
disability at the relevant time as an explanation for adverse payment 
history information in his credit report, the creditor may consider such 
medical information in evaluating the consumer's willingness and ability 
to repay the requested loan to accommodate the consumer's particular 
circumstances, consistent with safe and sound practices. The creditor 
may also decline to consider such medical information to accommodate the 
consumer, but may evaluate the consumer's application in accordance with 
its otherwise applicable underwriting criteria. The creditor may not 
deny the consumer's application or otherwise treat the consumer less 
favorably because the consumer specifically requested a medical 
accommodation, if the creditor would have extended the credit or treated 
the consumer more favorably under the creditor's otherwise applicable 
underwriting criteria.
    (2) If a consumer applies for a loan by telephone and explains that 
his income has been and will continue to be interrupted on account of a 
medical condition and that he expects to repay the loan liquidating 
assets, the creditor may, but is not required to, evaluate the 
application using the sale of assets as the primary source of repayment, 
consistent with safe and sound practices, provided that the creditor 
documents the consumer's request by recording the oral conversation or 
making a notation of the request in the consumer's file.
    (3) If a consumer applies for a loan and the application form 
provides a space where the consumer may provide any other information or 
special circumstances, whether medical or non-medical, that the consumer 
would like the creditor to consider in evaluating the consumer's 
application, the creditor may use medical information provided by the 
consumer in that space on that application to accommodate the consumer's 
application for credit, consistent with safe and sound practices, or may 
disregard that information.
    (4) If a consumer specifically requests that the creditor use 
medical information in determining the consumer's eligibility, or 
continued eligibility, for credit and provides the creditor with medical 
information for that purpose, and the creditor determines that it needs 
additional information regarding the consumer's circumstances, the 
creditor may request, obtain, and use additional medical information 
about the consumer as necessary to verify the information provided by 
the consumer or to determine whether to make an accommodation for the 
consumer. The consumer may decline to provide additional information, 
withdraw the request for an accommodation, and have the application 
considered under the creditor's otherwise applicable underwriting 
criteria.
    (5) If a consumer completes and signs a credit application that is 
not for medical purpose credit and the application contains boilerplate 
language that routinely requests medical information from the consumer 
or that indicates that by applying for credit the consumer authorizes or 
consents to the creditor obtaining and using medical information in 
connection with a determination of the consumer's eligibility, or 
continued eligibility, for credit, the consumer has not specifically 
requested that the creditor obtain and use medical information to 
accommodate the consumer's particular circumstances.

[[Page 11]]

    (e) Example of a forbearance practice or program. After an 
appropriate safety and soundness review, a creditor institutes a program 
that allows consumers who are or will be hospitalized to defer payments 
as needed for up to three months, without penalty, if the credit account 
has been open for more than one year and has not previously been in 
default, and the consumer provides confirming documentation at an 
appropriate time. A consumer is hospitalized and does not pay her bill 
for a particular month. This consumer has had a credit account with the 
creditor for more than one year and has not previously been in default. 
The creditor attempts to contact the consumer and speaks with the 
consumer's adult child, who is not the consumer's legal representative. 
The adult child informs the creditor that the consumer is hospitalized 
and is unable to pay the bill at that time. The creditor defers payments 
for up to three months, without penalty, for the hospitalized consumer 
and sends the consumer a letter confirming this practice and the date on 
which the next payment will be due. The creditor has obtained and used 
medical information to determine whether the provisions of a medically-
triggered forbearance practice or program apply to a consumer.



PART 233_PROHIBITION ON FUNDING OF UNLAWFUL INTERNET GAMBLING 
(REGULATION GG)--Table of Contents



Sec.
233.1  Authority, purpose, collection of information, and incorporation 
          by reference.
233.2  Definitions.
233.3  Designated payment systems.
233.4  Exemptions.
233.5  Policies and procedures required.
233.6  Non-exclusive examples of policies and procedures.
233.7  Regulatory enforcement.

Appendix A to Part 233--Model Notice

    Authority: 31 U.S.C. 5364.

    Source: Reg. GG, 73 FR 69405, Nov. 18, 2008, unless otherwise noted.



Sec. 233.1  Authority, purpose, collection of information, and incorporation
by reference.

    (a) Authority. This part is issued jointly by the Board of Governors 
of the Federal Reserve System (Board) and the Secretary of the 
Department of the Treasury (Treasury) under section 802 of the Unlawful 
Internet Gambling Enforcement Act of 2006 (Act) (enacted as title VIII 
of the Security and Accountability For Every Port Act of 2006, Pub. L. 
No. 109-347, 120 Stat. 1884, and codified at 31 U.S.C. 5361-5367). The 
Act states that none of its provisions shall be construed as altering, 
limiting, or extending any Federal or State law or Tribal-State compact 
prohibiting, permitting, or regulating gambling within the United 
States. See 31 U.S.C. 5361(b). In addition, the Act states that its 
provisions are not intended to change which activities related to 
horseracing may or may not be allowed under Federal law, are not 
intended to change the existing relationship between the Interstate 
Horseracing Act of 1978 (IHA) (15 U.S.C. 3001 et seq.) and other Federal 
statutes in effect on October 13, 2006, the date of the Act's enactment, 
and are not intended to resolve any existing disagreements over how to 
interpret the relationship between the IHA and other Federal statutes. 
See 31 U.S.C. 5362(10)(D)(iii). This part is intended to be consistent 
with these provisions.
    (b) Purpose. The purpose of this part is to issue implementing 
regulations as required by the Act. The part sets out necessary 
definitions, designates payment systems subject to the requirements of 
this part, exempts certain participants in designated payment systems 
from certain requirements of this part, provides nonexclusive examples 
of policies and procedures reasonably designed to identify and block, or 
otherwise prevent and prohibit, restricted transactions, and sets out 
the Federal entities that have exclusive regulatory enforcement 
authority with respect to the designated payments systems and non-exempt 
participants therein.
    (c) Collection of information. The Office of Management and Budget 
(OMB) has approved the collection of information requirements in this 
part for the Department of the Treasury and assigned OMB control number 
1505-0204. The Board has approved the collection of information 
requirements in this part under the authority delegated to

[[Page 12]]

the Board by OMB, and assigned OMB control number 7100-0317.
    (d) Incorporation by reference--relevant definitions from ACH rules. 
(1) This part incorporates by reference the relevant definitions of ACH 
terms as published in the ``2008 ACH Rules: A Complete Guide to Rules & 
Regulations Governing the ACH Network'' (the ``ACH Rules''). The 
Director of the Federal Register approves this incorporation by 
reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies 
of the ``2008 ACH Rules'' are available from the National Automated 
Clearing House Association, Suite 100, 13450 Sunrise Valley Drive, 
Herndon, Virginia 20171, http://nacha.org, (703) 561-1100. Copies also 
are available for public inspection at the Department of Treasury 
Library, Room 1428, Main Treasury Building, 1500 Pennsylvania Avenue, 
NW., Washington, DC 20220, and the National Archives and Records 
Administration (NARA). Before visiting the Treasury library, you must 
call (202) 622-0990 for an appointment. For information on the 
availability of this material at NARA, call (202) 741-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/
ibr_locations.html 20002.
    (2) Any amendment to definitions of the relevant ACH terms in the 
ACH Rules shall not apply to this part unless the Treasury and the Board 
jointly accept such amendment by publishing notice of acceptance of the 
amendment to this part in the Federal Register. An amendment to the 
definition of a relevant ACH term in the ACH Rules that is accepted by 
the Treasury and the Board shall apply to this part on the effective 
date of the rulemaking specified by the Treasury and the Board in the 
joint Federal Register notice expressly accepting such amendment.



Sec. 233.2  Definitions.

    The following definitions apply solely for purposes of this part:
    (a) Actual knowledge with respect to a transaction or commercial 
customer means when a particular fact with respect to that transaction 
or commercial customer is known by or brought to the attention of:
    (1) An individual in the organization responsible for the 
organization's compliance function with respect to that transaction or 
commercial customer; or
    (2) An officer of the organization.
    (b) Automated clearing house system or ACH system means a funds 
transfer system, primarily governed by the ACH Rules, which provides for 
the clearing and settlement of batched electronic entries for 
participating financial institutions. When referring to ACH systems, the 
terms in this regulation (such as ``originating depository financial 
institution,'' ``operator,'' ``originating gateway operator,'' 
``receiving depository financial institution,'' ``receiving gateway 
operator,'' and ``third-party sender'') are defined as those terms are 
defined in the ACH Rules.
    (c) Bet or wager:
    (1) Means the staking or risking by any person of something of value 
upon the outcome of a contest of others, a sporting event, or a game 
subject to chance, upon an agreement or understanding that the person or 
another person will receive something of value in the event of a certain 
outcome;
    (2) Includes the purchase of a chance or opportunity to win a 
lottery or other prize (which opportunity to win is predominantly 
subject to chance);
    (3) Includes any scheme of a type described in 28 U.S.C. 3702;
    (4) Includes any instructions or information pertaining to the 
establishment or movement of funds by the bettor or customer in, to, or 
from an account with the business of betting or wagering (which does not 
include the activities of a financial transaction provider, or any 
interactive computer service or telecommunications service); and
    (5) Does not include--
    (i) Any activity governed by the securities laws (as that term is 
defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(47)) for the purchase or sale of securities (as that term 
is defined in section 3(a)(10) of that act (15 U.S.C. 78c(a)(10));
    (ii) Any transaction conducted on or subject to the rules of a 
registered entity or exempt board of trade under the Commodity Exchange 
Act (7 U.S.C. 1 et seq.);

[[Page 13]]

    (iii) Any over-the-counter derivative instrument;
    (iv) Any other transaction that--
    (A) Is excluded or exempt from regulation under the Commodity 
Exchange Act (7 U.S.C. 1 et seq.); or
    (B) Is exempt from State gaming or bucket shop laws under section 
12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) or section 28(a) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78bb(a));
    (v) Any contract of indemnity or guarantee;
    (vi) Any contract for insurance;
    (vii) Any deposit or other transaction with an insured depository 
institution;
    (viii) Participation in any game or contest in which participants do 
not stake or risk anything of value other than--
    (A) Personal efforts of the participants in playing the game or 
contest or obtaining access to the Internet; or
    (B) Points or credits that the sponsor of the game or contest 
provides to participants free of charge and that can be used or redeemed 
only for participation in games or contests offered by the sponsor; or
    (ix) Participation in any fantasy or simulation sports game or 
educational game or contest in which (if the game or contest involves a 
team or teams) no fantasy or simulation sports team is based on the 
current membership of an actual team that is a member of an amateur or 
professional sports organization (as those terms are defined in 28 
U.S.C. 3701) and that meets the following conditions:
    (A) All prizes and awards offered to winning participants are 
established and made known to the participants in advance of the game or 
contest and their value is not determined by the number of participants 
or the amount of any fees paid by those participants.
    (B) All winning outcomes reflect the relative knowledge and skill of 
the participants and are determined predominantly by accumulated 
statistical results of the performance of individuals (athletes in the 
case of sports events) in multiple real-world sporting or other events.
    (C) No winning outcome is based--
    (1) On the score, point-spread, or any performance or performances 
of any single real-world team or any combination of such teams, or
    (2) Solely on any single performance of an individual athlete in any 
single real-world sporting or other event.
    (d) Block means to reject a particular transaction before or during 
processing, but it does not require freezing or otherwise prohibiting 
subsequent transfers or transactions regarding the proceeds or account.
    (e) Card issuer means any person who issues a credit card, debit 
card, pre-paid card, or stored value card, or the agent of such person 
with respect to such card.
    (f) Card system means a system for authorizing, clearing and 
settling transactions in which credit cards, debit cards, pre-paid 
cards, or stored value cards (such cards being issued or authorized by 
the operator of the system), are used to purchase goods or services or 
to obtain a cash advance. The term includes systems both in which the 
merchant acquirer, card issuer, and system operator are separate 
entities and in which more than one of these roles are performed by the 
same entity.
    (g) Check clearing house means an association of banks or other 
payors that regularly exchange checks for collection or return.
    (h) Check collection system means an interbank system for 
collecting, presenting, returning, and settling for checks or intrabank 
system for settling for checks deposited in and drawn on the same bank. 
When referring to check collection systems, the terms in this regulation 
(such as ``paying bank,'' ``collecting bank,'' ``depositary bank,'' 
``returning bank,'' and ``check'') are defined as those terms are 
defined in 12 CFR 229.2. For purposes of this part, ``check'' also 
includes an electronic representation of a check that a bank agrees to 
handle as a check.
    (i) Commercial customer means a person that is not a consumer and 
that contracts with a non-exempt participant in a designated payment 
system to receive, or otherwise accesses, payment transaction services 
through that non-exempt participant.
    (j) Consumer means a natural person.

[[Page 14]]

    (k) Designated payment system means a system listed in Sec. 233.3.
    (l) Electronic fund transfer has the same meaning given the term in 
section 903 of the Electronic Fund Transfer Act (15 U.S.C. 1693a), 
except that such term includes transfers that would otherwise be 
excluded under section 903(6)(E) of that act (15 U.S.C. 1693a(6)(E)), 
and includes any funds transfer covered by Article 4A of the Uniform 
Commercial Code, as in effect in any State.
    (m) Financial institution means a State or national bank, a State or 
Federal savings and loan association, a mutual savings bank, a State or 
Federal credit union, or any other person that, directly or indirectly, 
holds an account belonging to a consumer. The term does not include a 
casino, sports book, or other business at or through which bets or 
wagers may be placed or received.
    (n) Financial transaction provider means a creditor, credit card 
issuer, financial institution, operator of a terminal at which an 
electronic fund transfer may be initiated, money transmitting business, 
or international, national, regional, or local payment network utilized 
to effect a credit transaction, electronic fund transfer, stored value 
product transaction, or money transmitting service, or a participant in 
such network, or other participant in a designated payment system.
    (o) Foreign banking office means:
    (1) Any non-U.S. office of a financial institution; and
    (2) Any non-U.S. office of a foreign bank as described in 12 U.S.C. 
3101(7).
    (p) Interactive computer service means any information service, 
system, or access software provider that provides or enables computer 
access by multiple users to a computer server, including specifically a 
service or system that provides access to the Internet and such systems 
operated or services offered by libraries or educational institutions.
    (q) Internet means the international computer network of 
interoperable packet switched data networks.
    (r) Internet gambling business means the business of placing, 
receiving or otherwise knowingly transmitting a bet or wager by any 
means which involves the use, at least in part, of the Internet, but 
does not include the performance of the customary activities of a 
financial transaction provider, or any interactive computer service or 
telecommunications service.
    (s) Intrastate transaction means placing, receiving, or otherwise 
transmitting a bet or wager where--
    (1) The bet or wager is initiated and received or otherwise made 
exclusively within a single State;
    (2) The bet or wager and the method by which the bet or wager is 
initiated and received or otherwise made is expressly authorized by and 
placed in accordance with the laws of such State, and the State law or 
regulations include--
    (i) Age and location verification requirements reasonably designed 
to block access to minors and persons located out of such State; and
    (ii) Appropriate data security standards to prevent unauthorized 
access by any person whose age and current location has not been 
verified in accordance with such State's law or regulations; and
    (3) The bet or wager does not violate any provision of--
    (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
    (ii) 28 U.S.C. chapter 178 (professional and amateur sports 
protection);
    (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et 
seq.); or
    (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
    (t) Intratribal transaction means placing, receiving or otherwise 
transmitting a bet or wager where--
    (1) The bet or wager is initiated and received or otherwise made 
exclusively--
    (i) Within the Indian lands of a single Indian tribe (as such terms 
are defined under the Indian Gaming Regulatory Act (25 U.S.C. 2703)); or
    (ii) Between the Indian lands of two or more Indian tribes to the 
extent that intertribal gaming is authorized by the Indian Gaming 
Regulatory Act (25 U.S.C. 2701 et seq.);
    (2) The bet or wager and the method by which the bet or wager is 
initiated

[[Page 15]]

and received or otherwise made is expressly authorized by and complies 
with the requirements of--
    (i) The applicable tribal ordinance or resolution approved by the 
Chairman of the National Indian Gaming Commission; and
    (ii) With respect to class III gaming, the applicable Tribal-State 
compact;
    (3) The applicable tribal ordinance or resolution or Tribal-State 
compact includes--
    (i) Age and location verification requirements reasonably designed 
to block access to minors and persons located out of the applicable 
Tribal lands; and
    (ii) Appropriate data security standards to prevent unauthorized 
access by any person whose age and current location has not been 
verified in accordance with the applicable tribal ordinance or 
resolution or Tribal-State Compact; and
    (4) The bet or wager does not violate any provision of--
    (i) The Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et seq.);
    (ii) 28 U.S.C. chapter 178 (professional and amateur sports 
protection);
    (iii) The Gambling Devices Transportation Act (15 U.S.C. 1171 et 
seq.); or
    (iv) The Indian Gaming Regulatory Act (25 U.S.C. 2701 et seq.).
    (u) Money transmitting business has the meaning given the term in 31 
U.S.C. 5330(d)(1) (determined without regard to any regulations 
prescribed by the Secretary of the Treasury thereunder).
    (v) Operator of a designated payment system means an entity that 
provides centralized clearing and delivery services between participants 
in the designated payment system and maintains the operational framework 
for the system. In the case of an automated clearinghouse system, the 
term ``operator'' has the same meaning as provided in the ACH Rules.
    (w) Participant in a designated payment system means an operator of 
a designated payment system, a financial transaction provider that is a 
member of, or has contracted for financial transaction services with, or 
is otherwise participating in, a designated payment system, or a third-
party processor. This term does not include a customer of the financial 
transaction provider, unless the customer is also a financial 
transaction provider otherwise participating in the designated payment 
system on its own behalf.
    (x) Reasoned legal opinion means a written expression of 
professional judgment by a State-licensed attorney that addresses the 
facts of a particular client's business and the legality of the client's 
provision of its services to relevant customers in the relevant 
jurisdictions under applicable federal and State law, and, in the case 
of intratribal transactions, applicable tribal ordinances, tribal 
resolutions, and Tribal-State compacts. A written legal opinion will not 
be considered ``reasoned'' if it does nothing more than recite the facts 
and express a conclusion.
    (y) Restricted transaction means any of the following transactions 
or transmittals involving any credit, funds, instrument, or proceeds 
that the Act prohibits any person engaged in the business of betting or 
wagering (which does not include the activities of a financial 
transaction provider, or any interactive computer service or 
telecommunications service) from knowingly accepting, in connection with 
the participation of another person in unlawful Internet gambling--
    (1) Credit, or the proceeds of credit, extended to or on behalf of 
such other person (including credit extended through the use of a credit 
card);
    (2) An electronic fund transfer, or funds transmitted by or through 
a money transmitting business, or the proceeds of an electronic fund 
transfer or money transmitting service, from or on behalf of such other 
person; or
    (3) Any check, draft, or similar instrument that is drawn by or on 
behalf of such other person and is drawn on or payable at or through any 
financial institution.
    (z) State means any State of the United States, the District of 
Columbia, or any commonwealth, territory, or other possession of the 
United States, including the Commonwealth of Puerto Rico, the 
Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and 
the Virgin Islands.
    (aa) Third-party processor means a service provider that--

[[Page 16]]

    (1) In the case of a debit transaction payment, such as an ACH debit 
entry or card system transaction, has a direct relationship with the 
commercial customer that is initiating the debit transfer transaction 
and acts as an intermediary between the commercial customer and the 
first depository institution to handle the transaction;
    (2) In the case of a credit transaction payment, such as an ACH 
credit entry, has a direct relationship with the commercial customer 
that is to receive the proceeds of the credit transfer and acts as an 
intermediary between the commercial customer and the last depository 
institution to handle the transaction; and
    (3) In the case of a cross-border ACH debit or check collection 
transaction, is the first service provider located within the United 
States to receive the ACH debit instructions or check for collection.
    (bb) Unlawful Internet gambling means to place, receive, or 
otherwise knowingly transmit a bet or wager by any means which involves 
the use, at least in part, of the Internet where such bet or wager is 
unlawful under any applicable Federal or State law in the State or 
Tribal lands in which the bet or wager is initiated, received, or 
otherwise made. The term does not include placing, receiving, or 
otherwise transmitting a bet or wager that is excluded from the 
definition of this term by the Act as an intrastate transaction or an 
intra-tribal transaction, and does not include any activity that is 
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et 
seq.; see Sec. 233.1(a)). The intermediate routing of electronic data 
shall not determine the location or locations in which a bet or wager is 
initiated, received, or otherwise made.
    (cc) Wire transfer system means a system through which an 
unconditional order to a bank to pay a fixed or determinable amount of 
money to a beneficiary upon receipt, or on a day stated in the order, is 
transmitted by electronic or other means through the network, between 
banks, or on the books of a bank. When referring to wire transfer 
systems, the terms in this regulation (such as ``bank,'' ``originator's 
bank,'' ``beneficiary's bank,'' and ``intermediary bank'') are defined 
as those terms are defined in 12 CFR part 210, appendix B.



Sec. 233.3  Designated payment systems.

    The following payment systems could be used by participants in 
connection with, or to facilitate, a restricted transaction:
    (a) Automated clearing house systems;
    (b) Card systems;
    (c) Check collection systems;
    (d) Money transmitting businesses solely to the extent they
    (1) Engage in the transmission of funds, which does not include 
check cashing, currency exchange, or the issuance or redemption of money 
orders, travelers' checks, and other similar instruments; and
    (2) Permit customers to initiate transmission of funds transactions 
remotely from a location other than a physical office of the money 
transmitting business; and
    (e) Wire transfer systems.



Sec. 233.4  Exemptions.

    (a) Automated clearing house systems. The participants processing a 
particular transaction through an automated clearing house system are 
exempt from this regulation's requirements for establishing written 
policies and procedures reasonably designed to prevent or prohibit 
restricted transactions with respect to that transaction, except for--
    (1) The receiving depository financial institution and any third-
party processor receiving the transaction on behalf of the receiver in 
an ACH credit transaction;
    (2) The originating depository financial institution and any third-
party processor initiating the transaction on behalf of the originator 
in an ACH debit transaction; and
    (3) The receiving gateway operator and any third-party processor 
that receives instructions for an ACH debit transaction directly from a 
foreign sender (which could include a foreign banking office, a foreign 
third-party processor, or a foreign originating gateway operator).

[[Page 17]]

    (b) Check collection systems. The participants in a particular check 
collection through a check collection system are exempt from this 
regulation's requirements for establishing written policies and 
procedures reasonably designed to prevent or prohibit restricted 
transactions with respect to that check collection, except for the 
depositary bank.
    (c) Money transmitting businesses. The participants in a money 
transmitting business are exempt from this regulation's requirements for 
establishing written policies and procedures reasonably designed to 
prevent or prohibit restricted transactions, except for the operator.
    (d) Wire transfer systems. The participants in a particular wire 
transfer through a wire transfer system are exempt from this 
regulation's requirements for establishing written policies and 
procedures reasonably designed to prevent or prohibit restricted 
transactions with respect to that transaction, except for the 
beneficiary's bank.



Sec. 233.5  Policies and procedures required.

    (a) All non-exempt participants in designated payment systems shall 
establish and implement written policies and procedures reasonably 
designed to identify and block or otherwise prevent or prohibit 
restricted transactions.
    (b) A non-exempt financial transaction provider participant in a 
designated payment system shall be considered to be in compliance with 
the requirements of paragraph (a) of this section if--
    (1) It relies on and complies with the written policies and 
procedures of the designated payment system that are reasonably designed 
to--
    (i) Identify and block restricted transactions; or
    (ii) Otherwise prevent or prohibit the acceptance of the products or 
services of the designated payment system or participant in connection 
with restricted transactions; and
    (2) Such policies and procedures of the designated payment system 
comply with the requirements of this part.
    (c) For purposes of paragraph (b)(2) in this section, a participant 
in a designated payment system may rely on a written statement or notice 
by the operator of that designated payment system to its participants 
that states that the operator has designed or structured the system's 
policies and procedures for identifying and blocking or otherwise 
preventing or prohibiting restricted transactions to comply with the 
requirements of this part as conclusive evidence that the system's 
policies and procedures comply with the requirements of this part, 
unless the participant is notified otherwise by its Federal functional 
regulator or, in the case of participants that are not directly 
supervised by a Federal functional regulator, the Federal Trade 
Commission.
    (d) As provided in the Act, a person that identifies and blocks a 
transaction, prevents or prohibits the acceptance of its products or 
services in connection with a transaction, or otherwise refuses to honor 
a transaction, shall not be liable to any party for such action if--
    (1) The transaction is a restricted transaction;
    (2) Such person reasonably believes the transaction to be a 
restricted transaction; or
    (3) The person is a participant in a designated payment system and 
blocks or otherwise prevents the transaction in reliance on the policies 
and procedures of the designated payment system in an effort to comply 
with this regulation.
    (e) Nothing in this part requires or is intended to suggest that 
designated payment systems or participants therein must or should block 
or otherwise prevent or prohibit any transaction in connection with any 
activity that is excluded from the definition of ``unlawful Internet 
gambling'' in the Act as an intrastate transaction, an intratribal 
transaction, or a transaction in connection with any activity that is 
allowed under the Interstate Horseracing Act of 1978 (15 U.S.C. 3001 et 
seq.; see Sec. 233.1(a)).
    (f) Nothing in this part modifies any requirement imposed on a 
participant by other applicable law or regulation to file a suspicious 
activity report to the appropriate authorities.

[[Page 18]]

    (g) The requirement of this part to establish and implement written 
policies and procedures applies only to the U.S. offices of participants 
in designated payment systems.



Sec. 233.6  Non-exclusive examples of policies and procedures.

    (a) In general. The examples of policies and procedures to identify 
and block or otherwise prevent or prohibit restricted transactions set 
out in this section are non-exclusive. In establishing and implementing 
written policies and procedures to identify and block or otherwise 
prevent or prohibit restricted transactions, a non-exempt participant in 
a designated payment system is permitted to design and implement 
policies and procedures tailored to its business that may be different 
than the examples provided in this section. In addition, non-exempt 
participants may use different policies and procedures with respect to 
different business lines or different parts of the organization.
    (b) Due diligence. If a non-exempt participant in a designated 
payment system establishes and implements procedures for due diligence 
of its commercial customer accounts or commercial customer relationships 
in order to comply, in whole or in part, with the requirements of this 
regulation, those due diligence procedures will be deemed to be 
reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if the procedures include the steps set 
out in paragraphs (b)(1), (b)(2), and (b)(3) of this section and subject 
to paragraph (b)(4) of this section.
    (1) At the establishment of the account or relationship, the 
participant conducts due diligence of a commercial customer and its 
activities commensurate with the participant's judgment of the risk of 
restricted transactions presented by the customer's business.
    (2) Based on its due diligence, the participant makes a 
determination regarding the risk the commercial customer presents of 
engaging in an Internet gambling business and follows either paragraph 
(b)(2)(i) or (b)(2)(ii) of this section.
    (i) The participant determines that the commercial customer presents 
a minimal risk of engaging in an Internet gambling business.
    (ii) The participant cannot determine that the commercial customer 
presents a minimal risk of engaging in an Internet gambling business, in 
which case it obtains the documentation in either paragraph 
(b)(2)(ii)(A) or (b)(2)(ii)(B) of this section--
    (A) Certification from the commercial customer that it does not 
engage in an Internet gambling business; or
    (B) If the commercial customer does engage in an Internet gambling 
business, each of the following--
    (1) Evidence of legal authority to engage in the Internet gambling 
business, such as--
    (i) A copy of the commercial customer's license that expressly 
authorizes the customer to engage in the Internet gambling business 
issued by the appropriate State or Tribal authority or, if the 
commercial customer does not have such a license, a reasoned legal 
opinion that demonstrates that the commercial customer's Internet 
gambling business does not involve restricted transactions; and
    (ii) A written commitment by the commercial customer to notify the 
participant of any changes in its legal authority to engage in its 
Internet gambling business.
    (2) A third-party certification that the commercial customer's 
systems for engaging in the Internet gambling business are reasonably 
designed to ensure that the commercial customer's Internet gambling 
business will remain within the licensed or otherwise lawful limits, 
including with respect to age and location verification.
    (3) The participant notifies all of its commercial customers, 
through provisions in the account or commercial customer relationship 
agreement or otherwise, that restricted transactions are prohibited from 
being processed through the account or relationship.
    (4) With respect to the determination in paragraph (b)(2)(i) of this 
section, participants may deem the following commercial customers to 
present a minimal risk of engaging in an Internet gambling business--
    (i) An entity that is directly supervised by a Federal functional 
regulator as set out in Sec. 233.7(a); or

[[Page 19]]

    (ii) An agency, department, or division of the Federal government or 
a State government.
    (c) Automated clearing house system examples. (1) The policies and 
procedures of the originating depository financial institution and any 
third party processor in an ACH debit transaction, and the receiving 
depository financial institution and any third party processor in an ACH 
credit transaction, are deemed to be reasonably designed to identify and 
block or otherwise prevent or prohibit restricted transactions if they--
    (i) Address methods to conduct due diligence in establishing a 
commercial customer account or relationship as set out in Sec. 233.6(b);
    (ii) Address methods to conduct due diligence as set out in 
Sec. 233.6(b)(2)(ii)(B) in the event that the participant has actual 
knowledge that an existing commercial customer of the participant 
engages in an Internet gambling business; and
    (iii) Include procedures to be followed with respect to a commercial 
customer if the originating depository financial institution or third-
party processor has actual knowledge that its commercial customer has 
originated restricted transactions as ACH debit transactions or if the 
receiving depository financial institution or third-party processor has 
actual knowledge that its commercial customer has received restricted 
transactions as ACH credit transactions, such as procedures that 
address--
    (A) The circumstances under which the commercial customer should not 
be allowed to originate ACH debit transactions or receive ACH credit 
transactions; and
    (B) The circumstances under which the account should be closed.
    (2) The policies and procedures of a receiving gateway operator and 
third-party processor that receives instructions to originate an ACH 
debit transaction directly from a foreign sender are deemed to be 
reasonably designed to prevent or prohibit restricted transactions if 
they include procedures to be followed with respect to a foreign sender 
if the receiving gateway operator or third-party processor has actual 
knowledge, obtained through notification by a government entity, such as 
law enforcement or a regulatory agency, that such instructions included 
instructions for restricted transactions. Such procedures may address 
sending notification to the foreign sender, such as in the form of the 
notice contained in appendix A to this part.
    (d) Card system examples. The policies and procedures of a card 
system operator, a merchant acquirer, third-party processor, or a card 
issuer, are deemed to be reasonably designed to identify and block or 
otherwise prevent or prohibit restricted transactions, if the policies 
and procedures--
    (1) Provide for either--
    (i) Methods to conduct due diligence--
    (A) In establishing a commercial customer account or relationship as 
set out in Sec. 233.6(b); and
    (B) As set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
participant has actual knowledge that an existing commercial customer of 
the participant engages in an Internet gambling business; or
    (ii) Implementation of a code system, such as transaction codes and 
merchant/business category codes, that are required to accompany the 
authorization request for a transaction, including--
    (A) The operational functionality to enable the card system operator 
or the card issuer to reasonably identify and deny authorization for a 
transaction that the coding procedure indicates may be a restricted 
transaction; and
    (B) Procedures for ongoing monitoring or testing by the card system 
operator to detect potential restricted transactions, including--
    (1) Conducting testing to ascertain whether transaction 
authorization requests are coded correctly; and
    (2) Monitoring and analyzing payment patterns to detect suspicious 
payment volumes from a merchant customer; and
    (2) For the card system operator, merchant acquirer, or third-party 
processor, include procedures to be followed when the participant has 
actual knowledge that a merchant has received restricted transactions 
through the card system, such as--
    (i) The circumstances under which the access to the card system for 
the

[[Page 20]]

merchant, merchant acquirer, or third-party processor should be denied; 
and
    (ii) The circumstances under which the merchant account should be 
closed.
    (e) Check collection system examples. (1) The policies and 
procedures of a depositary bank are deemed to be reasonably designed to 
identify and block or otherwise prevent or prohibit restricted 
transactions, if they--
    (i) Address methods for the depositary bank to conduct due diligence 
in establishing a commercial customer account or relationship as set out 
in Sec. 233.6(b);
    (ii) Address methods for the depositary bank to conduct due 
diligence as set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
depositary bank has actual knowledge that an existing commercial 
customer engages in an Internet gambling business; and
    (iii) Include procedures to be followed if the depositary bank has 
actual knowledge that a commercial customer of the depositary bank has 
deposited checks that are restricted transactions, such as procedures 
that address--
    (A) The circumstances under which check collection services for the 
customer should be denied; and
    (B) The circumstances under which the account should be closed.
    (2) The policies and procedures of a depositary bank that receives 
checks for collection from a foreign banking office are deemed to be 
reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if they include procedures to be 
followed by the depositary bank when it has actual knowledge, obtained 
through notification by a government entity, such as law enforcement or 
a regulatory agency, that a foreign banking office has sent checks to 
the depositary bank that are restricted transactions. Such procedures 
may address sending notification to the foreign banking office, such as 
in the form of the notice contained in the appendix to this part.
    (f) Money transmitting business examples. The policies and 
procedures of an operator of a money transmitting business are deemed to 
be reasonably designed to identify and block or otherwise prevent or 
prohibit restricted transactions if they--
    (1) Address methods for the operator to conduct due diligence in 
establishing a commercial customer relationship as set out in 
Sec. 233.6(b);
    (2) Address methods for the operator to conduct due diligence as set 
out in Sec. 233.6(b)(2)(ii)(B) in the event that the operator has actual 
knowledge that an existing commercial customer engages in an Internet 
gambling business;
    (3) Include procedures regarding ongoing monitoring or testing by 
the operator to detect potential restricted transactions, such as 
monitoring and analyzing payment patterns to detect suspicious payment 
volumes to any recipient; and
    (4) Include procedures when the operator has actual knowledge that a 
commercial customer of the operator has received restricted transactions 
through the money transmitting business, that address--
    (i) The circumstances under which money transmitting services should 
be denied to that commercial customer; and
    (ii) The circumstances under which the commercial customer account 
should be closed.
    (g) Wire transfer system examples. The policies and procedures of 
the beneficiary's bank in a wire transfer are deemed to be reasonably 
designed to identify and block or otherwise prevent or prohibit 
restricted transactions if they--
    (1) Address methods for the beneficiary's bank to conduct due 
diligence in establishing a commercial customer account as set out in 
Sec. 233.6(b);
    (2) Address methods for the beneficiary's bank to conduct due 
diligence as set out in Sec. 233.6(b)(2)(ii)(B) in the event that the 
beneficiary's bank has actual knowledge that an existing commercial 
customer of the bank engages in an Internet gambling business;
    (3) Include procedures to be followed if the beneficiary's bank 
obtains actual knowledge that a commercial customer of the bank has 
received restricted transactions through the wire transfer system, such 
as procedures that address
    (i) The circumstances under which the beneficiary bank should deny 
wire

[[Page 21]]

transfer services to the commercial customer; and
    (ii) The circumstances under which the commercial customer account 
should be closed.



Sec. 233.7  Regulatory enforcement.

    The requirements under this part are subject to the exclusive 
regulatory enforcement of--
    (a) The Federal functional regulators, with respect to the 
designated payment systems and participants therein that are subject to 
the respective jurisdiction of such regulators under section 505(a) of 
the Gramm-Leach-Bliley Act (15 U.S.C. 6805(a)) and section 5g of the 
Commodity Exchange Act (7 U.S.C. 7b-2); and
    (b) The Federal Trade Commission, with respect to designated payment 
systems and participants therein not otherwise subject to the 
jurisdiction of any Federal functional regulators (including the 
Commission) as described in paragraph (a) of this section.



                Sec. Appendix A to Part 233--Model Notice

[Date]
[Name of foreign sender or foreign banking office]
[Address]
Re: U.S. Unlawful Internet Gambling Enforcement Act Notice

Dear [Name of foreign counterparty]:

    On [date], U.S. government officials informed us that your 
institution processed payments through our facilities for Internet 
gambling transactions restricted by U.S. law on [dates, recipients, and 
other relevant information if available].
    We provide this notice to comply with U.S. Government regulations 
implementing the Unlawful Internet Gambling Enforcement Act of 2006 
(Act), a U.S. federal law. Our policies and procedures established in 
accordance with those regulations provide that we will notify a foreign 
counterparty if we learn that the counterparty has processed payments 
through our facilities for Internet gambling transactions restricted by 
the Act. This notice ensures that you are aware that we have received 
information that your institution has processed payments for Internet 
gambling restricted by the Act.
    The Act is codified in subchapter IV, chapter 53, title 31 of the 
U.S. Code (31 U.S.C. 5361 et seq.). Implementing regulations that 
duplicate one another can be found at part 233 of title 12 of the U.S. 
Code of Federal Regulations (12 CFR part 233) and part 132 of title 31 
of the U.S. Code of Federal Regulations (31 CFR part 132).



PART 234_DESIGNATED FINANCIAL MARKET UTILITIES (REGULATION HH)--Table of Contents



Sec.
234.1  Authority, purpose, and scope.
234.2  Definitions.
234.3  Standards for payment systems.
234.4  Changes to rules, procedures, or operations.
234.5  Access to Federal Reserve Bank accounts and services.
234.6  Interest on balances.

    Authority: 12 U.S.C. 5461 et seq.

    Source: 77 FR 45919, Aug. 2, 2012, unless otherwise noted.



Sec. 234.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the authority of sections 
805, 806, and 810 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376; 12 
U.S.C. 5464, 5465, and 5469).
    (b) Purpose and scope. This part establishes risk-management 
standards governing the operations related to the payment, clearing, and 
settlement activities of designated financial market utilities. In 
addition, this part sets out requirements and procedures for a 
designated financial market utility that proposes to make a change to 
its rules, procedures, or operations that could materially affect the 
nature or level of risks presented by the designated financial market 
utility and for which the Board is the Supervisory Agency (as defined 
below). The risk management standards do not apply, however, to a 
designated financial market utility that is a derivatives clearing 
organization registered under section 5b of the Commodity Exchange Act 
(7 U.S.C. 7a-1) or a clearing agency registered with the Securities and 
Exchange Commission under section 17A of the Securities Exchange Act of 
1934 (15 U.S.C. 78q-1), which are governed by the risk-management 
standards promulgated by the Commodity Futures Trading Commission or the 
Securities and Exchange Commission, respectively, for which each is the 
Supervisory Agency. This

[[Page 22]]

part also sets out standards, restrictions, and guidelines regarding a 
Federal Reserve Bank establishing and maintaining an account for, and 
providing services to, a designated financial market utility. In 
addition, this part sets forth the terms under which a Reserve Bank may 
pay a designated financial market utility interest on the designated 
financial market utility's balances held at the Reserve Bank.

[77 FR 45919, Aug. 2, 2012, as amended at 78 FR 76979, Dec. 20, 2013]



Sec. 234.2  Definitions.

    (a) Backtest means the ex post comparison of realized outcomes with 
margin model forecasts to analyze and monitor model performance and 
overall margin coverage.
    (b) Central counterparty means an entity that interposes itself 
between counterparties to contracts traded in one or more financial 
markets, becoming the buyer to every seller and the seller to every 
buyer.
    (c) Central securities depository means an entity that provides 
securities accounts and central safekeeping services.
    (d) Designated financial market utility means a financial market 
utility that is currently designated by the Financial Stability 
Oversight Council under section 804 of the Dodd-Frank Act (12 U.S.C. 
5463).
    (e) Financial market utility has the same meaning as the term is 
defined in section 803(6) of the Dodd-Frank Act (12 U.S.C. 5462(6)).
    (f) Link means, for purposes of Sec. 234.3(a)(20), a set of 
contractual and operational arrangements between two or more central 
counterparties, central securities depositories, or securities 
settlement systems, or between one or more of these financial market 
utilities and one or more trade repositories, that connect them directly 
or indirectly, such as for the purposes of participating in settlement, 
cross margining, or expanding their services to additional instruments 
and participants.
    (g) Orderly wind-down means the actions of a designated financial 
market utility to effect the permanent cessation, sale, or transfer of 
one or more of its critical operations or services in a manner that 
would not increase the risk of significant liquidity or credit problems 
spreading among financial institutions or markets and thereby threaten 
the stability of the U.S. financial system.
    (h) Recovery means, for purposes of Sec. 234.3(a)(3) and (15), the 
actions of a designated financial market utility, consistent with its 
rules, procedures, and other ex ante contractual arrangements, to 
address any uncovered loss, liquidity shortfall, or capital inadequacy, 
whether arising from participant default or other causes (such as 
business, operational, or other structural weaknesses), including 
actions to replenish any depleted prefunded financial resources and 
liquidity arrangements, as necessary to maintain the designated 
financial market utility's viability as a going concern and to continue 
its provision of critical services.
    (i) Securities settlement system means an entity that enables 
securities to be transferred and settled by book entry and allows 
transfers of securities free of or against payment.
    (j) Stress test means the estimation of credit or liquidity 
exposures that would result from the realization of potential stress 
scenarios, such as extreme price changes, multiple defaults, and changes 
in other valuation inputs and assumptions.
    (k) Supervisory Agency has the same meaning as the term is defined 
in section 803(8) of the Dodd-Frank Act (12 U.S.C. 5462(8)).
    (l) Trade repository means an entity that maintains a centralized 
electronic record of transaction data, such as a swap data repository or 
a security-based swap data repository.

[79 FR 65557, Nov. 5, 2014]



Sec. 234.3  Standards for payment systems.

    (a) A designated financial market utility must implement rules, 
procedures, or operations designed to ensure that it meets or exceeds 
the following risk-management standards with respect to its payment, 
clearing, and settlement activities.
    (1) Legal basis. The designated financial market utility has a well-
founded, clear, transparent, and enforceable legal basis for each 
material aspect of

[[Page 23]]

its activities in all relevant jurisdictions.
    (2) Governance. The designated financial market utility has 
governance arrangements that--
    (i) Are clear, transparent, and documented;
    (ii) Promote the safety and efficiency of the designated financial 
market utility;
    (iii) Support the stability of the broader financial system, other 
relevant public interest considerations such as fostering fair and 
efficient markets, and the legitimate interests of relevant 
stakeholders, including the designated financial market utility's 
owners, participants, and participants' customers; and
    (iv) Are designed to ensure--
    (A) Lines of responsibility and accountability are clear and direct;
    (B) The roles and responsibilities of the board of directors and 
senior management are clearly specified;
    (C) The board of directors consists of suitable individuals having 
appropriate skills to fulfill its multiple roles;
    (D) The board of directors includes a majority of individuals who 
are not executives, officers, or employees of the designated financial 
market utility or an affiliate of the designated financial market 
utility;
    (E) The board of directors establishes policies and procedures to 
identify, address, and manage potential conflicts of interest of board 
members and to review its performance and the performance of individual 
board members on a regular basis;
    (F) The board of directors establishes a clear, documented risk-
management framework that includes the designated financial market 
utility's risk-tolerance policy, assigns responsibilities and 
accountability for risk decisions, and addresses decisionmaking in 
crises and emergencies;
    (G) Senior management has the appropriate experience, skills, and 
integrity necessary to discharge operational and risk-management 
responsibilities;
    (H) The risk-management function has sufficient authority, 
resources, and independence from other operations of the designated 
financial market utility, and has a direct reporting line to and is 
overseen by a committee of the board of directors;
    (I) The internal audit function has sufficient authority, resources, 
and independence from management, and has a direct reporting line to and 
is overseen by a committee of the board of directors; and
    (J) Major decisions of the board of directors are clearly disclosed 
to relevant stakeholders, including the designated financial market 
utility's owners, participants, and participants' customers, and, where 
there is a broad market impact, the public.
    (3) Framework for the comprehensive management of risks. The 
designated financial market utility has a sound risk-management 
framework for comprehensively managing legal, credit, liquidity, 
operational, general business, custody, investment, and other risks that 
arise in or are borne by the designated financial market utility. This 
framework is subject to periodic review and includes--
    (i) Risk-management policies, procedures, and systems that enable 
the designated financial market utility to identify, measure, monitor, 
and manage the risks that arise in or are borne by the designated 
financial market utility, including those posed by other entities as a 
result of interdependencies;
    (ii) Risk-management policies, procedures, and systems that enable 
the designated financial market utility to identify, measure, monitor, 
and manage the material risks that it poses to other entities, such as 
other financial market utilities, settlement banks, liquidity providers, 
or service providers, as a result of interdependencies; and
    (iii) Integrated plans for the designated financial market utility's 
recovery and orderly wind-down that--
    (A) Identify the designated financial market utility's critical 
operations and services related to payment, clearing, and settlement;
    (B) Identify scenarios that may potentially prevent it from being 
able to provide its critical operations and services as a going concern, 
including uncovered credit losses (as described in paragraph 
(a)(4)(vi)(A) of this section), uncovered liquidity shortfalls (as 
described in paragraph (a)(7)(viii)(A) of

[[Page 24]]

this section), and general business losses (as described in paragraph 
(a)(15) of this section);
    (C) Identify criteria that could trigger the implementation of the 
recovery or orderly wind-down plan;
    (D) Include rules, procedures, policies, and any other tools the 
designated financial market utility would use in a recovery or orderly 
wind-down to address the scenarios identified under paragraph 
(a)(3)(iii)(B) of this section;
    (E) Include procedures to ensure timely implementation of the 
recovery and orderly wind-down plans in the scenarios identified under 
paragraph (a)(3)(iii)(B) of this section;
    (F) Include procedures for informing the Board, as soon as 
practicable, if the designated financial market utility is considering 
initiating recovery or orderly wind-down; and
    (G) Are reviewed the earlier of every two years or following changes 
to the system or the environment in which the designated financial 
market utility operates that would significantly affect the viability or 
execution of the plans.
    (4) Credit risk. The designated financial market utility effectively 
measures, monitors, and manages its credit exposures to participants and 
those arising from its payment, clearing, and settlement processes. In 
this regard, the designated financial market utility maintains 
sufficient financial resources to cover its credit exposure to each 
participant fully with a high degree of confidence. In addition, the 
designated financial market utility--
    (i) If it operates as a central counterparty, maintains additional 
prefunded financial resources that are sufficient to cover its credit 
exposure under a wide range of significantly different stress scenarios 
that includes the default of the participant and its affiliates that 
would potentially cause the largest aggregate credit exposure to the 
designated financial market utility in extreme but plausible market 
conditions;
    (ii) If it operates as a central counterparty, may be directed by 
the Board to maintain additional prefunded financial resources that are 
sufficient to cover its credit exposure under a wide range of 
significantly different stress scenarios that includes the default of 
the two participants and their affiliates that would potentially cause 
the largest aggregate credit exposure to the designated financial market 
utility in extreme but plausible market conditions. The Board may 
consider such a direction if the central counterparty--
    (A) Is involved in activities with a more-complex risk profile, such 
as clearing financial instruments characterized by discrete jump-to-
default price changes or that are highly correlated with potential 
participant defaults, or
    (B) Has been determined by another jurisdiction to be systemically 
important in that jurisdiction;
    (iii) If it operates as a central counterparty, determines the 
amount and regularly tests the sufficiency of the total financial 
resources available to meet the requirements of this paragraph by--
    (A) On a daily basis, conducting a stress test of its total 
financial resources using standard and predetermined stress scenarios, 
parameters, and assumptions;
    (B) On at least a monthly basis, and more frequently when the 
products cleared or markets served experience high volatility or become 
less liquid, or when the size or concentration of positions held by the 
central counterparty's participants increases significantly, conducting 
a comprehensive and thorough analysis of the existing stress scenarios, 
models, and underlying parameters and assumptions such that the 
designated financial market utility meets its required level of default 
protection in light of current and evolving market conditions; and
    (C) Having clear procedures to report the results of its stress 
tests to decisionmakers at the central counterparty and using these 
results to evaluate the adequacy of and adjust its total financial 
resources;
    (iv) If it operates as a central counterparty, excludes assessments 
for additional default or guaranty fund contributions (that is, default 
or guaranty fund contributions that are not prefunded) in its 
calculation of financial resources available to meet the

[[Page 25]]

total financial resource requirement under this paragraph;
    (v) At least annually, provides for a validation of the designated 
financial market utility's risk-management models used to determine the 
sufficiency of its total financial resources that--
    (A) Includes the designated financial market utility's models used 
to comply with the collateral provisions under paragraph (a)(5) of this 
section and models used to determine initial margin under paragraph 
(a)(6) of this section; and
    (B) Is performed by a qualified person who does not perform 
functions associated with the model (except as part of the annual model 
validation), does not report to such a person, and does not have a 
financial interest in whether the model is determined to be valid; and
    (vi) Establishes rules and procedures that explicitly--
    (A) Address allocation of credit losses the designated financial 
market utility may face if its collateral and other financial resources 
are insufficient to cover fully its credit exposures, including the 
repayment of any funds a designated financial market utility may borrow 
from liquidity providers; and
    (B) Describe the designated financial market utility's process to 
replenish any financial resources that the designated financial market 
utility may employ during a stress event, including a participant 
default.
    (5) Collateral. If it requires collateral to manage its or its 
participants' credit exposure, the designated financial market utility 
accepts collateral with low credit, liquidity, and market risks and sets 
and enforces conservative haircuts and concentration limits, in order to 
ensure the value of the collateral in the event of liquidation and that 
the collateral can be used in a timely manner. In this regard, the 
designated financial market utility--
    (i) Establishes prudent valuation practices and develops haircuts 
that are tested regularly and take into account stressed market 
conditions;
    (ii) Establishes haircuts that are calibrated to include relevant 
periods of stressed market conditions to reduce the need for procyclical 
adjustments;
    (iii) Provides for annual validation of its haircut procedures, as 
part of its risk-management model validation under paragraph (a)(4)(v) 
of this section;
    (iv) Avoids concentrated holdings of any particular type of asset 
where the concentration could significantly impair the ability to 
liquidate such assets quickly without significant adverse price effects;
    (v) Uses a collateral management system that is well-designed and 
operationally flexible such that it, among other things,--
    (A) Accommodates changes in the ongoing monitoring and management of 
collateral; and
    (B) Allows for the timely valuation of collateral and execution of 
any collateral or margin calls.
    (6) Margin. If it operates as a central counterparty, the designated 
financial market utility covers its credit exposures to its participants 
for all products by establishing a risk-based margin system that--
    (i) Is conceptually and methodologically sound for the risks and 
particular attributes of each product, portfolio, and markets it serves, 
as demonstrated by documented and empirical evidence supporting design 
choices, methods used, variables selected, theoretical bases, key 
assumptions, and limitations;
    (ii) Establishes margin levels commensurate with the risks and 
particular attributes of each product, portfolio, and market it serves;
    (iii) Has a reliable source of timely price data;
    (iv) Has procedures and sound valuation models for addressing 
circumstances in which pricing data are not readily available or 
reliable;
    (v) Marks participant positions to market and collects variation 
margin at least daily and has the operational capacity to make intraday 
margin calls and payments, both scheduled and unscheduled, to 
participants;
    (vi) Generates initial margin requirements sufficient to cover 
potential changes in the value of each participant's position during the 
interval between the last margin collection and the closeout of 
positions following a participant default by--

[[Page 26]]

    (A) Ensuring that initial margin meets an established single-tailed 
confidence level of at least 99 percent with respect to the estimated 
distribution of future exposure; and
    (B) Using a conservative estimate of the time horizons for the 
effective hedging or closeout of the particular types of products 
cleared, including in stressed market conditions; and
    (vii) Is monitored on an ongoing basis and regularly reviewed, 
tested, and verified through--
    (A) Daily backtests;
    (B) Monthly sensitivity analyses, performed more frequently during 
stressed market conditions or significant fluctuations in participant 
positions, with this analysis taking into account a wide range of 
parameters and assumptions that reflect possible market conditions that 
captures a variety of historical and hypothetical conditions, including 
the most volatile periods that have been experienced by the markets the 
designated financial market utility serves; and
    (C) Annual model validations of the designated financial market 
utility's margin models and related parameters and assumptions, as part 
of its risk-management model validation under paragraph (a)(4)(v) of 
this section.
    (7) Liquidity risk. The designated financial market utility 
effectively measures, monitors, and manages the liquidity risk that 
arises in or is borne by the designated financial market utility. In 
this regard, the designated financial market utility--
    (i) Has effective operational and analytical tools to identify, 
measure, and monitor its settlement and funding flows on an ongoing and 
timely basis, including its use of intraday liquidity;
    (ii) Maintains sufficient liquid resources in all relevant 
currencies to effect same-day and, where applicable, intraday and 
multiday settlement of payment obligations with a high degree of 
confidence under a wide range of significantly different potential 
stress scenarios that includes the default of the participant and its 
affiliates that would generate the largest aggregate liquidity 
obligation for the designated financial market utility in extreme but 
plausible market conditions;
    (iii) Holds, for purposes of meeting the minimum liquid resource 
requirement under paragraph (a)(7)(ii) of this section,--
    (A) cash in each relevant currency at the central bank of issue or 
creditworthy commercial banks;
    (B) assets that are readily available and convertible into cash, 
through committed arrangements without material adverse change 
conditions, such as collateralized lines of credit, foreign exchange 
swaps, and repurchase agreements; or
    (C) subject to the determination of the Board, highly marketable 
collateral and investments that are readily available and convertible 
into cash with prearranged and highly reliable funding arrangements, 
even in extreme but plausible market conditions;
    (iv) Evaluates and confirms, at least annually, whether each 
provider of the arrangements as described in paragraphs (a)(7)(iii)(B) 
and (C) of this section has sufficient information to understand and 
manage that provider's associated liquidity risks, and whether the 
provider has the capacity to perform;
    (v) Maintains and tests its procedures and operational capacity for 
accessing each type of liquid resource required under this paragraph at 
least annually;
    (vi) Determines the amount and regularly tests the sufficiency of 
the liquid resources necessary to meet the minimum liquid resource 
requirement under this paragraph by--
    (A) On a daily basis, conducting a stress test of its liquid 
resources using standard and predetermined stress scenarios, parameters, 
and assumptions;
    (B) On at least a monthly basis, and more frequently when products 
cleared or markets served experience high volatility or become less 
liquid, or when the size or concentration of positions held by the 
designated financial market utility's participants increases 
significantly, conducting a comprehensive and thorough analysis of the 
existing stress scenarios, models, and underlying parameters and 
assumptions such that the designated financial market utility meets its 
identified liquidity needs and resources in light of current and 
evolving market conditions; and

[[Page 27]]

    (C) Having clear procedures to report the results of its stress 
tests to decisionmakers at the designated financial market utility and 
using these results to evaluate the adequacy of and make adjustments to 
its liquidity risk-management framework;
    (vii) At least annually, provides for a validation of its liquidity 
risk-management model by a qualified person who does not perform 
functions associated with the model (except as part of the annual model 
validation), does not report to such a person, and does not have a 
financial interest in whether the model is determined to be valid; and
    (viii) Establishes rules and procedures that explicitly--
    (A) Address potential liquidity shortfalls that would not be covered 
by the designated financial market utility's liquid resources and avoid 
unwinding, revoking, or delaying the same-day settlement of payment 
obligations; and
    (B) Describe the designated financial market utility's process to 
replenish any liquid resources that it may employ during a stress event, 
including a participant default.
    (8) Settlement finality. The designated financial market utility 
provides clear and certain final settlement intraday or in real time as 
appropriate, and at a minimum, by the end of the value date. The 
designated financial market utility clearly defines the point at which 
settlement is final and the point after which unsettled payments, 
transfer instructions, or other settlement instructions may not be 
revoked by a participant.
    (9) Money settlements. The designated financial market utility 
conducts its money settlements in central bank money where practical and 
available. If central bank money is not used, the designated financial 
market utility minimizes and strictly controls the credit and liquidity 
risks arising from conducting its money settlements in commercial bank 
money, including settlement on its own books. If it conducts its money 
settlements at a commercial bank, the designated financial market 
utility--
    (i) Establishes and monitors adherence to criteria based on high 
standards for its settlement banks that take account of, among other 
things, their applicable regulatory and supervisory frameworks, 
creditworthiness, capitalization, access to liquidity, and operational 
reliability;
    (ii) Monitors and manages the concentration of credit and liquidity 
exposures to its commercial settlement banks; and
    (iii) Ensures that its legal agreements with its settlement banks 
state clearly--
    (A) When transfers on the books of individual settlement banks are 
expected to occur;
    (B) That transfers are final when funds are credited to the 
recipient's account; and
    (C) That the funds credited to the recipient are available 
immediately for retransfer or withdrawal.
    (10) Physical deliveries. A designated financial market utility that 
operates as a central counterparty, securities settlement system, or 
central securities depository clearly states its obligations with 
respect to the delivery of physical instruments or commodities and 
identifies, monitors, and manages the risks associated with such 
physical deliveries.
    (11) Central securities depositories. A designated financial market 
utility that operates as a central securities depository has appropriate 
rules and procedures to help ensure the integrity of securities issues 
and minimizes and manages the risks associated with the safekeeping and 
transfer of securities. In this regard, the designated financial market 
utility maintains securities in an immobilized or dematerialized form 
for their transfer by book entry.
    (12) Exchange-of-value settlement systems. If it settles 
transactions that involve the settlement of two linked obligations, such 
as a transfer of securities against payment or the exchange of one 
currency for another, the designated financial market utility eliminates 
principal risk by conditioning the final settlement of one obligation 
upon the final settlement of the other.
    (13) Participant-default rules and procedures. The designated 
financial market utility has effective and clearly defined rules and 
procedures to manage a participant default that are designed to ensure 
that the designated financial

[[Page 28]]

market utility can take timely action to contain losses and liquidity 
pressures so that it can continue to meet its obligations. In this 
regard, the designated financial market utility tests and reviews its 
default procedures, including any closeout procedures, at least annually 
or following material changes to these rules and procedures.
    (14) Segregation and portability. A designated financial market 
utility that operates as a central counterparty has rules and procedures 
that enable the segregation and portability of positions of a 
participant's customers and the collateral provided to the designated 
financial market utility with respect to those positions.
    (15) General business risk. The designated financial market utility 
identifies, monitors, and manages its general business risk, which is 
the risk of losses that may arise from its administration and operation 
as a business enterprise (including losses from execution of business 
strategy, negative cash flows, or unexpected and excessively large 
operating expenses) that are neither related to participant default nor 
separately covered by financial resources maintained for credit or 
liquidity risk. In this regard, in addition to holding financial 
resources required to manage credit risk (paragraph (a)(4) of this 
section) and liquidity risk (paragraph (a)(7) of this section), the 
designated financial market utility--
    (i) Maintains liquid net assets funded by equity that are at all 
times sufficient to ensure a recovery or orderly wind-down of critical 
operations and services such that it--
    (A) Holds unencumbered liquid financial assets, such as cash or 
highly liquid securities, that are sufficient to cover the greater of--
    (1) The cost to implement the plans to address general business 
losses as required under paragraph (a)(3)(iii) of this section and
    (2) Six months of current operating expenses or as otherwise 
determined by the Board; and
    (B) Holds equity, such as common stock, disclosed reserves, and 
other retained earnings, that is at all times greater than or equal to 
the amount of unencumbered liquid financial assets that are required to 
be held under paragraph (a)(15)(i)(A) of this section; and
    (ii) Maintains a viable plan, approved by the board of directors, 
for raising additional equity should the designated financial market 
utility's equity fall below the amount required under paragraph 
(a)(15)(i) of this section, and updates the plan the earlier of every 
two years or following changes to the designated financial market 
utility or the environment in which it operates that would significantly 
affect the viability or execution of the plan.
    (16) Custody and investment risks. The designated financial market 
utility--
    (i) Safeguards its own and its participants' assets and minimizes 
the risk of loss on and delay in access to these assets by--
    (A) Holding its own and its participants' assets at supervised and 
regulated entities that have accounting practices, safekeeping 
procedures, and internal controls that fully protect these assets; and
    (B) Evaluating its exposures to its custodian banks, taking into 
account the full scope of its relationships with each; and
    (ii) Invests its own and its participants' assets--
    (A) In instruments with minimal credit, market, and liquidity risks, 
such as investments that are secured by, or are claims on, high-quality 
obligors and investments that allow for timely liquidation with little, 
if any, adverse price effect; and
    (B) Using an investment strategy that is consistent with its overall 
risk-management strategy and fully disclosed to its participants.
    (17) Operational risk. The designated financial market utility 
manages its operational risks by establishing a robust operational risk-
management framework that is approved by the board of directors. In this 
regard, the designated financial market utility--
    (i) Identifies the plausible sources of operational risk, both 
internal and external, and mitigates their impact through the use of 
appropriate systems, policies, procedures, and controls that are 
reviewed, audited, and tested periodically and after major changes;
    (ii) Identifies, monitors, and manages the risks its operations 
might pose to

[[Page 29]]

other financial market utilities and trade repositories, if any;
    (iii) Has policies and systems that are designed to achieve clearly 
defined objectives to ensure a high degree of security and operational 
reliability;
    (iv) Has systems that have adequate, scalable capacity to handle 
increasing stress volumes and achieve the designated financial market 
utility's service-level objectives;
    (v) Has comprehensive physical, information, and cyber security 
policies, procedures, and controls that address potential and evolving 
vulnerabilities and threats;
    (vi) Has business continuity management that provides for rapid 
recovery and timely resumption of critical operations and fulfillment of 
its obligations, including in the event of a wide-scale disruption or a 
major disruption; and
    (vii) Has a business continuity plan that--
    (A) Incorporates the use of a secondary site that is located at a 
sufficient geographical distance from the primary site to have a 
distinct risk profile;
    (B) Is designed to enable critical systems, including information 
technology systems, to recover and resume operations no later than two 
hours following disruptive events;
    (C) Is designed to enable it to complete settlement by the end of 
the day of the disruption, even in case of extreme circumstances; and
    (D) Is tested at least annually.
    (18) Access and participation requirements. The designated financial 
market utility has objective, risk-based, and publicly disclosed 
criteria for participation, which permit fair and open access. The 
designated financial market utility--
    (i) Monitors compliance with its participation requirements on an 
ongoing basis and has the authority to impose more-stringent 
restrictions or other risk controls on a participant in situations where 
the designated financial market utility determines the participant poses 
heightened risk to the designated financial market utility; and
    (ii) Has clearly defined and publicly disclosed procedures for 
facilitating the suspension and orderly exit of a participant that fails 
to meet the participation requirements.
    (19) Tiered participation arrangements. The designated financial 
market utility identifies, monitors, and manages the material risks 
arising from arrangements in which firms that are not direct 
participants in the designated financial market utility rely on the 
services provided by direct participants to access the designated 
financial market utility's payment, clearing, or settlement facilities, 
whether the risks are borne by the designated financial market utility 
or by its participants as a result of their participation. The 
designated financial market utility--
    (i) Conducts an analysis to determine whether material risks arise 
from tiered participation arrangements;
    (ii) Where material risks are identified, mitigates or manages such 
risks; and
    (iii) Reviews and updates the analysis conducted under paragraph 
(a)(19)(i) of this section the earlier of every two years or following 
material changes to the system design or operations or the environment 
in which the designated financial market utility operates if those 
changes could affect the analysis conducted under paragraph (a)(19)(i) 
of this section.
    (20) Links. If it operates as a central counterparty, securities 
settlement system, or central securities depository and establishes a 
link with one or more of these types of financial market utilities or 
trade repositories, the designated financial market utility identifies, 
monitors, and manages risks related to this link. In this regard, each 
central counterparty in a link arrangement with another central 
counterparty covers, at least on a daily basis, its current and 
potential future exposures to the linked central counterparty and its 
participants, if any, fully with a high degree of confidence without 
reducing the central counterparty's ability to fulfill its obligations 
to its own participants.
    (21) Efficiency and effectiveness. The designated financial market 
utility--
    (i) Is efficient and effective in meeting the requirements of its 
participants and the markets it serves, in particular, with regard to 
its--

[[Page 30]]

    (A) Clearing and settlement arrangement;
    (B) Risk-management policies, procedures, and systems;
    (C) Scope of products cleared and settled; and
    (D) Use of technology and communication procedures;
    (ii) Has clearly defined goals and objectives that are measurable 
and achievable, such as minimum service levels, risk-management 
expectations, and business priorities; and
    (iii) Has policies and procedures for the regular review of its 
efficiency and effectiveness.
    (22) Communication procedures and standards. The designated 
financial market utility uses, or at a minimum accommodates, relevant 
internationally accepted communication procedures and standards in order 
to facilitate efficient payment, clearing, and settlement.
    (23) Disclosure of rules, key procedures, and market data. The 
designated financial market utility--
    (i) Has clear and comprehensive rules and procedures;
    (ii) Publicly discloses all rules and key procedures, including key 
aspects of its default rules and procedures;
    (iii) Provides sufficient information to enable participants to have 
an accurate understanding of the risks, fees, and other material costs 
they incur by participating in the designated financial market utility;
    (iv) Provides a comprehensive public disclosure of its legal, 
governance, risk management, and operating framework, that includes--
    (A) Executive summary. An executive summary of the key points from 
paragraphs (a)(23)(iv)(B) through (D) of this section;
    (B) Summary of major changes since the last update of the 
disclosure. A summary of the major changes since the last update of 
paragraph (a)(23)(iv)(C), (D), or (E) of this section;
    (C) General background on the designated financial market utility. A 
description of--
    (1) The designated financial market utility's function and the 
markets it serves,
    (2) Basic data and performance statistics on its services and 
operations, such as basic volume and value statistics by product type, 
average aggregate intraday exposures to its participants, and statistics 
on the designated financial market utility's operational reliability, 
and
    (3) The designated financial market utility's general organization, 
legal and regulatory framework, and system design and operations;
    (D) Standard-by-standard summary narrative. A comprehensive 
narrative disclosure for each applicable standard set forth in this 
paragraph (a) with sufficient detail and context to enable a reader to 
understand the designated financial market utility's approach to 
controlling the risks and addressing the requirements in each standard; 
and
    (E) List of publicly available resources. A list of publicly 
available resources, including those referenced in the disclosure, that 
may help a reader understand how the designated financial market utility 
controls its risks and addresses the requirements set forth in this 
paragraph (a); and
    (v) Updates the public disclosure under paragraph (a)(23)(iv) of 
this section the earlier of every two years or following changes to its 
system or the environment in which it operates that would significantly 
change the accuracy of the statements provided under paragraph 
(a)(23)(iv) of this section.
    (b) The Board, by order, may apply heightened risk-management 
standards to a particular designated financial market utility in 
accordance with the risks presented by that designated financial market 
utility. The Board, by order, may waive the application of a standard or 
standards to a particular designated financial market utility where the 
risks presented by or the design of that designated financial market 
utility would make the application of the standard or standards 
inappropriate.

[77 FR 45919, Aug. 2, 2012, as amended at 79 FR 65558, Nov. 5, 2014]



Sec. 234.4  Changes to rules, procedures, or operations.

    (a) Advance notice. (1) A designated financial market utility shall 
provide at least 60-days advance notice to the Board of any proposed 
change to its rules, procedures, or operations that

[[Page 31]]

could materially affect the nature or level of risks presented by the 
designated financial market utility.
    (2) The notice of the proposed change shall describe--
    (i) The nature of the change and expected effects on risks to the 
designated financial market utility, its participants, or the market; 
and
    (ii) How the designated financial market utility plans to manage any 
identified risks.
    (3) The Board may require the designated financial market utility to 
provide additional information necessary to assess the effect the 
proposed change would have on the nature or level of risks associated 
with the utility's payment, clearing, or settlement activities and the 
sufficiency of any proposed risk-management techniques.
    (4) A designated financial market utility shall not implement a 
change to which the Board has an objection.
    (5) The Board will notify the designated financial market utility of 
any objection before the end of 60 days after the later of--
    (i) The date the Board receives the notice of proposed change; or
    (ii) The date the Board receives any further information it requests 
for consideration of the notice.
    (6) A designated financial market utility may implement a change if 
it has not received an objection to the proposed change before the end 
of 60 days after the later of--
    (i) The date the Board receives the notice of proposed change; or
    (ii) The date the Board receives any further information it requests 
for consideration of the notice.
    (7) With respect to proposed changes that raise novel or complex 
issues, the Board may, by written notice during the 60-day review 
period, extend the review period for an additional 60 days. Any 
extension under this paragraph will extend the time periods under 
paragraphs (a)(5) and (a)(6) of this section to 120 days.
    (8) A designated financial market utility may implement a proposed 
change before the expiration of the applicable review period if the 
Board notifies the designated financial market utility in writing that 
the Board does not object to the proposed change and authorizes the 
designated financial market utility to implement the change on an 
earlier date, subject to any conditions imposed by the Board.
    (b) Emergency changes. (1) A designated financial market utility may 
implement a change that would otherwise require advance notice under 
this section if it determines that--
    (i) An emergency exists; and
    (ii) Immediate implementation of the change is necessary for the 
designated financial market utility to continue to provide its services 
in a safe and sound manner.
    (2) The designated financial market utility shall provide notice of 
any such emergency change to the Board as soon as practicable and no 
later than 24 hours after implementation of the change.
    (3) In addition to the information required for changes requiring 
advance notice in paragraph (a)(2) of this section, the notice of an 
emergency change shall describe--
    (i) The nature of the emergency; and
    (ii) The reason the change was necessary for the designated 
financial market utility to continue to provide its services in a safe 
and sound manner.
    (4) The Board may require modification or rescission of the change 
if it finds that the change is not consistent with the purposes of the 
Dodd-Frank Act or any applicable rules, order, or standards prescribed 
under section 805(a) of the Dodd-Frank Act.
    (c) Materiality. (1) The term ``materially affect the nature or 
level of risks presented'' in paragraph (a)(1) of this section means 
matters as to which there is a reasonable possibility that the change 
would materially affect the overall nature or level of risk presented by 
the designated financial market utility, including risk arising in the 
performance of payment, clearing, or settlement functions.
    (2) A change to rules, procedures, or operations that would 
materially affect the nature or level of risks presented includes, but 
is not limited to, changes that materially affect any one or more of the 
following:
    (i) Participant eligibility or access criteria;
    (ii) Product eligibility;
    (iii) Risk management;

[[Page 32]]

    (iv) Settlement failure or default procedures;
    (v) Financial resources;
    (vi) Business continuity and disaster recovery plans;
    (vii) Daily or intraday settlement procedures;
    (viii) The scope of services, including the addition of a new 
service or discontinuation of an existing service;
    (ix) Technical design or operating platform, which results in non-
routine changes to the underlying technological framework for payment, 
clearing, or settlement functions; or
    (x) Governance.
    (3) A change to rules, procedures, or operations that does not meet 
the conditions of paragraph (c)(2) of this section and would not 
materially affect the nature or level of risks presented includes, but 
is not limited to the following:
    (i) A routine technology systems upgrade;
    (ii) A change in a fee, price, or other charge for services provided 
by the designated financial market utility;
    (iii) A change related solely to the administration of the 
designated financial market utility or related to the routine, daily 
administration, direction, and control of employees; or
    (iv) A clerical change and other non-substantive revisions to rules, 
procedures, or other documentation.

[77 FR 45919, Aug. 2, 2012. Redesignated at 79 FR 65562, Nov. 5, 2014]



Sec. 234.5  Access to Federal Reserve Bank accounts and services.

    (a) This section applies to any designated financial market utility 
for which the Board may authorize a Federal Reserve Bank to open an 
account or provide services in accordance with section 806(a) of the 
Dodd-Frank Act. Upon receipt of Board authorization and subject to any 
limitations, restrictions, or other requirements established by the 
Board, a Federal Reserve Bank may enter into agreements governing the 
details of its accounts and services with a designated financial market 
utility, consistent with this section and any other applicable Board 
direction. The agreements may include, among other things, provisions 
regarding documentation to establish the account and receive services, 
conditions imposed on the account and services, service charges, 
reporting, accounting for activity in the account, liability and duty of 
care, and termination.
    (b) A Federal Reserve Bank should ensure that its establishment and 
maintenance of an account for or provision of services to a designated 
financial market utility does not create undue credit, settlement, or 
other risk to the Reserve Bank. In order to establish and maintain an 
account with a Federal Reserve Bank or receive financial services from a 
Federal Reserve Bank, the designated financial market utility must be in 
compliance with the Supervisory Agency's regulatory and supervisory 
requirements regarding financial resources, liquidity, participant 
default management, and other aspects of risk management, as determined 
by the Supervisory Agency. In addition, at a minimum, the designated 
financial market utility must, in the Federal Reserve Bank's judgment--
    (1) Be in generally sound financial condition, including maintenance 
of sufficient working capital and cash flow to permit the designated 
financial market utility to continue as a going concern and to meet its 
current and projected operating expenses under a range of scenarios;
    (2) Be in compliance with Board orders and policies, Federal Reserve 
Bank account agreements and, as applicable, operating circulars, and 
other applicable Federal Reserve requirements regarding the 
establishment and maintenance of an account at a Federal Reserve Bank 
and the receipt of financial services from a Federal Reserve Bank; and
    (3) Have an ongoing ability, including during periods of market 
stress or a participant default, to meet all of its obligations under 
its agreement for a Federal Reserve Bank account and services, including 
by maintaining--
    (i) Sufficient liquid resources to meet its obligations under the 
account agreement;
    (ii) The operational capacity to ensure that such liquid resources 
are available to satisfy the account obligations on a timely basis in 
accordance with the account agreement; and

[[Page 33]]

    (iii) Sound money settlement processes designed to adequately 
monitor its Federal Reserve Bank account on an intraday basis, process 
money transfers through its account in an orderly manner, and complete 
final money settlement no later than the value date.
    (c) The Board will consult with the Supervisory Agency of a 
designated financial market utility prior to authorizing a Federal 
Reserve Bank to open an account, and periodically thereafter, to 
ascertain the views of the Supervisory Agency regarding the designated 
financial market utility's compliance with the requirements in paragraph 
(b) of this section.
    (d) In addition to any right that a Reserve Bank has to limit or 
terminate an account or the use of a service pursuant to its account 
agreement, the Board may direct the Federal Reserve Bank to impose 
limits, restrictions, or other conditions on the availability or use of 
a Federal Reserve Bank account or service by a designated financial 
market utility, including directing the Reserve Bank to terminate the 
use of a particular service or to close the account. If the Reserve Bank 
determines that a designated financial market utility no longer complies 
with one or more of the minimum conditions in subsection (b), the 
Reserve Bank will consult with the Board regarding continued maintenance 
of the account and provision of services.

[78 FR 76979, Dec. 20, 2013. Redesignated and amended at 79 FR 65562, 
Nov. 5, 2014]



Sec. 234.6  Interest on balances.

    (a) A Federal Reserve Bank may pay interest on balances maintained 
by a designated financial market utility at the Federal Reserve Bank in 
accordance with this section and under such other terms and conditions 
as the Board may prescribe.
    (b) Interest on balances paid under this section shall be at the 
rate paid on balances maintained by depository institutions or another 
rate determined by the Board from time to time, not to exceed the 
general level of short-term interest rates.
    (c) For purposes of this section, ``short-term interest rates'' 
shall have the same meaning as the meaning provided for that term in 
Sec. 204.10(b)(3) of this chapter.

[78 FR 76979, Dec. 20, 2013. Redesignated at 79 FR 65562, Nov. 5, 2014]



PART 235_DEBIT CARD INTERCHANGE FEES AND ROUTING--Table of Contents



Sec.
235.1  Authority and purpose.
235.2  Definitions.
235.3  Reasonable and proportional interchange fees.
235.4  Fraud-prevention adjustment.
235.5  Exemptions.
235.6  Prohibition on circumvention, evasion, or net compensation.
235.7  Limitation on payment card restrictions.
235.8  Reporting requirements and record retention.
235.9  Administrative enforcement.
235.10  Effective and compliance dates.

Appendix A to Part 235--Official Board Commentary on Regulation II

    Authority: 15 U.S.C. 1693o-2.

    Source: 76 FR 43466, July 20, 2011, unless otherwise noted.



Sec. 235.1  Authority and purpose.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (Board) under section 920 of the Electronic Fund 
Transfer Act (EFTA) (15 U.S.C. 1693o-2, as added by section 1075 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 
111-203, 124 Stat. 1376 (2010)).
    (b) Purpose. This part implements the provisions of section 920 of 
the EFTA, including standards for reasonable and proportional 
interchange transaction fees for electronic debit transactions, 
standards for receiving a fraud-prevention adjustment to interchange 
transaction fees, exemptions from the interchange transaction fee 
limitations, prohibitions on evasion and circumvention, prohibitions on 
payment card network exclusivity arrangements and routing restrictions 
for debit card transactions, and reporting requirements for debit card 
issuers and payment card networks.



Sec. 235.2  Definitions.

    For purposes of this part:

[[Page 34]]

    (a) Account (1) Means a transaction, savings, or other asset account 
(other than an occasional or incidental credit balance in a credit plan) 
established for any purpose and that is located in the United States; 
and
    (2) Does not include an account held under a bona fide trust 
agreement that is excluded by section 903(2) of the Electronic Fund 
Transfer Act and rules prescribed thereunder.
    (b) Acquirer means a person that contracts directly or indirectly 
with a merchant to provide settlement for the merchant's electronic 
debit transactions over a payment card network. An acquirer does not 
include a person that acts only as a processor for the services it 
provides to the merchant.
    (c) Affiliate means any company that controls, is controlled by, or 
is under common control with another company.
    (d) Cardholder means the person to whom a debit card is issued.
    (e) Control of a company means--
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of voting security of the company, 
directly or indirectly, or acting through one or more other persons;
    (2) Control in any manner over the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management or policies of the company, as the Board 
determines.
    (f) Debit card (1) Means any card, or other payment code or device, 
issued or approved for use through a payment card network to debit an 
account, regardless of whether authorization is based on signature, 
personal identification number (PIN), or other means, and regardless of 
whether the issuer holds the account, and
    (2) Includes any general-use prepaid card; and
    (3) Does not include--
    (i) Any card, or other payment code or device, that is redeemable 
upon presentation at only a single merchant or an affiliated group of 
merchants for goods or services; or
    (ii) A check, draft, or similar paper instrument, or an electronic 
representation thereof.
    (g) Designated automated teller machine (ATM) network means either--
    (1) All ATMs identified in the name of the issuer; or
    (2) Any network of ATMs identified by the issuer that provides 
reasonable and convenient access to the issuer's customers.
    (h) Electronic debit transaction (1) Means the use of a debit card 
by a person as a form of payment in the United States to initiate a 
debit to an account, and
    (2) Does not include transactions initiated at an ATM, including 
cash withdrawals and balance transfers initiated at an ATM.
    (i) General-use prepaid card means a card, or other payment code or 
device, that is--
    (1) Issued on a prepaid basis in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (2) Redeemable upon presentation at multiple, unaffiliated merchants 
for goods or services.
    (j) Interchange transaction fee means any fee established, charged, 
or received by a payment card network and paid by a merchant or an 
acquirer for the purpose of compensating an issuer for its involvement 
in an electronic debit transaction.
    (k) Issuer means any person that authorizes the use of a debit card 
to perform an electronic debit transaction.
    (l) Merchant means any person that accepts debit cards as payment.
    (m) Payment card network means an entity that--
    (1) Directly or indirectly provides the proprietary services, 
infrastructure, and software that route information and data to an 
issuer from an acquirer to conduct the authorization, clearance, and 
settlement of electronic debit transactions; and
    (2) A merchant uses in order to accept as a form of payment a brand 
of debit card or other device that may be used to carry out electronic 
debit transactions.
    (n) Person means a natural person or an organization, including a 
corporation, government agency, estate, trust,

[[Page 35]]

partnership, proprietorship, cooperative, or association.
    (o) Processor means a person that processes or routes electronic 
debit transactions for issuers, acquirers, or merchants.
    (p) Route means to direct and send information and data to an 
unaffiliated entity or to an affiliated entity acting on behalf of an 
unaffiliated entity.
    (q) United States means the States, territories, and possessions of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, or any political subdivision of any of the foregoing.



Sec. 235.3  Reasonable and proportional interchange transaction fees.

    (a) In general. The amount of any interchange transaction fee that 
an issuer may receive or charge with respect to an electronic debit 
transaction shall be reasonable and proportional to the cost incurred by 
the issuer with respect to the electronic debit transaction.
    (b) Determination of reasonable and proportional fees. An issuer 
complies with the requirements of paragraph (a) of this section only if 
each interchange transaction fee received or charged by the issuer for 
an electronic debit transaction is no more than the sum of--
    (1) 21 cents and;
    (2) 5 basis points multiplied by the value of the transaction.



Sec. 235.4  Fraud-prevention adjustment.

    (a) In general. Subject to paragraph (b) of this section, an issuer 
may receive or charge an amount of no more than 1 cent per transaction 
in addition to any interchange transaction fee it receives or charges in 
accordance with Sec. 235.3.
    (b) Issuer standards. (1) To be eligible to receive or charge the 
fraud-prevention adjustment in paragraph (a) of this section, an issuer 
must develop and implement policies and procedures reasonably designed 
to take effective steps to reduce the occurrence of, and costs to all 
parties from, fraudulent electronic debit transactions, including 
through the development and implementation of cost-effective fraud-
prevention technology.
    (2) An issuer's policies and procedures must address--
    (i) Methods to identify and prevent fraudulent electronic debit 
transactions;
    (ii) Monitoring of the volume and value of its fraudulent electronic 
debit transactions;
    (iii) Appropriate responses to suspicious electronic debit 
transactions in a manner designed to limit the costs to all parties from 
and prevent the occurrence of future fraudulent electronic debit 
transactions;
    (iv) Methods to secure debit card and cardholder data; and
    (v) Such other factors as the issuer considers appropriate.
    (3) An issuer must review, at least annually, its fraud-prevention 
policies and procedures, and their implementation and update them as 
necessary in light of--
    (i) Their effectiveness in reducing the occurrence of, and cost to 
all parties from, fraudulent electronic debit transactions involving the 
issuer;
    (ii) Their cost-effectiveness; and
    (iii) Changes in the types of fraud, methods used to commit fraud, 
and available methods for detecting and preventing fraudulent electronic 
debit transactions that the issuer identifies from--
    (A) Its own experience or information;
    (B) Information provided to the issuer by its payment card networks, 
law enforcement agencies, and fraud-monitoring groups in which the 
issuer participates; and
    (C) Applicable supervisory guidance.
    (c) Notification. To be eligible to receive or charge a fraud-
prevention adjustment, an issuer must annually notify its payment card 
networks that it complies with the standards in paragraph (b) of this 
section.
    (d) Change in status. An issuer is not eligible to receive or charge 
a fraud-prevention adjustment if the issuer is substantially non-
compliant with the standards set forth in paragraph (b) of this section, 
as determined by the issuer or the appropriate agency under Sec. 235.9. 
Such an issuer must notify its payment card networks that it is no 
longer eligible to receive or charge a fraud-prevention adjustment no 
later

[[Page 36]]

than 10 days after determining or receiving notification from the 
appropriate agency under Sec. 235.9 that the issuer is substantially 
non-compliant with the standards set forth in paragraph (b) of this 
section. The issuer must stop receiving and charging the fraud-
prevention adjustment no later than 30 days after notifying its payment 
card networks.

[77 FR 46280, Aug. 3, 2012]



Sec. 235.5  Exemptions.

    (a) Exemption for small issuers. (1) In general. Except as provided 
in paragraph (a)(3) of this section, Secs. 235.3, 235.4, and 235.6 do 
not apply to an interchange transaction fee received or charged by an 
issuer with respect to an electronic debit transaction if--
    (i) The issuer holds the account that is debited; and
    (ii) The issuer, together with its affiliates, has assets of less 
than $10 billion as of the end of the calendar year preceding the date 
of the electronic debit transaction.
    (2) Determination of issuer asset size. A person may rely on lists 
published by the Board to determine whether an issuer, together with its 
affiliates, has assets of less than $10 billion as of the end of the 
calendar year preceding the date of the electronic debit transaction.
    (3) Change in status. If an issuer qualifies for the exemption in 
paragraph (a)(1) in a particular calendar year, but, as of the end of 
that calendar year no longer qualifies for the exemption because at that 
time it, together with its affiliates, has assets of $10 billion or 
more, the issuer must begin complying with Secs. 235.3, 235.4, and 235.6 
no later than July 1 of the succeeding calendar year.
    (b) Exemption for government-administered programs. Except as 
provided in paragraph (d) of this section, Secs. 235.3, 235.4, and 235.6 
do not apply to an interchange transaction fee received or charged by an 
issuer with respect to an electronic debit transaction if--
    (1) The electronic debit transaction is made using a debit card that 
has been provided to a person pursuant to a Federal, State, or local 
government-administered payment program; and
    (2) The cardholder may use the debit card only to transfer or debit 
funds, monetary value, or other assets that have been provided pursuant 
to such program.
    (c) Exemption for certain reloadable prepaid cards--(1) In general. 
Except as provided in paragraph (d) of this section, Secs. 235.3, 235.4, 
and 235.6 do not apply to an interchange transaction fee received or 
charged by an issuer with respect to an electronic debit transaction 
using a general-use prepaid card that is--
    (i) Not issued or approved for use to access or debit any account 
held by or for the benefit of the cardholder (other than a subaccount or 
other method of recording or tracking funds purchased or loaded on the 
card on a prepaid basis);
    (ii) Reloadable and not marketed or labeled as a gift card or gift 
certificate; and
    (iii) The only means of access to the underlying funds, except when 
all remaining funds are provided to the cardholder in a single 
transaction.
    (2) Temporary cards. For purposes of this paragraph (c), the term 
``reloadable'' includes a temporary non-reloadable card issued solely in 
connection with a reloadable general-use prepaid card.
    (d) Exception. The exemptions in paragraphs (b) and (c) of this 
section do not apply to any interchange transaction fee received or 
charged by an issuer on or after July 21, 2012, with respect to an 
electronic debit transaction if any of the following fees may be charged 
to a cardholder with respect to the card:
    (1) A fee or charge for an overdraft, including a shortage of funds 
or a transaction processed for an amount exceeding the account balance, 
unless the fee or charge is imposed for transferring funds from another 
asset account to cover a shortfall in the account accessed by the card; 
or
    (2) A fee imposed by the issuer for the first withdrawal per 
calendar month from an ATM that is part of the issuer's designated ATM 
network.

[[Page 37]]



Sec. 235.6  Prohibition on circumvention, evasion, and net compensation.

    (a) Prohibition of circumvention or evasion. No person shall 
circumvent or evade the interchange transaction fee restrictions in 
Secs. 235.3 and 235.4.
    (b) Prohibition of net compensation. An issuer may not receive net 
compensation from a payment card network with respect to electronic 
debit transactions or debit card-related activities within a calendar 
year. Net compensation occurs when the total amount of payments or 
incentives received by an issuer from a payment card network with 
respect to electronic debit transactions or debit card-related 
activities, other than interchange transaction fees passed through to 
the issuer by the network, during a calendar year exceeds the total 
amount of all fees paid by the issuer to the network with respect to 
electronic debit transactions or debit card-related activities during 
that calendar year. Payments and incentives paid by a network to an 
issuer, and fees paid by an issuer to a network, with respect to 
electronic debit transactions or debit card related activities are not 
limited to volume-based or transaction-specific payments, incentives, or 
fees, but also include other payments, incentives or fees related to an 
issuer's provision of debit card services.



Sec. 235.7  Limitations on payment card restrictions.

    (a) Prohibition on network exclusivity--(1) In general. An issuer or 
payment card network shall not directly or through any agent, processor, 
or licensed member of a payment card network, by contract, requirement, 
condition, penalty, or otherwise, restrict the number of payment card 
networks on which an electronic debit transaction may be processed to 
less than two unaffiliated networks.
    (2) Permitted arrangements. An issuer satisfies the requirements of 
paragraph (a)(1) of this section only if the issuer allows an electronic 
debit transaction to be processed on at least two unaffiliated payment 
card networks, each of which does not, by rule or policy, restrict the 
operation of the network to a limited geographic area, specific 
merchant, or particular type of merchant or transaction, and each of 
which has taken steps reasonably designed to enable the network to 
process the electronic debit transactions that the network would 
reasonably expect will be routed to it, based on expected transaction 
volume.
    (3) Prohibited exclusivity arrangements by networks. For purposes of 
paragraph (a)(1) of this section, a payment card network may not 
restrict or otherwise limit an issuer's ability to contract with any 
other payment card network that may process an electronic debit 
transaction involving the issuer's debit cards.
    (4) Subsequent affiliation. If unaffiliated payment card networks 
become affiliated as a result of a merger or acquisition such that an 
issuer is no longer in compliance with paragraph (a) of this section, 
the issuer must add an unaffiliated payment card network through which 
electronic debit transactions on the relevant debit card may be 
processed no later than six months after the date on which the 
previously unaffiliated payment card networks consummate the 
affiliation.
    (b) Prohibition on routing restrictions. An issuer or payment card 
network shall not, directly or through any agent, processor, or licensed 
member of the network, by contract, requirement, condition, penalty, or 
otherwise, inhibit the ability of any person that accepts or honors 
debit cards for payments to direct the routing of electronic debit 
transactions for processing over any payment card network that may 
process such transactions.
    (c) Compliance dates--(1) General. Except as otherwise provided in 
paragraphs (c)(2), (c)(3), and (c)(4) of this section, the compliance 
date of paragraph (a) of this section is April 1, 2012.
    (2) Restrictions by payment card networks. The compliance date of 
paragraphs (a)(1) and (a)(3) of this section for payment card networks 
is October 1, 2011.
    (3) Debit cards that use transaction qualification or substantiation 
systems. Issuers shall comply with the requirements of paragraph (a) of 
this section by April 1, 2013, for electronic debit transactions using 
debit cards that use point-of-sale transaction qualification or 
substantiation systems for verifying

[[Page 38]]

the eligibility of purchased goods or services.
    (4) General-use prepaid cards. Issuers shall comply with the 
requirements of paragraph (a) of this section with respect to general-
use prepaid cards as set out below.
    (i) With respect to non-reloadable general-use prepaid cards, the 
compliance date is April 1, 2013. Non-reloadable general-use prepaid 
cards sold prior to April 1, 2013 are not subject to paragraph (a) of 
this section.
    (ii) With respect to reloadable general-use prepaid cards, the 
compliance date is April 1, 2013. Reloadable general-use prepaid cards 
sold prior to April 1, 2013 are not subject to paragraph (a) of this 
section unless and until they are reloaded, in which case the following 
compliance dates apply:
    (A) With respect to reloadable general-use prepaid cards sold and 
reloaded prior to April 1, 2013, the compliance date is May 1, 2013.
    (B) With respect to reloadable general-use prepaid cards sold prior 
to April 1, 2013, and reloaded on or after April 1, 2013, the compliance 
date is 30 days after the date of reloading.



Sec. 235.8  Reporting requirements and record retention.

    (a) Entities required to report. Each issuer that is not otherwise 
exempt from the requirements of this part under Sec. 235.5(a) and each 
payment card network shall file a report with the Board in accordance 
with this section.
    (b) Report. Each entity required to file a report with the Board 
shall submit data in a form prescribed by the Board for that entity. 
Data required to be reported may include, but may not be limited to, 
data regarding costs incurred with respect to an electronic debit 
transaction, interchange transaction fees, network fees, fraud-
prevention costs, fraud losses, and transaction value, volume, and type.
    (c) Record retention. (1) An issuer subject to this part shall 
retain evidence of compliance with the requirements imposed by this part 
for a period of not less than five years after the end of the calendar 
year in which the electronic debit transaction occurred.
    (2) Any person subject to this part having actual notice that it is 
the subject of an investigation or an enforcement proceeding by its 
enforcement agency shall retain the records that pertain to the 
investigation, action, or proceeding until final disposition of the 
matter unless an earlier time is allowed by court or agency order.



Sec. 235.9  Administrative enforcement.

    (a) (1) Compliance with the requirements of this part shall be 
enforced under--
    (i) Section 8 of the Federal Deposit Insurance Act, by the 
appropriate Federal banking agency, as defined in section 3(q) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(q)), with respect to--
    (A) National banks, federal savings associations, and federal 
branches and federal agencies of foreign banks;
    (B) Member banks of the Federal Reserve System (other than national 
banks), branches and agencies of foreign banks (other than federal 
branches, federal Agencies, and insured state branches of foreign 
banks), commercial lending companies owned or controlled by foreign 
banks, and organizations operating under section 25 or 25A of the 
Federal Reserve Act;
    (C) Banks and state savings associations insured by the Federal 
Deposit Insurance Corporation (other than members of the Federal Reserve 
System), and insured state branches of foreign banks;
    (ii) The Federal Credit Union Act (12 U.S.C. 1751 et seq.), by the 
Administrator of the National Credit Union Administration (National 
Credit Union Administration Board) with respect to any federal credit 
union;
    (iii) The Federal Aviation Act of 1958 (49 U.S.C. 40101 et seq.), by 
the Secretary of Transportation, with respect to any air carrier or 
foreign air carrier subject to that Act; and
    (iv) The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), by 
the Securities and Exchange Commission, with respect to any broker or 
dealer subject to that Act.
    (2) The terms used in paragraph (a)(1) of this section that are not 
defined in this part or otherwise defined in section 3(s) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given 
to them in section

[[Page 39]]

1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).
    (b) Additional powers. (1) For the purpose of the exercise by any 
agency referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of this 
section of its power under any statute referred to in those paragraphs, 
a violation of this part is deemed to be a violation of a requirement 
imposed under that statute.
    (2) In addition to its powers under any provision of law 
specifically referred to in paragraphs (a)(1)(i) through (a)(1)(iv) of 
this section, each of the agencies referred to in those paragraphs may 
exercise, for the purpose of enforcing compliance under this part, any 
other authority conferred on it by law.
    (c) Enforcement authority of Federal Trade Commission. Except to the 
extent that enforcement of the requirements imposed under this title is 
specifically granted to another government agency under paragraphs 
(a)(1)(i) through (a)(1)(iv) of this section, and subject to subtitle B 
of the Consumer Financial Protection Act of 2010, the Federal Trade 
Commission has the authority to enforce such requirements. For the 
purpose of the exercise by the Federal Trade Commission of its functions 
and powers under the Federal Trade Commission Act, a violation of this 
part shall be deemed a violation of a requirement imposed under the 
Federal Trade Commission Act. All of the functions and powers of the 
Federal Trade Commission under the Federal Trade Commission Act are 
available to the Federal Trade Commission to enforce compliance by any 
person subject to the jurisdiction of the Federal Trade Commission with 
the requirements of this part, regardless of whether that person is 
engaged in commerce or meets any other jurisdictional tests under the 
Federal Trade Commission Act.



Sec. 235.10  Effective and compliance dates.

    Except as provided in Sec. 235.7, this part becomes effective and 
compliance is mandatory on October 1, 2011.



 Sec. Appendix A to Part 235--Official Board Commentary on Regulation II

                              Introduction

    The following commentary to Regulation II (12 CFR part 235) provides 
background material to explain the Board's intent in adopting a 
particular part of the regulation. The commentary also provides examples 
to aid in understanding how a particular requirement is to work.

                       Section 235.2  Definitions

                              2(a) Account

    1. Types of accounts. The term ``account'' includes accounts held by 
any person, including consumer accounts (i.e., those established 
primarily for personal, family or household purposes) and business 
accounts. Therefore, the limitations on interchange transaction fees and 
the prohibitions on network exclusivity arrangements and routing 
restrictions apply to all electronic debit transactions, regardless of 
whether the transaction involves a debit card issued primarily for 
personal, family, or household purposes or for business purposes. For 
example, an issuer of a business-purpose debit card is subject to the 
restrictions on interchange transaction fees and is also prohibited from 
restricting the number of payment card networks on which an electronic 
debit transaction may be processed under Sec. 235.7.
    2. Bona fide trusts. This part does not define the term bona fide 
trust agreement; therefore, institutions must look to state or other 
applicable law for interpretation. An account held under a custodial 
agreement that qualifies as a trust under the Internal Revenue Code, 
such as an individual retirement account, is considered to be held under 
a trust agreement for purposes of this part.
    3. Account located in the United States. This part applies only to 
electronic debit transactions that are initiated to debit (or credit, 
for example, in the case of returned goods or cancelled services) an 
account located in the United States. If a cardholder uses a debit card 
to debit an account held outside the United States, then the electronic 
debit transaction is not subject to this part.

                              2(b) Acquirer

    1. In general. The term ``acquirer'' includes only the institution 
that contracts, directly or indirectly, with a merchant to provide 
settlement for the merchant's electronic debit transactions over a 
payment card network (referred to as acquiring the merchant's electronic 
debit transactions). In some acquiring relationships, an institution 
provides processing services to the merchant and is a licensed member of 
the payment card network, but does not settle the transactions with the 
merchant (by crediting the

[[Page 40]]

merchant's account) or with the issuer. These institutions are not 
``acquirers'' because they do not provide credit to the merchant for the 
transactions or settle the merchant's transactions with the issuer. 
These institutions are considered processors and in some circumstances 
may be considered payment card networks for purposes of this part (See 
Secs. 235.2(m), 235.2(o), and commentary thereto).

                             2(c) Affiliate

    1. Types of entities. The term ``affiliate'' includes any bank and 
nonbank affiliates located in the United States or a foreign country.
    2. Other affiliates. For commentary on whether merchants are 
affiliated, see comment 2(f)-7.

                             2(d) Cardholder

    1. Scope. In the case of debit cards that access funds in 
transaction, savings, or other similar asset accounts, ``the person to 
whom a card is issued'' generally will be the named person or persons 
holding the account. If the account is a business account, multiple 
employees (or other persons associated with the business) may have debit 
cards that can access the account. Each employee that has a debit card 
that can access the account is a cardholder. In the case of a prepaid 
card, the cardholder generally is either the purchaser of the card or a 
person to whom the purchaser gave the card, such as a gift recipient.

                         2(e) Control [Reserved]

                             2(f) Debit Card

    1. Card, or other payment code or device. The term ``debit card'' as 
defined in Sec. 235.2(f) applies to any card, or other payment code or 
device, even if it is not issued in a physical form. Debit cards 
include, for example, an account number or code that can be used to 
access funds in an account to make Internet purchases. Similarly, the 
term ``debit card'' includes a device with a chip or other embedded 
mechanism, such as a mobile phone or sticker containing a contactless 
chip that links the device to funds stored in an account, and enables an 
account to be debited. The term ``debit card,'' however, does not 
include a one-time password or other code if such password or code is 
used for the purposes of authenticating the cardholder and is used in 
addition to another card, or other payment code or device, rather than 
as the payment code or device.
    2. Deferred debit cards. The term ``debit card'' includes a card, or 
other payment code or device, that is used in connection with deferred 
debit card arrangements in which transactions are not immediately posted 
to and funds are not debited from the underlying transaction, savings, 
or other asset account upon settlement of the transaction. Instead, the 
funds in the account typically are held and made unavailable for other 
transactions for a period of time specified in the issuer-cardholder 
agreement. After the expiration of the time period, the cardholder's 
account is debited for the value of all transactions made using the card 
that have been submitted to the issuer for settlement during that time 
period. For example, under some deferred debit card arrangements, the 
issuer may debit the consumer's account for all debit card transactions 
that occurred during a particular month at the end of the month. 
Regardless of the time period between the transaction and account 
posting, a card, or other payment code or device, that is used in 
connection with a deferred debit arrangement is considered a debit card 
for purposes of the requirements of this part.
    3. Decoupled debit cards. Decoupled debit cards are issued by an 
entity other than the financial institution holding the cardholder's 
account. In a decoupled debit arrangement, transactions that are 
authorized by the card issuer settle against the cardholder's account 
held by an entity other than the issuer, generally via a subsequent ACH 
debit to that account. The term ``debit card'' includes any card, or 
other payment code or device, issued or approved for use through a 
payment card network to debit an account, regardless of whether the 
issuer holds the account. Therefore, decoupled debit cards are debit 
cards for purposes of this part.
    4. Hybrid cards.
    i. Some cards, or other payment codes or devices, may have both 
credit- and debit-like features (``hybrid cards''). For example, these 
cards may enable a cardholder to access a line of credit, but select 
certain transactions for immediate repayment (i.e., prior to the end of 
a billing cycle) via a debit to the cardholder's account, as the term is 
defined in Sec. 235.2(a), held either with the issuer or at another 
institution. If a card permits a cardholder to initiate transactions 
that debit an account or funds underlying a prepaid card, the card is 
considered a debit card for purposes of this part. Not all transactions 
initiated by such a hybrid card, however, are electronic debit 
transactions. Rather, only those transactions that debit an account as 
defined in this part or funds underlying a prepaid card are electronic 
debit transactions. If the transaction posts to a line of credit, then 
the transaction is a credit transaction.
    ii. If an issuer conditions the availability of a credit or charge 
card that permits pre-authorized repayment of some or all transactions 
on the cardholder maintaining an account at the issuer, such a card is 
considered a debit card for purposes of this part.

[[Page 41]]

    5. Virtual wallets. A virtual wallet is a device (e.g., a mobile 
phone) that stores several different payment codes or devices (``virtual 
cards'') that access different accounts, funds underlying the card, or 
lines of credit. At the point of sale, the cardholder may select from 
the virtual wallet the virtual card he or she wishes to use for payment. 
The virtual card that the cardholder uses for payment is considered a 
debit card under this part if the virtual card that initiates a 
transaction meets the definition of debit card, notwithstanding the fact 
that other cards in the wallet may not be debit cards.
    6. General-use prepaid card. The term ``debit card'' includes 
general-use prepaid cards. See Sec. 235.2(i) and related commentary for 
information on general-use prepaid cards.
    7. Store cards. The term ``debit card'' does not include prepaid 
cards that may be used at a single merchant or affiliated merchants. Two 
or more merchants are affiliated if they are related by either common 
ownership or by common corporate control. For purposes of the ``debit 
card'' definition, franchisees are considered to be under common 
corporate control if they are subject to a common set of corporate 
policies or practices under the terms of their franchise licenses.
    8. Checks, drafts, and similar instruments. The term ``debit card'' 
does not include a check, draft, or similar paper instrument or a 
transaction in which the check is used as a source of information to 
initiate an electronic payment. For example, if an account holder 
provides a check to buy goods or services and the merchant takes the 
account number and routing number information from the MICR line at the 
bottom of a check to initiate an ACH debit transfer from the 
cardholder's account, the check is not a debit card, and such a 
transaction is not considered an electronic debit transaction. Likewise, 
the term ``debit card'' does not include an electronic representation of 
a check, draft, or similar paper instrument.
    9. ACH transactions. The term ``debit card'' does not include an 
account number when it is used by a person to initiate an ACH 
transaction that debits that person's account. For example, if an 
account holder buys goods or services over the Internet using an account 
number and routing number to initiate an ACH debit, the account number 
is not a debit card, and such a transaction is not considered an 
electronic debit transaction. However, the use of a card to purchase 
goods or services that debits the cardholder's account that is settled 
by means of a subsequent ACH debit initiated by the card issuer to the 
cardholder's account, as in the case of a decoupled debit card 
arrangement, involves the use of a debit card for purposes of this part.

         2(g) Designated Automated Teller Machine (ATM) Network

    1. Reasonable and convenient access clarified. Under 
Sec. 235.2(g)(2), a designated ATM network includes any network of ATMs 
identified by the issuer that provides reasonable and convenient access 
to the issuer's cardholders. Whether a network provides reasonable and 
convenient access depends on the facts and circumstances, including the 
distance between ATMs in the designated network and each cardholder's 
last known home or work address, or if a home or work address is not 
known, where the card was first issued.

                    2(h) Electronic Debit Transaction

    1. Debit an account. The term ``electronic debit transaction'' 
includes the use of a card to debit an account. The account debited 
could be, for example, the cardholder's asset account or the account 
that holds the funds used to settle prepaid card transactions.
    2. Form of payment. The term ``electronic debit transaction'' 
includes the use of a card as a form of payment that may be made in 
exchange for goods or services, as a charitable contribution, to satisfy 
an obligation (e.g., tax liability), or for other purposes.
    3. Subsequent transactions. The term ``electronic debit 
transaction'' includes both the cardholder's use of a debit card for the 
initial payment and any subsequent use by the cardholder of the debit 
card in connection with the initial payment. For example, the term 
``electronic debit transaction'' includes using the debit card to return 
merchandise or cancel a service that then results in a debit to the 
merchant's account and a credit to the cardholder's account.
    4. Cash withdrawal at the point of sale. The term ``electronic debit 
transaction'' includes a transaction in which a cardholder uses the 
debit card both to make a purchase and to withdraw cash (known as a 
``cash-back transaction'').
    5. Geographic limitation. This regulation applies only to electronic 
debit transactions that are initiated at a merchant located in the 
United States. If a cardholder uses a debit card at a merchant located 
outside the United States to debit an account held in the United States, 
the electronic debit transaction is not subject to this part.

                      2(i) General-Use Prepaid Card

    1. Redeemable upon presentation at multiple, unaffiliated merchants. 
A prepaid card is redeemable upon presentation at multiple, unaffiliated 
merchants if such merchants agree to honor the card.
    2. Selective authorization cards. Selective authorization cards, 
(e.g., mall cards) are generally intended to be used or redeemed for 
goods or services at participating retailers

[[Page 42]]

within a shopping mall or other limited geographic area. Selective 
authorization cards are considered general-use prepaid cards, regardless 
of whether they carry the mark, logo, or brand of a payment card 
network, if they are redeemable at multiple, unaffiliated merchants.

                    2(j) Interchange Transaction fee

    1. In general. Generally, the payment card network is the entity 
that establishes and charges the interchange transaction fee to the 
acquirers or merchants. The acquirers then pay to the issuers any 
interchange transaction fee established and charged by the network. 
Acquirers typically pass the interchange transaction fee through to 
merchant-customers.
    2. Compensating an issuer. The term ``interchange transaction fee'' 
is limited to those fees that a payment card network establishes, 
charges, or receives to compensate the issuer for its role in the 
electronic debit transaction. By contrast, payment card networks 
generally charge issuers and acquirers fees for services the network 
performs. Such fees are not interchange transaction fees because the 
payment card network is charging and receiving the fee as compensation 
for services it provides.
    3. Established, charged, or received. Interchange transaction fees 
are not limited to those fees for which a payment card network sets the 
value. A fee that compensates an issuer is an interchange transaction 
fee if the fee is set by the issuer but charged to acquirers by virtue 
of the network determining each participant's net settlement position.

                               2(k) Issuer

    1. In general. A person issues a debit card by authorizing the use 
of debit card by a cardholder to perform electronic debit transactions. 
That person may provide the card directly to the cardholder or 
indirectly by using a third party (such as a processor, or a telephone 
network or manufacturer) to provide the card, or other payment code or 
device, to the cardholder. The following examples illustrate the entity 
that is the issuer under various card program arrangements. For purposes 
of determining whether an issuer is exempted under Sec. 235.5(a), 
however, the term issuer is limited to the entity that holds the account 
being debited.
    2. Traditional debit card arrangements. In a traditional debit card 
arrangement, the bank or other entity holds the cardholder's funds and 
authorizes the cardholder to use the debit card to access those funds 
through electronic debit transactions, and the cardholder receives the 
card directly or indirectly (e.g., through an agent) from the bank or 
other entity that holds the funds (except for decoupled debit cards, 
discussed below). In this system, the bank or entity holding the 
cardholder's funds is the issuer.
    3. BIN-sponsor arrangements. Payment card networks assign Bank 
Identification Numbers (BINs) to member-institutions for purposes of 
issuing cards, authorizing, clearing, settling, and other processes. In 
exchange for a fee or other financial considerations, some members of 
payment card networks permit other entities to issue debit cards using 
the member's BIN. The entity permitting the use of its BIN is referred 
to as the ``BIN sponsor'' and the entity that uses the BIN to issue 
cards is often referred to as the ``affiliate member.'' BIN sponsor 
arrangements can follow at least two different models:
    i. Sponsored debit card model. In some cases, a community bank or 
credit union may provide debit cards to its account holders through a 
BIN sponsor arrangement with a member institution. In general, the bank 
or credit union will authorize its account holders to use debit cards to 
perform electronic debit transactions that access funds in accounts at 
the bank or credit union. The bank or credit union's name typically will 
appear on the debit card. The bank or credit union may directly or 
indirectly provide the cards to cardholders. Under these circumstances, 
the bank or credit union is the issuer for purposes of this part. If 
that bank or credit union, together with its affiliates, has assets of 
less than $10 billion, then that bank or credit union is exempt from the 
interchange transaction fee restrictions. Although the bank or credit 
union may distribute cards through the BIN sponsors, the BIN sponsor 
does not enter into the agreement with the cardholder that authorizes 
the cardholder to use the card to perform electronic debit transactions 
that access funds in the account at the bank or credit union, and 
therefore the BIN sponsor is not the issuer.
    ii. Prepaid card model. A member institution may also serve as the 
BIN sponsor for a prepaid card program. Under these arrangements, a 
program manager distributes prepaid cards to the cardholders and the 
BIN-sponsoring institution generally holds the funds for the prepaid 
card program in an omnibus or pooled account. Either the BIN sponsor or 
the prepaid card program manager may keep track of the underlying funds 
for each individual prepaid card through subaccounts. While the 
cardholder may receive the card directly from the program manager or at 
a retailer, the BIN sponsor authorizes the cardholder to use the card to 
perform electronic debit transactions that access the funds in the 
pooled account and the cardholder's relationship generally is with the 
BIN sponsor. Accordingly, under these circumstances, the BIN sponsor, or 
the bank holding the pooled account, is the issuer.
    4. Decoupled debit cards. In the case of decoupled debit cards, an 
entity other than the bank holding the cardholder's account enters

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into a relationship with the cardholder authorizing the use of the card 
to perform electronic debit transactions. The entity authorizing the use 
of the card to perform electronic debit transaction typically arranges 
for the card to be provided directly or indirectly to the cardholder and 
has a direct relationship with the cardholder with respect to the card. 
The bank holding the cardholder's account has agreed generally to permit 
ACH debits to the account, but has not authorized the use of the debit 
card to access the funds through electronic debit transactions. Under 
these circumstances, the entity authorizing the use of the debit card, 
and not the account-holding institution, is considered the issuer. An 
issuer of a decoupled debit card is not exempt under Sec. 235.5(a), even 
if, together with its affiliates, it has assets of less than $10 
billion, because it is not the entity holding the account to be debited.

                        2(l) Merchant [Reserved]

                        2(m) Payment Card Network

    1. In general. An entity is a considered a payment card network with 
respect to an electronic debit transaction for purposes of this rule if 
it routes information and data to the issuer from the acquirer to 
conduct authorization, clearance, and settlement of the electronic debit 
transaction. By contrast, if an entity receives transaction information 
and data from a merchant and authorizes and settles the transaction 
without routing the information and data to another entity (i.e., the 
issuer or the issuer's processor) for authorization, clearance, or 
settlement, that entity is not considered a payment card network with 
respect to the electronic debit transaction.
    2. Three-party systems. In the case of a three-party system, 
electronic debit transactions are processed by an entity that acts as 
system operator and issuer, and may also act as the acquirer. The entity 
acting as system operator and issuer that receives the transaction 
information from the merchant or acquirer also holds the cardholder's 
funds. Therefore, rather than directing the transaction information to a 
separate issuer, the entity authorizes and settles the transaction based 
on the information received from the merchant. As these entities do not 
connect (or ``network'') multiple issuers and do not route information 
to conduct the transaction, they are not ``payment card networks'' with 
respect to these transactions.
    3. Processors as payment card networks. A processor is considered a 
payment card network if, in addition to acting as processor for an 
acquirer and issuer, the processor routes transaction information and 
data received from a merchant or the merchant's acquirer to an issuer. 
For example, if a merchant uses a processor in order to accept any, 
some, or all brands of debit cards and the processor routes transaction 
information and data to the issuer or issuer's processor, the merchant's 
processor is considered a payment card network with respect to the 
electronic debit transaction. If the processor establishes, charges, or 
receives a fee for the purpose of compensating an issuer, that fee is 
considered an interchange transaction fee for purposes of this part.
    4. Automated clearing house (ACH) operators. An ACH operator is not 
considered a payment card network for purposes of this part. While an 
ACH operator processes transactions that debit an account and provides 
for interbank clearing and settlement of such transactions, a person 
does not use the ACH system to accept as a form of payment a brand of 
debit card.
    5. ATM networks. An ATM network is not considered a payment card 
network for purposes of this part. While ATM networks process 
transactions that debit an account and provide for interbank clearing 
and settlement of such transactions, a cash withdrawal from an ATM is 
not a payment because there is no exchange of money for goods or 
services, or payment made as a charitable contribution, to satisfy an 
obligation (e.g., tax liability), or for other purposes.

                         2(n) Person [Reserved]

                             2(o) Processor

    1. Distinction from acquirers. A processor may perform all 
transaction-processing functions for a merchant or acquirer, but if it 
does not acquire (that is, settle with the merchant for the 
transactions), it is not an acquirer. The entity that acquirers 
electronic debit transactions is the entity that is responsible to other 
parties to the electronic debit transaction for the amount of the 
transaction.
    2. Issuers. A processor may perform services related to 
authorization, clearance, and settlement of transactions for an issuer 
without being considered to be an issuer for purposes of this part.

                               2(p) Route

    1. An entity routes information if it both directs and sends the 
information to an unaffiliated entity (or affiliated entity acting on 
behalf of the unaffiliated entity). This other entity may be a payment 
card network or processor (if the entity directing and sending the 
information is a merchant or an acquirer) or an issuer or processor (if 
the entity directing and sending the information is a payment card 
network).

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                      2(q) United States [Reserved]

 Section 235.3  Reasonable and Proportional Interchange Transaction Fees

                             3(a) [Reserved]

            3(b) Determining Reasonable and Proportional Fees

    1. Two components. The standard for the maximum permissible 
interchange transaction fee that an issuer may receive consists of two 
components: a base component that does not vary with a transaction's 
value and an ad valorem component. The amount of any interchange 
transaction fee received or charged by an issuer may not exceed the sum 
of the maximum permissible amounts of each component and any fraud-
prevention adjustment the issuer is permitted to receive under 
Sec. 235.4 of this part.
    2. Variation in interchange fees. An issuer is permitted to charge 
or receive, and a network is permitted to establish, interchange 
transaction fees that vary in their base component and ad valorem 
component based on, for example, the type of transaction or merchant, 
provided the amount of any interchange transaction fee for any 
transaction does not exceed the sum of the maximum permissible base 
component of 21 cents and 5 basis points of the value of the 
transaction.
    3. Example. For a $39 transaction, the maximum permissible 
interchange transaction fee is 22.95 cents (21 cents plus 5 basis points 
of $39). A payment card network may, for example, establish an 
interchange transaction fee of 22 cents without any ad valorem 
component.

               Section 235.4  Fraud-Prevention Adjustment

                          4(b) Issuer Standards

               Section 235.4  Fraud-prevention adjustment

                             4(a) [Reserved]

                        4(b)(1) Issuer standards

    1. An issuer's policies and procedures should address fraud related 
to debit card use by unauthorized persons. Examples of use by 
unauthorized persons include, but are not limited to, the following:
    i. A thief steals a cardholder's wallet and uses the debit card to 
purchase goods, without the authority of the cardholder.
    ii. A cardholder makes a purchase at a merchant. Subsequently, the 
merchant's employee uses information from the debit card to initiate a 
subsequent transaction, without the authority of the cardholder.
    iii. A hacker steals cardholder account information from the issuer 
or a merchant processor and uses the stolen information to make 
unauthorized card-not-present purchases or to create a counterfeit card 
to make unauthorized card-present purchases.
    2. An issuer's policies and procedures must be designed to reduce 
fraud, where cost effective, across all types of electronic debit 
transactions in which its cardholders engage. Therefore, an issuer 
should consider whether its policies and procedures are effective for 
each method used to authenticate the card (e.g., a chip or a code 
embedded in the magnetic stripe) and the cardholder (e.g., a signature 
or a PIN), and for different sales channels (e.g., card-present and 
card-not-present).
    3. An issuer's policies and procedures must be designed to take 
effective steps to reduce both the occurrence of and costs to all 
parties from fraudulent electronic debit transactions. An issuer should 
take steps reasonably designed to reduce the number and value of its 
fraudulent electronic debit transactions relative to its non-fraudulent 
electronic debit transactions. These steps should reduce the costs from 
fraudulent transactions to all parties, not merely the issuer. For 
example, an issuer should take steps to reduce the number and value of 
its fraudulent electronic debit transactions relative to its non-
fraudulent transactions whether or not it bears the fraud losses as a 
result of regulations or network rules.
    4. For any given issuer, the number and value of fraudulent 
electronic debit transactions relative to non-fraudulent transactions 
may vary materially from year to year. Therefore, in certain 
circumstances, an issuer's policies and procedures may be effective 
notwithstanding a relative increase in the transactions that are 
fraudulent in a particular year. However, continuing increases in the 
share of fraudulent transactions would warrant further scrutiny.
    5. In determining which fraud-prevention technologies to implement 
or retain, an issuer must consider the cost-effectiveness of the 
technology, that is, the expected cost of the technology relative to its 
expected effectiveness in controlling fraud. In evaluating the cost of a 
particular technology, an issuer should consider whether and to what 
extent other parties will incur costs to implement the technology, even 
though an issuer may not have complete information about the costs that 
may be incurred by other parties, such as the cost of new merchant 
terminals. In evaluating the costs, an issuer should consider both 
initial implementation costs and ongoing costs of using the fraud-
prevention method.
    6. An issuer need not develop fraud-prevention technologies itself 
to satisfy the standards in Sec. 235.4(b). An issuer may implement 
fraud-prevention technologies that have been developed by a third party 
that the issuer has determined are appropriate under its own policies 
and procedures.

[[Page 45]]

 Paragraph 4(b)(2) Elements of fraud-prevention policies and procedures.

    1. In general. An issuer may tailor its policies and procedures to 
address its particular debit card program, including the size of the 
program, the types of transactions in which its cardholders commonly 
engage, fraud types and methods experienced by the issuer, and the cost 
of implementing new fraud-prevention methods in light of the expected 
fraud reduction.

 Paragraph 4(b)(2)(i). Methods to identify and prevent fraudulent debit 
                           card transactions.

    1. In general. Examples of policies and procedures reasonably 
designed to identify and prevent fraudulent electronic debit 
transactions include the following:
    i. Practices to help determine whether a card is authentic and 
whether the user is authorized to use the card at the time of a 
transaction. For example, an issuer may specify the use of particular 
authentication technologies or methods, such as dynamic data, to better 
authenticate a card and cardholder at the time of the transaction, to 
the extent doing so does not inhibit the ability of a merchant to direct 
the routing of electronic debit transactions for processing over any 
payment card network that may process such transactions. (See Sec. 235.7 
and commentary thereto.)
    ii. An automated mechanism to assess the risk that a particular 
electronic debit transaction is fraudulent during the authorization 
process (i.e., before the issuer approves or declines an authorization 
request). For example, an issuer may use neural networks to identify 
transactions that present increased risk of fraud. As a result of this 
analysis, the issuer may decide to decline to authorize these 
transactions. An issuer may not be able to determine whether a given 
transaction in isolation is fraudulent at the time of authorization, and 
therefore may have implemented policies and procedures that monitor sets 
of transactions initiated with a cardholder's debit card. For example, 
an issuer could compare a set of transactions initiated with the card to 
a customer's typical transactions in order to determine whether a 
transaction is likely to be fraudulent. Similarly, an issuer could 
compare a set of transactions initiated with a debit card and common 
fraud patterns in order to determine whether a transaction or future 
transaction is likely to be fraudulent.
    iii. Practices to support reporting of lost and stolen cards or 
suspected incidences of fraud by cardholders or other parties to a 
transaction. As an example, an issuer may promote customer awareness by 
providing text alerts of transactions in order to detect fraudulent 
transactions in a timely manner. An issuer may also report debit cards 
suspected of being fraudulent to their networks for inclusion in a 
database of potentially compromised cards.

 Paragraph 4(b)(2)(ii). Monitoring of the issuer's volume and value of 
                fraudulent electronic debit transactions.

    1. Tracking its fraudulent electronic debit transactions over time 
enables an issuer to assess whether its policies and procedures are 
effective. Accordingly, an issuer must include policies and procedures 
designed to monitor trends in the number and value of its fraudulent 
electronic debit transactions. An effective monitoring program would 
include tracking issuer losses from fraudulent electronic debit 
transactions, fraud-related chargebacks to acquirers, losses passed on 
to cardholders, and any other reimbursements from other parties. Other 
reimbursements could include payments made to issuers as a result of 
fines assessed to merchants for noncompliance with Payment Card Industry 
(PCI) Data Security Standards or other industry standards. An issuer 
should also establish procedures to track fraud-related information 
necessary to perform its reviews under Sec. 235.4(b)(3) and to retain 
and report information as required under Sec. 235.8.

 Paragraph 4(b)(2)(iii). Appropriate responses to suspicious electronic 
                           debit transactions.

    1. An issuer may identify transactions that it suspects to be 
fraudulent after it has authorized or settled the transaction. For 
example, a cardholder may inform the issuer that the cardholder did not 
initiate a transaction or transactions, or the issuer may learn of a 
fraudulent transaction or possibly compromised debit cards from the 
network, the acquirer, or other parties. An issuer must implement 
policies and procedures designed to provide an appropriate response once 
an issuer has identified suspicious transactions to reduce the 
occurrence of future fraudulent electronic debit transactions and the 
costs associated with such transactions. The appropriate response may 
differ depending on the facts and circumstances, including the issuer's 
assessment of the risk of future fraudulent electronic debit 
transactions. For example, in some circumstances, it may be sufficient 
for an issuer to monitor more closely the account with the suspicious 
transactions. In other circumstances, it may be necessary to contact the 
cardholder to verify a transaction, reissue a card, or close an account. 
An appropriate response may also require coordination with industry 
organizations, law enforcement agencies, and other parties, such as 
payment card networks, merchants, and issuer or merchant processors.

[[Page 46]]

Paragraph 4(b)(2)(iv). Methods to secure debit card and cardholder data.

    1. An issuer must implement policies and procedures designed to 
secure debit card and cardholder data. These policies and procedures 
should apply to data that are transmitted by the issuer (or its service 
provider) during transaction processing, that are stored by the issuer 
(or its service provider), and that are carried on media (e.g., laptops, 
transportable data storage devices) by employees or agents of the 
issuer. This standard may be incorporated into an issuer's information 
security program, as required by Section 501(b) of the Gramm-Leach-
Bliley Act.

   Paragraph 4(b)(3) Review of and updates to policies and procedures.

    1. i. An issuer's assessment of the effectiveness of its policies 
and procedures should consider whether they are reasonably designed to 
reduce the number and value of fraudulent electronic debit transactions 
relative to non-fraudulent electronic debit transactions and are cost 
effective. (See comment 4(b)(1)-3 and comment 4(b)(1)-5).
    ii. An issuer must also assess its policies and procedures in light 
of changes in fraud types (e.g., the use of counterfeit cards, lost or 
stolen cards) and methods (e.g., common purchase patterns indicating 
possible fraudulent behavior), as well as changes in the available 
methods of detecting and preventing fraudulent electronic debit 
transactions (e.g., transaction monitoring, authentication methods) as 
part of its periodic review of its policies and procedures. An issuer's 
review of its policies and procedures must consider information from the 
issuer's own experience and that the issuer otherwise identified itself; 
information from payment card networks, law enforcement agencies, and 
fraud-monitoring groups in which the issuer participates; and 
supervisory guidance. For example, an issuer should consider warnings 
and alerts it receives from payment card networks regarding compromised 
cards and data breaches.
    2. An issuer should review its policies and procedures and their 
implementation more frequently than annually if the issuer determines 
that more frequent review is appropriate based on information obtained 
from monitoring its fraudulent electronic debit transactions, changes in 
the types or methods of fraud, or available methods of detecting and 
preventing fraudulent electronic debit transactions. (See 
Sec. 235.4(b)(1)(ii) and commentary thereto.)
    3. In light of an issuer's review of its policies and procedures, 
and their implementation, the issuer may determine that updates to its 
policies and procedures, and their implementation, are necessary. Merely 
determining that updates are necessary does not render an issuer 
ineligible to receive or charge the fraud-prevention adjustment. To 
remain eligible to receive or charge a fraud-prevention adjustment, 
however, an issuer should develop and implement such updates as soon as 
reasonably practicable, in light of the facts and circumstances.

                           4(c) Notification.

    1. Payment card networks that plan to allow issuers to receive or 
charge a fraud-prevention adjustment can develop processes for 
identifying issuers eligible for this adjustment. Each issuer that wants 
to be eligible to receive or charge a fraud-prevention adjustment must 
notify annually the payment card networks in which it participates of 
its compliance through the networks' processes.

   Section 235.5  Exemptions for Certain Electronic Debit Transactions

    1. Eligibility for multiple exemptions. An electronic debit 
transaction may qualify for one or more exemptions. For example, a debit 
card that has been provided to a person pursuant to a Federal, State, or 
local government-administered payment program may be issued by an entity 
that, together with its affiliates, has assets of less than $10 billion 
as of the end of the preceding calendar year. In this case, an 
electronic debit transaction made using that card may qualify for the 
exemption under Sec. 235.5(a) for small issuers or for the exemption 
under Sec. 235.5(b) for government-administered payment programs. A 
payment card network establishing interchange fees for transactions that 
qualify for more than one exemption need only satisfy itself that the 
issuer's transactions qualify for at least one of the exemptions in 
order to exempt the electronic debit transaction from the interchange 
fee restrictions.
    2. Certification process. Payment card networks that plan to allow 
issuers to receive higher interchange fees than permitted under 
Secs. 235.3 and 235.4 pursuant to one of the exemptions in Sec. 235.5 
could develop their own processes for identifying issuers and products 
eligible for such exemptions. Section 235.5(a)(2) permits payment card 
networks to rely on lists published by the Board to help determine 
eligibility for the small issuer exemption set forth in 
Sec. 235.5(a)(1).

                    5(a) Exemption for Small Issuers

    1. Asset size determination. An issuer would qualify for the small-
issuer exemption if its total worldwide banking and nonbanking assets, 
including assets of affiliates, other than trust assets under 
management, are less than $10 billion, as of December 31 of the 
preceding calendar year.
    2. Change in status. If an exempt issuer becomes covered based on 
its and its affiliates assets at the end of a calendar year, that

[[Page 47]]

issuer must begin complying with the interchange fee standards 
(Sec. 235.3), the fraud-prevention adjustment standards (to the extent 
the issuer wishes to receive a fraud-prevention adjustment) 
(Sec. 235.4), and the provisions prohibiting circumvention, evasion, and 
net compensation (Sec. 235.6) no later than July 1.

       5(b) Exemption for Government-Administered Payment Programs

    1. Government-administered payment program. A program is considered 
government-administered regardless of whether a Federal, State, or local 
government agency operates the program or outsources some or all 
functions to third parties so long as the program is operated on behalf 
of the government agency. In addition, a program may be government-
administered even if a Federal, State, or local government agency is not 
the source of funds for the program it administers. For example, child 
support programs are government-administered programs even though a 
Federal, State, or local government agency is not the source of funds. A 
tribal government is considered a local government for purposes of this 
exemption.

           5(c) Exemption for Certain Reloadable Prepaid Cards

    1. Subaccount clarified. A subaccount is an account within an 
account, opened in the name of an agent, nominee, or custodian for the 
benefit of two or more cardholders, where the transactions and balances 
of individual cardholders are tracked in such subaccounts. An account 
that is opened solely in the name of a single cardholder is not a 
subaccount.
    2. Reloadable. A general-use prepaid card is ``reloadable'' if the 
terms and conditions of the agreement permit funds to be added to the 
general-use prepaid card at any time after the initial purchase or 
issuance. A general-use prepaid card is not ``reloadable'' merely 
because the issuer or processor is technically able to add functionality 
that would otherwise enable the general-use prepaid card to be reloaded.
    3. Marketed or labeled as a gift card or gift certificate. i. 
Electronic debit transactions made using a reloadable general-use 
prepaid card are not exempt from the interchange fee restrictions if the 
card is marketed or labeled as a gift card or gift certificate. The term 
``marketed or labeled as a gift card or gift certificate'' means 
directly or indirectly offering, advertising or otherwise suggesting the 
potential use of a general-use prepaid card as a gift for another 
person. Whether the exclusion applies generally does not depend on the 
type of entity that makes the promotional message. For example, a card 
may be marketed or labeled as a gift card or gift certificate if anyone 
(other than the purchaser of the card), including the issuer, the 
retailer, the program manager that may distribute the card, or the 
payment network on which a card is used, promotes the use of the card as 
a gift card or gift certificate. A general-use prepaid card is marketed 
or labeled as a gift card or gift certificate even if it is only 
occasionally marketed as a gift card or gift certificate. For example, a 
network-branded general purpose reloadable card would be marketed or 
labeled as a gift card or gift certificate if the issuer principally 
advertises the card as a less costly alternative to a bank account but 
promotes the card in a television, radio, newspaper, or Internet 
advertisement, or on signage as ``the perfect gift'' during the holiday 
season.
    ii. The mere mention of the availability of gift cards or gift 
certificates in an advertisement or on a sign that also indicates the 
availability of exempted general-use prepaid cards does not by itself 
cause the general-use prepaid card to be marketed as a gift card or a 
gift certificate. For example, the posting of a sign in a store that 
refers to the availability of gift cards does not by itself constitute 
the marketing of otherwise exempted general-use prepaid cards that may 
also be sold in the store along with gift cards or gift certificates, 
provided that a person acting reasonably under the circumstances would 
not be led to believe that the sign applies to all cards sold in the 
store. (See, however, comment 5(c)-4.ii.)
    4. Examples of marketed or labeled as a gift card or gift 
certificate.
    i. The following are examples of marketed or labeled as a gift card 
or gift certificate:
    A. Using the word ``gift'' or ``present'' on a card or accompanying 
material, including documentation, packaging and promotional displays;
    B. Representing or suggesting that a card can be given to another 
person, for example, as a ``token of appreciation'' or a ``stocking 
stuffer,'' or displaying a congratulatory message on the card or 
accompanying material;
    C. Incorporating gift-giving or celebratory imagery or motifs, such 
as a bow, ribbon, wrapped present, candle, or a holiday or 
congratulatory message, on a card, accompanying documentation, or 
promotional material;
    ii. The term does not include the following:
    A. Representing that a card can be used as a substitute for a 
checking, savings, or deposit account;
    B. Representing that a card can be used to pay for a consumer's 
health-related expenses--for example, a card tied to a health savings 
account;
    C. Representing that a card can be used as a substitute for 
travelers checks or cash;
    D. Representing that a card can be used as a budgetary tool, for 
example, by teenagers, or to cover emergency expenses.
    5. Reasonable policies and procedures to avoid marketing as a gift 
card. The exemption for a

[[Page 48]]

general-use prepaid card that is reloadable and not marketed or labeled 
as a gift card or gift certificate in Sec. 235.5(c) applies if a 
reloadable general-use prepaid card is not marketed or labeled as a gift 
card or gift certificate and if persons involved in the distribution or 
sale of the card, including issuers, program managers, and retailers, 
maintain policies and procedures reasonably designed to avoid such 
marketing. Such policies and procedures may include contractual 
provisions prohibiting a reloadable general-use prepaid card from being 
marketed or labeled as a gift card or gift certificate, merchandising 
guidelines or plans regarding how the product must be displayed in a 
retail outlet, and controls to regularly monitor or otherwise verify 
that the general-use prepaid card is not being marketed as a gift card. 
Whether a general-use prepaid card has been marketed as a gift card or 
gift certificate will depend on the facts and circumstances, including 
whether a reasonable person would be led to believe that the general-use 
prepaid card is a gift card or gift certificate. The following examples 
illustrate the application of Sec. 235.5(c):
    i. An issuer or program manager of prepaid cards agrees to sell 
general-purpose reloadable cards through a retailer. The contract 
between the issuer or program manager and the retailer establishes the 
terms and conditions under which the cards may be sold and marketed at 
the retailer. The terms and conditions prohibit the general-purpose 
reloadable cards from being marketed as a gift card or gift certificate, 
and require policies and procedures to regularly monitor or otherwise 
verify that the cards are not being marketed as such. The issuer or 
program manager sets up one promotional display at the retailer for gift 
cards and another physically separated display for exempted products 
under Sec. 235.5(c), including general-purpose reloadable cards, such 
that a reasonable person would not believe that the exempted cards are 
gift cards. The exemption in Sec. 235.5(c) applies because policies and 
procedures reasonably designed to avoid the marketing of the general-
purpose reloadable cards as gift cards or gift certificates are 
maintained, even if a retail clerk inadvertently stocks or a consumer 
inadvertently places a general-purpose reloadable card on the gift card 
display.
    ii. Same facts as in comment 5(c)-5.i, except that the issuer or 
program manager sets up a single promotional display at the retailer on 
which a variety of prepaid cards are sold, including store gift cards 
and general-purpose reloadable cards. A sign stating ``Gift Cards'' 
appears prominently at the top of the display. The exemption in 
Sec. 235.5(c) does not apply with respect to the general-purpose 
reloadable cards because policies and procedures reasonably designed to 
avoid the marketing of exempted cards as gift cards or gift certificates 
are not maintained.
    iii. Same facts as in comment 5(c)-5.i, except that the issuer or 
program manager sets up a single promotional multi-sided display at the 
retailer on which a variety of prepaid card products, including store 
gift cards and general-purpose reloadable cards are sold. Gift cards are 
segregated from exempted cards, with gift cards on one side of the 
display and exempted cards on a different side of a display. Signs of 
equal prominence at the top of each side of the display clearly 
differentiate between gift cards and the other types of prepaid cards 
that are available for sale. The retailer does not use any more 
conspicuous signage suggesting the general availability of gift cards, 
such as a large sign stating ``Gift Cards'' at the top of the display or 
located near the display. The exemption in Sec. 235.5(c) applies because 
policies and procedures reasonably designed to avoid the marketing of 
the general-purpose reloadable cards as gift cards or gift certificates 
are maintained, even if a retail clerk inadvertently stocks or a 
consumer inadvertently places a general-purpose reloadable card on the 
gift card display.
    iv. Same facts as in comment 5(c)-5.i, except that the retailer 
sells a variety of prepaid card products, including store gift cards and 
general-purpose reloadable cards, arranged side-by-side in the same 
checkout lane. The retailer does not affirmatively indicate or represent 
that gift cards are available, such as by displaying any signage or 
other indicia at the checkout lane suggesting the general availability 
of gift cards. The exemption in Sec. 235.5(c) applies because policies 
and procedures reasonably designed to avoid marketing the general-
purpose reloadable cards as gift cards or gift certificates are 
maintained.
    6. On-line sales of prepaid cards. Some web sites may prominently 
advertise or promote the availability of gift cards or gift certificates 
in a manner that suggests to a consumer that the web site exclusively 
sells gift cards or gift certificates. For example, a web site may 
display a banner advertisement or a graphic on the home page that 
prominently states ``Gift Cards,'' ``Gift Giving,'' or similar language 
without mention of other available products, or use a web address that 
includes only a reference to gift cards or gift certificates in the 
address. In such a case, a consumer acting reasonably under the 
circumstances could be led to believe that all prepaid products sold on 
the web site are gift cards or gift certificates. Under these facts, the 
web site has marketed all such products as gift cards or gift 
certificates, and the exemption in Sec. 235.5(c) does not apply to any 
products sold on the web site.
    7. Temporary non-reloadable cards issued in connection with a 
general-use reloadable card. Certain general-purpose prepaid cards that

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are typically marketed as an account substitute initially may be sold or 
issued in the form of a temporary non-reloadable card. After the card is 
purchased, the cardholder is typically required to call the issuer to 
register the card and to provide identifying information in order to 
obtain a reloadable replacement card. In most cases, the temporary non-
reloadable card can be used for purchases until the replacement 
reloadable card arrives and is activated by the cardholder. Because the 
temporary non-reloadable card may only be obtained in connection with 
the reloadable card, the exemption in Sec. 235.5(c) applies so long as 
the card is not marketed as a gift card or gift certificate.

                             5(d) Exception

    1. Additional ATM access. Some debit cards may be used to withdraw 
cash from ATMs that are not part of the issuer's designated ATM network. 
An electronic debit card transaction may still qualify for the exemption 
under Secs. 235.5(b) or (c) with a respect to a card for which a fee may 
be imposed for a withdrawal from an ATM that is outside of the issuer's 
designated ATM network as long as the card complies with the condition 
set forth in Sec. 235.5(d)(2) for withdrawals within the issuer's 
designated ATM network. The condition with respect to ATM fees does not 
apply to cards that do not provide ATM access.

     Section 235.6  Prohibition on Circumvention, Evasion, and Net 
                              Compensation

    1. No applicability to exempt issuers or electronic debit 
transactions. The prohibition against circumventing or evading the 
interchange transaction fee restrictions or against net compensation 
does not apply to issuers or electronic debit transactions that qualify 
for an exemption under Sec. 235.5 from the interchange transaction fee 
restrictions.

              6(a) Prohibition of Circumvention or Evasion

    1. Finding of circumvention or evasion. A finding of evasion or 
circumvention will depend on all relevant facts and circumstances. 
Although net compensation may be one form of circumvention or evasion 
prohibited under Sec. 235.6(a), it is not the only form.
    2. Examples of circumstances that may constitute circumvention or 
evasion.
    The following examples do not constitute per se circumvention or 
evasion, but may warrant additional supervisory scrutiny to determine 
whether the totality of the facts and circumstances constitute 
circumvention or evasion:
    i. A payment card network decreases network processing fees paid by 
issuers for electronic debit transactions by 50 percent and increases 
the network processing fees charged to merchants or acquirers with 
respect to electronic debit transactions by a similar amount. Because 
the requirements of this subpart do not restrict or otherwise establish 
the amount of fees that a network may charge for its services, the 
increase in network fees charged to merchants or acquirers and decrease 
in fees charged to issuers is not a per se circumvention or evasion of 
the interchange transaction fee standards, but may warrant additional 
supervisory scrutiny to determine whether the facts and circumstances 
constitute circumvention or evasion.
    ii. An issuer replaces its debit cards with prepaid cards that are 
exempt from the interchange limits of Secs. 235.3 and 235.4. The exempt 
prepaid cards are linked to its customers' transaction accounts and 
funds are swept from the transaction accounts to the prepaid accounts as 
needed to cover transactions made. Again, this arrangement is not per se 
circumvention or evasion, but may warrant additional supervisory 
scrutiny to determine whether the facts and circumstances constitute 
circumvention or evasion.

                  6(b) Prohibition of Net Compensation

    1. Net compensation. Net compensation to an issuer through the use 
of network fees is prohibited.
    2. Consideration of payments or incentives provided by the network 
in net compensation determination.
    i. For purposes of the net compensation determination, payments or 
incentives paid by a payment card network to an issuer with respect to 
electronic debit transactions or debit card related activities could 
include, but are not limited to, marketing incentives; payments or 
rebates for meeting or exceeding a specific transaction volume, 
percentage share, or dollar amount of transactions processed; or other 
payments for debit card related activities. For example, signing bonuses 
paid by a network to an issuer for the issuer's debit card portfolio 
would also be included in the total amount of payments or incentives 
received by an issuer from a payment card network with respect to 
electronic debit transactions. A signing bonus for an entire card 
portfolio, including credit cards, may be allocated to the issuer's 
debit card business based on the proportion of the cards or transactions 
that are debit cards or electronic debit transactions, as appropriate to 
the situation, for purposes of the net compensation determination.
    ii. Incentives paid by the network with respect to multiple-year 
contracts may be allocated over the life of the contract.
    iii. For purposes of the net compensation determination, payments or 
incentives paid by a payment card network with respect to electronic 
debit transactions or debit card-related activities do not include 
interchange transaction fees that are passed through to

[[Page 50]]

the issuer by the network, or discounts or rebates provided by the 
network or an affiliate of the network for issuer-processor services. In 
addition, funds received by an issuer from a payment card network as a 
result of chargebacks, fines paid by merchants or acquirers for 
violations of network rules, or settlements or recoveries from merchants 
or acquirers to offset the costs of fraudulent transactions or a data 
security breach do not constitute incentives or payments made by a 
payment card network.
    3. Consideration of fees paid by an issuer in net compensation 
determination.
    i. For purposes of the net compensation determination, fees paid by 
an issuer to a payment card network with respect to electronic debit 
transactions or debit card related activities include, but are not 
limited to, membership or licensing fees, network administration fees, 
and fees for optional network services, such as risk management 
services.
    ii. For purposes of the net compensation determination, fees paid by 
an issuer to a payment card network with respect to electronic debit 
transactions or debit card-related activities do not include network 
processing fees (such as switch fees and network connectivity fees) or 
fees paid to an issuer processor affiliated with the network for 
authorizing, clearing, or settling an electronic debit transaction.
    4. Example of circumstances not involving net compensation to the 
issuer. The following example illustrates circumstances that would not 
indicate net compensation by the payment card network to the issuer:
    i. Because of an increase in debit card transactions that are 
processed through a payment card network during a calendar year, an 
issuer receives an additional volume-based incentive payment from the 
network for that period. Over the same period, however, the total 
network fees (other than processing fees) the issuer pays the payment 
card network with respect to debit card transactions also increase so 
that the total amount of fees paid by the issuer to the network continue 
to exceed incentive payments by the network to the issuer. Under these 
circumstances, the issuer does not receive net compensation from the 
network for electronic debit transactions or debit card related 
activities.

         Section 235.7  Limitations on Payment Card Restrictions

    1. Application of small issuer, government-administered payment 
program, and reloadable card exemptions to payment card network 
restrictions. The exemptions under Sec. 235.5 for small issuers, cards 
issued pursuant to government-administered payment programs, and certain 
reloadable prepaid cards do not apply to the limitations on payment card 
network restrictions. For example, debit cards for government-
administered payment programs, although exempt from the restrictions on 
interchange transaction fees, are subject to the requirement that 
electronic debit transactions made using such cards must be capable of 
being processed on at least two unaffiliated payment card networks and 
to the prohibition on inhibiting a merchant's ability to determine the 
routing for electronic debit transactions.

                 7(a) Prohibition on Network Exclusivity

    1. Scope of restriction. Section 235.7(a) requires a debit card 
subject to the regulation to be enabled on at least two unaffiliated 
payment card networks. This paragraph does not, however, require an 
issuer to have two or more unaffiliated networks available for each 
method of cardholder authentication. For example, it is sufficient for 
an issuer to issue a debit card that operates on one signature-based 
card network and on one PIN-based card network, as long as the two card 
networks are not affiliated. Alternatively, an issuer may issue a debit 
card that is accepted on two unaffiliated signature-based card networks 
or on two unaffiliated PIN-based card networks. See also, comment 7(a)-
7.
    2. Permitted networks. i. A smaller payment card network could be 
used to help satisfy the requirement that an issuer enable two 
unaffiliated networks if the network was willing to expand its coverage 
in response to increased merchant demand for access to its network and 
it meets the other requirements for a permitted arrangement, including 
taking steps reasonably designed to enable it to process the electronic 
debit transactions that it would reasonably expect to be routed to it. 
If, however, the network's policy or practice is to limit such 
expansion, it would not qualify as one of the two unaffiliated networks.
    ii. A payment card network that is accepted only at a limited 
category of merchants (such as a particular grocery store chain, 
merchants located in a particular shopping mall, or a single class of 
merchants, such as grocery stores or gas stations) would not satisfy the 
rule.
    iii. One of the steps a network can take to form a reasonable 
expectation of transaction volume is to consider factors such as the 
number of cards expected to be issued that are enabled on the network 
and expected card usage patterns.
    3. Examples of prohibited network restrictions on an issuer's 
ability to contract. The following are examples of prohibited network 
restrictions on an issuer's ability to contract with other payment card 
networks:
    i. Network rules or contract provisions limiting or otherwise 
restricting the other payment card networks that may be enabled on a 
particular debit card, or network rules or contract provisions that 
specify the other

[[Page 51]]

networks that may be enabled on a particular debit card.
    ii. Network rules or guidelines that allow only that network's (or 
its affiliated network's) brand, mark, or logo to be displayed on a 
particular debit card, or that otherwise limit the ability of brands, 
marks, or logos of other payment card networks to appear on the debit 
card.
    4. Network logos or symbols on card not required. Section 235.7(a) 
does not require that a debit card display the brand, mark, or logo of 
each payment card network over which an electronic debit transaction may 
be processed. For example, this rule does not require a debit card that 
is enabled for two or more unaffiliated payment card networks to bear 
the brand, mark, or logo for each card network.
    5. Voluntary exclusivity arrangements prohibited. Section 235.7(a) 
requires the issuance of debit cards that are enabled on at least two 
unaffiliated payment card networks, even if the issuer is not subject to 
any rule of, or contract or other agreement with, a payment card network 
requiring that all or a specified minimum percentage of electronic debit 
transactions be processed on the network or its affiliated networks.
    6. Affiliated payment card networks. Section 235.7(a) does not 
prohibit an issuer from including an affiliated payment card network 
among the networks that may process an electronic debit transaction with 
respect to a particular debit card, as long as at least two of the 
networks that are enabled on the card are unaffiliated. For example, an 
issuer may offer debit cards that are accepted on a payment card network 
for signature debit transactions and on an affiliated payment card 
network for PIN debit transactions as long as those debit cards may also 
be accepted on another unaffiliated payment card network.
    7. Application of rule regardless of form factor. The network 
exclusivity provisions in Sec. 235.7(a) require that all debit cards be 
enabled on at least two unaffiliated payment card networks for 
electronic debit transactions, regardless of whether the debit card is 
issued in card form. This applies to any supplemental device, such as a 
fob or token, or chip or application in a mobile phone, that is issued 
in connection with a plastic card, even if that plastic card fully 
complies with the rule.

                7(b) Prohibition on Routing Restrictions

    1. Relationship to the network exclusivity restrictions. An issuer 
or payment card network is prohibited from inhibiting a merchant's 
ability to route or direct an electronic debit transaction over any of 
the payment card networks that the issuer has enabled to process an 
electronic debit transaction for that particular debit card. This rule 
does not permit a merchant to route the transaction over a network that 
the issuer did not enable to process transactions using that debit card.
    2. Examples of prohibited merchant restrictions. The following are 
examples of issuer or network practices that would inhibit a merchant's 
ability to direct the routing of an electronic debit transaction that 
are prohibited under Sec. 235.7(b):
    i. Prohibiting a merchant from encouraging or discouraging a 
cardholder's use of a particular method of debit card authorization, 
such as rules prohibiting merchants from favoring a cardholder's use of 
PIN debit over signature debit, or from discouraging the cardholder's 
use of signature debit.
    ii. Establishing network rules or designating issuer priorities 
directing the processing of an electronic debit transaction on a 
specified payment card network or its affiliated networks, or directing 
the processing of the transaction away from a specified network or its 
affiliates, except as a default rule in the event the merchant, or its 
acquirer or processor, does not designate a routing preference, or if 
required by state law.
    iii. Requiring a specific payment card network based on the type of 
access device provided to the cardholder by the issuer.
    3. Merchant payments not prohibited. A payment card network does not 
restrict a merchant's ability to route transactions over available 
payment card networks in violation of Sec. 235.7(b) by offering payments 
or other incentives to encourage the merchant to route electronic debit 
card transactions to the network for processing.
    4. Real-time routing decision not required. A merchant need not make 
network routing decisions on a transaction-by-transaction basis. A 
merchant and its acquirer or processor may agree to a pre-determined set 
of routing choices that apply to all electronic debit transactions that 
are processed by the acquirer or processor on behalf of the merchant.
    5. No effect on network rules governing the routing of subsequent 
transactions. Section 235.7 does not supersede a network rule that 
requires a chargeback or return of an electronic debit transaction to be 
processed on the same network that processed the original transaction.

                           7(c) Effective Date

    1. Health care and employee benefit cards. Section 235.7(c)(1) 
delays the effective date of the network exclusivity provisions for 
certain debit cards issued in connection with a health care or employee 
benefit account to the extent such cards use (even if not required) 
transaction substantiation or qualification authorization systems at 
point of sale to verify that the card is only used for eligible goods 
and services for purposes of qualifying for favorable tax treatment 
under Internal Revenue Code requirements. Debit

[[Page 52]]

cards that may qualify for the delayed effective date include, but may 
not be limited to, cards issued in connection with flexible spending 
accounts established under section 125 of the Internal Revenue Code for 
health care related expenses and health reimbursement accounts 
established under section 105 of the Internal Revenue Code.

       Section 235.8  Reporting Requirements and Record Retention

    [Reserved]

                Section 235.9  Administrative Enforcement

    [Reserved]

             Section 235.10  Effective and Compliance Dates

    [Reserved]

[76 FR 43466, July 20, 2011, as amended at 76 FR 43467, July 20, 2011; 
77 FR 46280, Aug. 3, 2012]



PART 237_SWAPS MARGIN AND SWAPS PUSH-OUT--Table of Contents



  Subpart A_Margin and Capital Requirements for Covered Swap Entities 
                             (Regulation KK)

Sec.
237.1  Authority, purpose, scope, exemptions and compliance dates.
237.2  Definitions.
237.3  Initial margin.
237.4  Variation margin.
237.5  Netting arrangements, minimum transfer amount, and satisfaction 
          of collecting and posting requirements.
237.6  Eligible collateral.
237.7  Segregation of collateral.
237.8  Initial margin models and standardized amounts.
237.9  Cross-border application of margin requirements.
237.10  Documentation of margin matters.
237.11  Special rules for affiliates.
237.12  Capital.

Appendix A to Subpart A to Part 237--Standardized Minimum Initial Margin 
          Requirements for Non-Cleared Swaps and Non-Cleared Security-
          Based Swaps
Appendix B to Subpart A to Part 237--Margin Values for Eligible Noncash 
          Margin Collateral

   Subpart B_Prohibition Against Federal Assistance to Swaps Entities

237.20  Definitions.
237.21  Definition of insured depository institution for purposes of 
          section 716 of the Dodd-Frank Act.
237.22  Transition period for insured depository institutions.

    Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305, 12 
U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C. 1841 et 
seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.

    Source: 78 FR 34549, June 10, 2013, unless otherwise noted.



  Subpart A_Margin and Capital Requirements for Covered Swap Entities 
                             (Regulation KK)

    Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 221 et 
seq., 12 U.S.C. 1818, 12 U.S.C. 1841 et seq., 12 U.S.C. 3101 et seq. and 
12 U.S.C. 1461 et seq.

    Source: 80 FR 74898, 74911, Nov. 30, 2015, unless otherwise noted.

    Editorial Note: Nomenclature changes to subpart A of part 237 appear 
at 80 FR 74898, 74910, Nov. 30, 2015.



Sec. 237.1  Authority, purpose, scope, exemptions and compliance dates.

    (a) Authority. This subpart (Regulation KK) is issued by the Board 
of Governors of the Federal Reserve System (Board) under section 4s(e) 
of the Commodity Exchange Act of 1936, as amended (7 U.S.C. 6s(e)), and 
section 15F(e) of the Securities Exchange Act of 1934, as amended (15 
U.S.C. 78o-10(e)), as well as under the Federal Reserve Act, as amended 
(12 U.S.C. 221 et seq.); section 8 of the Federal Deposit Insurance Act, 
as amended (12 U.S.C. 1818); the Bank Holding Company Act of 1956, as 
amended (12 U.S.C. 1841 et seq.); the International Banking Act of 1978, 
as amended (12 U.S.C. 3101 et seq.), and the Home Owners' Loan Act, as 
amended (1461 et seq.).
    (b) Purpose. Section 4s of the Commodity Exchange Act of 1936 (7 
U.S.C. 6s) and section 15F of the Securities Exchange Act of 1934 (15 
U.S.C. 78o-10) require the Board to establish capital and margin 
requirements for any state member bank (as defined in 12 CFR 208.2(g)), 
bank holding company (as defined in 12 U.S.C. 1841), savings and loan 
holding company (as defined in 12 U.S.C. 1467a (on or after the transfer 
established under Section 311 of the Dodd-Frank Act) (12 U.S.C. 5411)), 
foreign banking organization (as defined in 12 CFR 211.21(o)), foreign 
bank that

[[Page 53]]

does not operate an insured branch, state branch or state agency of a 
foreign bank (as defined in 12 U.S.C. 3101(b)(11) and (12)), or Edge or 
agreement corporation (as defined in 12 CFR 211.1(c)(2) and (3)) that is 
registered as a swap dealer, major swap participant, security-based swap 
dealer, or major security-based swap participant with respect to all 
non-cleared swaps and non-cleared security-based swaps. This subpart 
implements section 4s of the Commodity Exchange Act of 1936 and section 
15F of the Securities Exchange Act of 1934 by defining terms used in the 
statute and related terms, establishing capital and margin requirements, 
and explaining the statutes' requirements.
    (c) Scope. This subpart establishes minimum capital and margin 
requirements for each covered swap entity subject to this subpart with 
respect to all non-cleared swaps and non-cleared security-based swaps. 
This subpart applies to any non-cleared swap or non-cleared security-
based swap entered into by a covered swap entity on or after the 
relevant compliance date set forth in paragraph (e) of this section. 
Nothing in this subpart is intended to prevent a covered swap entity 
from collecting margin in amounts greater than are required under this 
subpart.
    (d) Exemptions--(1) Swaps. The requirements of this subpart (except 
for Sec. 237.12) shall not apply to a non-cleared swap if the 
counterparty:
    (i) Qualifies for an exception from clearing under section 
2(h)(7)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(A)) 
and implementing regulations;
    (ii) Qualifies for an exemption from clearing under a rule, 
regulation, or order that the Commodity Futures Trading Commission 
issued pursuant to its authority under section 4(c)(1) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 6(c)(1)) concerning cooperative entities 
that would otherwise be subject to the requirements of section 
2(h)(1)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(1)(A)); 
or
    (iii) Satisfies the criteria in section 2(h)(7)(D) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 2(h)(7)(D)) and implementing regulations.
    (2) Security-based swaps. The requirements of this subpart (except 
for Sec. 237.12) shall not apply to a non-cleared security-based swap if 
the counterparty:
    (i) Qualifies for an exception from clearing under section 3C(g)(1) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c-3(g)(1)) and 
implementing regulations; or
    (ii) Satisfies the criteria in section 3C(g)(4) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c-3(g)(4)) and implementing 
regulations.
    (e) Compliance dates. Covered swap entities shall comply with the 
minimum margin requirements of this subpart on or before the following 
dates for non-cleared swaps and non-cleared security-based swaps entered 
into on or after the following dates:
    (1) September 1, 2016 with respect to the requirements in Sec. 237.3 
for initial margin and Sec. 237.4 for variation margin for any non-
cleared swaps and non-cleared security-based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2016 that exceeds $3 trillion, 
where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(1)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (2) March 1, 2017 with respect to the requirements in Sec. 237.4 for 
variation margin for any other covered swap entity with respect to non-
cleared swaps and non-cleared security-based swaps entered into with any 
other counterparty.
    (3) September 1, 2017 with respect to the requirements in Sec. 237.3 
for initial

[[Page 54]]

margin for any non-cleared swaps and non-cleared security-based swaps, 
where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2017 that exceeds $2.25 
trillion, where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(3)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (4) September 1, 2018 with respect to the requirements in Sec. 237.3 
for initial margin for any non-cleared swaps and non-cleared security-
based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2018 that exceeds $1.5 trillion, 
where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(4)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (5) September 1, 2019 with respect to the requirements in Sec. 237.3 
for initial margin for any non-cleared swaps and non-cleared security-
based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2019 that exceeds $0.75 
trillion, where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(5)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (6) September 1, 2020 with respect to the requirements in Sec. 237.3 
for initial margin for any other covered swap entity with respect to 
non-cleared swaps and non-cleared security-based swaps entered into with 
any other counterparty.
    (f) Once a covered swap entity must comply with the margin 
requirements for non-cleared swaps and non-cleared security-based swaps 
with respect to a particular counterparty based on the compliance dates 
in paragraph (e) of this section, the covered swap entity shall remain 
subject to the requirements of this subpart with respect to that 
counterparty.
    (g)(1) If a covered swap entity's counterparty changes its status 
such that a non-cleared swap or non-cleared security-based swap with 
that counterparty becomes subject to stricter margin requirements under 
this subpart (such as if the counterparty's status changes from a 
financial end user without material swaps exposure to a financial end 
user with material swaps exposure), then the covered swap entity shall 
comply with the stricter margin requirements for any non-cleared swap or 
non-cleared security-based swap entered into with that counterparty 
after the counterparty changes its status.
    (2) If a covered swap entity's counterparty changes its status such

[[Page 55]]

that a non-cleared swap or non-cleared security-based swap with that 
counterparty becomes subject to less strict margin requirements under 
this subpart (such as if the counterparty's status changes from a 
financial end user with material swaps exposure to a financial end user 
without material swaps exposure), then the covered swap entity may 
comply with the less strict margin requirements for any non-cleared swap 
or non-cleared security-based swap entered into with that counterparty 
after the counterparty changes its status as well as for any outstanding 
non-cleared swap or non-cleared security-based swap entered into after 
the applicable compliance date in paragraph (e) of this section and 
before the counterparty changed its status.

[80 FR 74898, 74911, Nov. 30, 2015, as amended at 80 FR 74911, 74923, 
Nov. 30, 2015]



Sec. 237.2  Definitions.

    Affiliate. A company is an affiliate of another company if:
    (1) Either company consolidates the other on financial statements 
prepared in accordance with U.S. Generally Accepted Accounting 
Principles, the International Financial Reporting Standards, or other 
similar standards;
    (2) Both companies are consolidated with a third company on a 
financial statement prepared in accordance with such principles or 
standards;
    (3) For a company that is not subject to such principles or 
standards, if consolidation as described in paragraph (1) or (2) of this 
definition would have occurred if such principles or standards had 
applied; or
    (4) The Board has determined that a company is an affiliate of 
another company, based on Board's conclusion that either company 
provides significant support to, or is materially subject to the risks 
or losses of, the other company.
    Bank holding company has the meaning specified in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    Broker has the meaning specified in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    Business day means any day other than a Saturday, Sunday, or legal 
holiday.
    Clearing agency has the meaning specified in section 3(a)(23) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(23)).
    Company means a corporation, partnership, limited liability company, 
business trust, special purpose entity, association, or similar 
organization.
    Counterparty means, with respect to any non-cleared swap or non-
cleared security-based swap to which a person is a party, each other 
party to such non-cleared swap or non-cleared security-based swap.
    Covered swap entity means any swap entity that is a:
    (1) State member bank (as defined in 12 CFR 208.2(g));
    (2) Bank holding company (as defined in 12 U.S.C. 1841);
    (3) Savings and loan holding company (as defined in 12 U.S.C. 
1467a);
    (4) Foreign banking organization (as defined in 12 CFR 211.21(o));
    (5) Foreign bank that does not operate an insured branch;
    (6) State branch or state agency of a foreign bank (as defined in 12 
U.S.C. 3101(b)(11) and (12));
    (7) Edge or agreement corporation (as defined in 12 CFR 211.1(c)(2) 
and (3)); or
    (8) Covered swap entity as determined by the Board. Covered swap 
entity would not include an affiliate of an entity listed in paragraphs 
(1) through (7) of this definition for which the Office of the 
Comptroller of the Currency or the Federal Deposit Insurance Corporation 
is the prudential regulator or that is required to be registered with 
the U.S. Commodity Futures Trading Commission as a swap dealer or major 
swap participant or with the U.S. Securities and Exchange Commission as 
a security-based swap dealer or major security-based swap participant.
    Cross-currency swap means a swap in which one party exchanges with 
another party principal and interest rate payments in one currency for 
principal and interest rate payments in another currency, and the 
exchange of principal occurs on the date the swap is entered into, with 
a reversal of the exchange of principal at a later date that is agreed 
upon when the swap is entered into.

[[Page 56]]

    Currency of settlement means a currency in which a party has agreed 
to discharge payment obligations related to a non-cleared swap, a non-
cleared security-based swap, a group of non-cleared swaps, or a group of 
non-cleared security-based swaps subject to a master agreement at the 
regularly occurring dates on which such payments are due in the ordinary 
course.
    Day of execution means the calendar day at the time the parties 
enter into a non-cleared swap or non-cleared security-based swap, 
provided:
    (1) If each party is in a different calendar day at the time the 
parties enter into the non-cleared swap or non-cleared security-based 
swap, the day of execution is deemed the latter of the two dates; and
    (2) If a non-cleared swap or non-cleared security-based swap is:
    (i) Entered into after 4:00 p.m. in the location of a party; or
    (ii) Entered into on a day that is not a business day in the 
location of a party, then the non-cleared swap or non-cleared security-
based swap is deemed to have been entered into on the immediately 
succeeding day that is a business day for both parties, and both parties 
shall determine the day of execution with reference to that business 
day.
    Dealer has the meaning specified in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    Depository institution has the meaning specified in section 3(c) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    Derivatives clearing organization has the meaning specified in 
section 1a(15) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(15)).
    Eligible collateral means collateral described in Sec. 237.6.
    Eligible master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly upon 
an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case, any exercise of rights 
under the agreement will not be stayed or avoided under applicable law 
in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws referenced 
in this paragraph (2)(i) in order to facilitate the orderly resolution 
of the defaulting counterparty; or
    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) A covered swap entity that relies on the agreement for purposes 
of calculating the margin required by this part must:
    (i) Conduct sufficient legal review to conclude with a well-founded 
basis (and maintain sufficient written documentation of that legal 
review) that:
    (A) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (B) In the event of a legal challenge (including one resulting from 
default or from receivership, conservatorship,

[[Page 57]]

insolvency, liquidation, or similar proceeding), the relevant court and 
administrative authorities would find the agreement to be legal, valid, 
binding, and enforceable under the law of the relevant jurisdictions; 
and
    (ii) Establish and maintain written procedures to monitor possible 
changes in relevant law and to ensure that the agreement continues to 
satisfy the requirements of this definition.
    Financial end user means:
    (1) Any counterparty that is not a swap entity and that is:
    (i) A bank holding company or an affiliate thereof; a savings and 
loan holding company; a U.S. intermediate holding company established or 
designated for purposes of compliance with 12 CFR 252.153; or a nonbank 
financial institution supervised by the Board of Governors of the 
Federal Reserve System under Title I of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (12 U.S.C. 5323);
    (ii) A depository institution; a foreign bank; a Federal credit 
union or State credit union as defined in section 2 of the Federal 
Credit Union Act (12 U.S.C. 1752(1) & (6)); an institution that 
functions solely in a trust or fiduciary capacity as described in 
section 2(c)(2)(D) of the Bank Holding Company Act (12 U.S.C. 
1841(c)(2)(D)); an industrial loan company, an industrial bank, or other 
similar institution described in section 2(c)(2)(H) of the Bank Holding 
Company Act (12 U.S.C. 1841(c)(2)(H));
    (iii) An entity that is state-licensed or registered as:
    (A) A credit or lending entity, including a finance company; money 
lender; installment lender; consumer lender or lending company; mortgage 
lender, broker, or bank; motor vehicle title pledge lender; payday or 
deferred deposit lender; premium finance company; commercial finance or 
lending company; or commercial mortgage company; except entities 
registered or licensed solely on account of financing the entity's 
direct sales of goods or services to customers;
    (B) A money services business, including a check casher; money 
transmitter; currency dealer or exchange; or money order or traveler's 
check issuer;
    (iv) A regulated entity as defined in section 1303(20) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
as amended (12 U.S.C. 4502(20)) or any entity for which the Federal 
Housing Finance Agency or its successor is the primary federal 
regulator;
    (v) Any institution chartered in accordance with the Farm Credit Act 
of 1971, as amended, 12 U.S.C. 2001 et seq., that is regulated by the 
Farm Credit Administration;
    (vi) A securities holding company; a broker or dealer; an investment 
adviser as defined in section 202(a) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-2(a)); an investment company registered with the 
U.S. Securities and Exchange Commission under the Investment Company Act 
of 1940 (15 U.S.C. 80a-1 et seq.); or a company that has elected to be 
regulated as a business development company pursuant to section 54(a) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-53(a));
    (vii) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80-b-2(a)); an entity that would be an 
investment company under section 3 of the Investment Company Act of 1940 
(15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is 
deemed not to be an investment company under section 3 of the Investment 
Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (17 CFR 
270.3a-7) of the U.S. Securities and Exchange Commission;
    (viii) A commodity pool, a commodity pool operator, or a commodity 
trading advisor as defined, respectively, in section 1a(10), 1a(11), and 
1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 1a(11), 
and 1a(12)); a floor broker, a floor trader, or introducing broker as 
defined, respectively, in 1a(22), 1a(23) and 1a(31) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 1a(31)); or a futures 
commission merchant as defined in 1a(28) of the Commodity Exchange Act 
of 1936 (7 U.S.C. 1a(28));
    (ix) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income and Security Act of 1974 
(29 U.S.C. 1002);

[[Page 58]]

    (x) An entity that is organized as an insurance company, primarily 
engaged in writing insurance or reinsuring risks underwritten by 
insurance companies, or is subject to supervision as such by a State 
insurance regulator or foreign insurance regulator;
    (xi) An entity, person or arrangement that is, or holds itself out 
as being, an entity, person, or arrangement that raises money from 
investors, accepts money from clients, or uses its own money primarily 
for the purpose of investing or trading or facilitating the investing or 
trading in loans, securities, swaps, funds or other assets for resale or 
other disposition or otherwise trading in loans, securities, swaps, 
funds or other assets; or
    (xii) An entity that would be a financial end user described in 
paragraph (1) of this definition or a swap entity, if it were organized 
under the laws of the United States or any State thereof.
    (2) The term ``financial end user'' does not include any 
counterparty that is:
    (i) A sovereign entity;
    (ii) A multilateral development bank;
    (iii) The Bank for International Settlements;
    (iv) An entity that is exempt from the definition of financial 
entity pursuant to section 2(h)(7)(C)(iii) of the Commodity Exchange Act 
of 1936 (7 U.S.C. 2(h)(7)(C)(iii)) and implementing regulations; or
    (v) An affiliate that qualifies for the exemption from clearing 
pursuant to section 2(h)(7)(D) of the Commodity Exchange Act of 1936 (7 
U.S.C. 2(h)(7)(D)) or section 3C(g)(4) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c-3(g)(4)) and implementing regulations.
    Foreign bank means an organization that is organized under the laws 
of a foreign country and that engages directly in the business of 
banking outside the United States.
    Foreign exchange forward has the meaning specified in section 1a(24) 
of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(24)).
    Foreign exchange swap has the meaning specified in section 1a(25) of 
the Commodity Exchange Act of 1936 (7 U.S.C. 1a(25)).
    Initial margin means the collateral as calculated in accordance with 
Sec. 237.8 that is posted or collected in connection with a non-cleared 
swap or non-cleared security-based swap.
    Initial margin collection amount means:
    (1) In the case of a covered swap entity that does not use an 
initial margin model, the amount of initial margin with respect to a 
non-cleared swap or non-cleared security-based swap that is required 
under appendix A of this subpart; and
    (2) In the case of a covered swap entity that uses an initial margin 
model pursuant to Sec. 237.8, the amount of initial margin with respect 
to a non-cleared swap or non-cleared security-based swap that is 
required under the initial margin model.
    Initial margin model means an internal risk management model that:
    (1) Has been developed and designed to identify an appropriate, 
risk-based amount of initial margin that the covered swap entity must 
collect with respect to one or more non-cleared swaps or non-cleared 
security-based swaps to which the covered swap entity is a party; and
    (2) Has been approved by the Board pursuant to Sec. 237.8.
    Initial margin threshold amount means an aggregate credit exposure 
of $50 million resulting from all non-cleared swaps and non-cleared 
security-based swaps between a covered swap entity and its affiliates, 
and a counterparty and its affiliates. For purposes of this calculation, 
an entity shall not count a swap or security-based swap that is exempt 
pursuant to Sec. 237.1(d).
    Major currency means:
    (1) United States Dollar (USD);
    (2) Canadian Dollar (CAD);
    (3) Euro (EUR);
    (4) United Kingdom Pound (GBP);
    (5) Japanese Yen (JPY);
    (6) Swiss Franc (CHF);
    (7) New Zealand Dollar (NZD);
    (8) Australian Dollar (AUD);
    (9) Swedish Kronor (SEK);
    (10) Danish Kroner (DKK);
    (11) Norwegian Krone (NOK); or
    (12) Any other currency as determined by the Board.
    Margin means initial margin and variation margin.

[[Page 59]]

    Market intermediary means a securities holding company; a broker or 
dealer; a futures commission merchant as defined in 1a(28) of the 
Commodity Exchange Act of 1936 (7 U.S.C. 1a(28)); a swap dealer as 
defined in section 1a(49) of the Commodity Exchange Act of 1936 (7 
U.S.C. 1a(49)); or a security-based swap dealer as defined in section 
3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71)).
    Material swaps exposure for an entity means that an entity and its 
affiliates have an average daily aggregate notional amount of non-
cleared swaps, non-cleared security-based swaps, foreign exchange 
forwards, and foreign exchange swaps with all counterparties for June, 
July, and August of the previous calendar year that exceeds $8 billion, 
where such amount is calculated only for business days. An entity shall 
count the average daily aggregate notional amount of a non-cleared swap, 
a non-cleared security-based swap, a foreign exchange forward or a 
foreign exchange swap between the entity and an affiliate only one time. 
For purposes of this calculation, an entity shall not count a swap or 
security-based swap that is exempt pursuant to Sec. 237.1(d).
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the Multilateral Investment Guarantee 
Agency, the International Finance Corporation, the Inter-American 
Development Bank, the Asian Development Bank, the African Development 
Bank, the European Bank for Reconstruction and Development, the European 
Investment Bank, the European Investment Fund, the Nordic Investment 
Bank, the Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, and any other entity that provides 
financing for national or regional development in which the U.S. 
government is a shareholder or contributing member or which the Board 
determines poses comparable credit risk.
    Non-cleared security-based swap means a security-based swap that is 
not, directly or indirectly, submitted to and cleared by a clearing 
agency registered with the U.S. Securities and Exchange Commission 
pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1) or by a clearing agency that the U.S. Securities and 
Exchange Commission has exempted from registration by rule or order 
pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1).
    Non-cleared swap means a swap that is not cleared by a derivatives 
clearing organization registered with the Commodity Futures Trading 
Commission pursuant to section 5b(a) of the Commodity Exchange Act of 
1936 (7 U.S.C. 7a-1(a)) or by a clearing organization that the Commodity 
Futures Trading Commission has exempted from registration by rule or 
order pursuant to section 5b(h) of the Commodity Exchange Act of 1936 (7 
U.S.C. 7a-1(h)).
    Prudential regulator has the meaning specified in section 1a(39) of 
the Commodity Exchange Act of 1936 (7 U.S.C. 1a(39)).
    Savings and loan holding company has the meaning specified in 
section 10(n) of the Home Owners' Loan Act (12 U.S.C. 1467a(n)).
    Securities holding company has the meaning specified in section 618 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 1850a).
    Security-based swap has the meaning specified in section 3(a)(68) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)).
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    State means any State, commonwealth, territory, or possession of the 
United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    Subsidiary. A company is a subsidiary of another company if:
    (1) The company is consolidated by the other company on financial 
statements prepared in accordance with U.S. Generally Accepted 
Accounting Principles, the International Financial Reporting Standards, 
or other similar standards;

[[Page 60]]

    (2) For a company that is not subject to such principles or 
standards, if consolidation as described in paragraph (1) of this 
definition would have occurred if such principles or standards had 
applied; or
    (3) The Board has determined that the company is a subsidiary of 
another company, based on Board's conclusion that either company 
provides significant support to, or is materially subject to the risks 
of loss of, the other company.
    Swap has the meaning specified in section 1a(47) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 1a(47)).
    Swap entity means a person that is registered with the Commodity 
Futures Trading Commission as a swap dealer or major swap participant 
pursuant to the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.), or 
a person that is registered with the U.S. Securities and Exchange 
Commission as a security-based swap dealer or a major security-based 
swap participant pursuant to the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.).
    U.S. Government-sponsored enterprise means an entity established or 
chartered by the U.S. government to serve public purposes specified by 
federal statute but whose debt obligations are not explicitly guaranteed 
by the full faith and credit of the U.S. government.
    Variation margin means collateral provided by one party to its 
counterparty to meet the performance of its obligations under one or 
more non-cleared swaps or non-cleared security-based swaps between the 
parties as a result of a change in value of such obligations since the 
last time such collateral was provided.
    Variation margin amount means the cumulative mark-to-market change 
in value to a covered swap entity of a non-cleared swap or non-cleared 
security-based swap, as measured from the date it is entered into (or, 
in the case of a non-cleared swap or non-cleared security-based swap 
that has a positive or negative value to a covered swap entity on the 
date it is entered into, such positive or negative value plus any 
cumulative mark-to-market change in value to the covered swap entity of 
a non-cleared swap or non-cleared security-based swap after such date), 
less the value of all variation margin previously collected, plus the 
value of all variation margin previously posted with respect to such 
non-cleared swap or non-cleared security-based swap.

[80 FR 74898, 74911, Nov. 30, 2015, as amended at 80 FR 74911, Nov. 30, 
2015]



Sec. 237.3  Initial margin.

    (a) Collection of margin. A covered swap entity shall collect 
initial margin with respect to any non-cleared swap or non-cleared 
security-based swap from a counterparty that is a financial end user 
with material swaps exposure or that is a swap entity in an amount that 
is no less than the greater of:
    (1) Zero; or
    (2) The initial margin collection amount for such non-cleared swap 
or non-cleared security-based swap less the initial margin threshold 
amount (not including any portion of the initial margin threshold amount 
already applied by the covered swap entity or its affiliates to other 
non-cleared swaps or non-cleared security-based swaps with the 
counterparty or its affiliates), as applicable.
    (b) Posting of margin. A covered swap entity shall post initial 
margin with respect to any non-cleared swap or non-cleared security-
based swap to a counterparty that is a financial end user with material 
swaps exposure. Such initial margin shall be in an amount at least as 
large as the covered swap entity would be required to collect under 
paragraph (a) of this section if it were in the place of the 
counterparty.
    (c) Timing. A covered swap entity shall comply with the initial 
margin requirements described in paragraphs (a) and (b) of this section 
on each business day, for a period beginning on or before the business 
day following the day of execution and ending on the date the non-
cleared swap or non-cleared security-based swap terminates or expires.
    (d) Other counterparties. A covered swap entity is not required to 
collect or post initial margin with respect to any non-cleared swap or 
non-cleared security-based swap described in Sec. 237.1(d). For any 
other non-cleared swap or non-cleared security-based

[[Page 61]]

swap between a covered swap entity and a counterparty that is neither a 
financial end user with a material swaps exposure nor a swap entity, the 
covered swap entity shall collect initial margin at such times and in 
such forms and such amounts (if any), that the covered swap entity 
determines appropriately addresses the credit risk posed by the 
counterparty and the risks of such non-cleared swap or non-cleared 
security-based swap.



Sec. 237.4  Variation margin.

    (a) General. After the date on which a covered swap entity enters 
into a non-cleared swap or non-cleared security-based swap with a swap 
entity or financial end user, the covered swap entity shall collect 
variation margin equal to the variation margin amount from the 
counterparty to such non-cleared swap or non-cleared security-based swap 
when the amount is positive and post variation margin equal to the 
variation margin amount to the counterparty to such non-cleared swap or 
non-cleared security-based swap when the amount is negative.
    (b) Timing. A covered swap entity shall comply with the variation 
margin requirements described in paragraph (a) of this section on each 
business day, for a period beginning on or before the business day 
following the day of execution and ending on the date the non-cleared 
swap or non-cleared security based swap terminates or expires.
    (c) Other counterparties. A covered swap entity is not required to 
collect or post variation margin with respect to any non-cleared swap or 
non-cleared security-based swap described in Sec. 237.1(d). For any 
other non-cleared swap or non-cleared security-based swap between a 
covered swap entity and a counterparty that is neither a financial end 
user nor a swap entity, the covered swap entity shall collect variation 
margin at such times and in such forms and such amounts (if any), that 
the covered swap entity determines appropriately addresses the credit 
risk posed by the counterparty and the risks of such non-cleared swap or 
non-cleared security-based swap.



Sec. 237.5  Netting arrangements, minimum transfer amount, and satisfaction of 
collecting and posting requirements.

    (a) Netting arrangements. (1) For purposes of calculating and 
complying with the initial margin requirements of Sec. 237.3 using an 
initial margin model as described in Sec. 237.8, or with the variation 
margin requirements of Sec. 237.4, a covered swap entity may net non-
cleared swaps or non-cleared security-based swaps in accordance with 
this subsection.
    (2) To the extent that one or more non-cleared swaps or non-cleared 
security-based swaps are executed pursuant to an eligible master netting 
agreement between a covered swap entity and its counterparty that is a 
swap entity or financial end user, a covered swap entity may calculate 
and comply with the applicable requirements of this subpart on an 
aggregate net basis with respect to all non-cleared swaps and non-
cleared security-based swaps governed by such agreement, subject to 
paragraph (a)(3) of this section.
    (3)(i) Except as permitted in paragraph (a)(3)(ii) of this section, 
if an eligible master netting agreement covers non-cleared swaps and 
non-cleared security-based swaps entered into on or after the applicable 
compliance date set forth in Sec. 237.1(e) or (g), all the non-cleared 
swaps and non-cleared security-based swaps covered by that agreement are 
subject to the requirements of this subpart and included in the 
aggregate netting portfolio for the purposes of calculating and 
complying with the margin requirements of this subpart.
    (ii) An eligible master netting agreement may identify one or more 
separate netting portfolios that independently meet the requirements in 
paragraph (1) of the definition of ``Eligible master netting agreement'' 
in Sec. 237.2 and to which collection and posting of margin applies on 
an aggregate net basis separate from and exclusive of any other non-
cleared swaps or non-cleared security-based swaps covered by the 
eligible master netting agreement. Any such netting portfolio that 
contains any non-cleared swap or non-cleared security-based swap entered

[[Page 62]]

into on or after the applicable compliance date set forth in 
Sec. 237.1(e) or (g) is subject to the requirements of this subpart. Any 
such netting portfolio that contains only non-cleared swaps or non-
cleared security-based swaps entered into before the applicable 
compliance date is not subject to the requirements of this subpart.
    (4) If a covered swap entity cannot conclude after sufficient legal 
review with a well-founded basis that the netting agreement described in 
this section meets the definition of eligible master netting agreement 
set forth in Sec. 237.2, the covered swap entity must treat the non-
cleared swaps and non-cleared security based swaps covered by the 
agreement on a gross basis for the purposes of calculating and complying 
with the requirements of this subpart to collect margin, but the covered 
swap entity may net those non-cleared swaps and non-cleared security-
based swaps in accordance with paragraphs (a)(1) through (3) of this 
section for the purposes of calculating and complying with the 
requirements of this subpart to post margin.
    (b) Minimum transfer amount. Notwithstanding Sec. 237.3 or 
Sec. 237.4, a covered swap entity is not required to collect or post 
margin pursuant to this subpart with respect to a particular 
counterparty unless and until the combined amount of initial margin and 
variation margin that is required pursuant to this subpart to be 
collected or posted and that has not yet been collected or posted with 
respect to the counterparty is greater than $500,000.
    (c) Satisfaction of collecting and posting requirements. A covered 
swap entity shall not be deemed to have violated its obligation to 
collect or post margin from or to a counterparty under Sec. 237.3, 
Sec. 237.4, or Sec. 237.6(e) if:
    (1) The counterparty has refused or otherwise failed to provide or 
accept the required margin to or from the covered swap entity; and
    (2) The covered swap entity has:
    (i) Made the necessary efforts to collect or post the required 
margin, including the timely initiation and continued pursuit of formal 
dispute resolution mechanisms, or has otherwise demonstrated upon 
request to the satisfaction of the Board that it has made appropriate 
efforts to collect or post the required margin; or
    (ii) Commenced termination of the non-cleared swap or non-cleared 
security-based swap with the counterparty promptly following the 
applicable cure period and notification requirements.



Sec. 237.6  Eligible collateral.

    (a) Non-cleared swaps and non-cleared security-based swaps with a 
swap entity. For a non-cleared swap or non-cleared security-based swap 
with a swap entity, a covered swap entity shall collect initial margin 
and variation margin required pursuant to this subpart solely in the 
form of the following types of collateral:
    (1) Immediately available cash funds that are denominated in:
    (i) U.S. dollars or another major currency; or
    (ii) The currency of settlement for the non-cleared swap or non-
cleared security-based swap;
    (2) With respect to initial margin only:
    (i) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury;
    (ii) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of Treasury) whose obligations 
are fully guaranteed by the full faith and credit of the United States 
government;
    (iii) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the European Central Bank or a 
sovereign entity that is assigned no higher than a 20 percent risk 
weight under the capital rules applicable to the covered swap entity as 
set forth in Sec. 237.12;
    (iv) A publicly traded debt security issued by, or an asset-backed 
security fully guaranteed as to the payment of principal and interest 
by, a U.S. Government-sponsored enterprise that is operating with 
capital support or another form of direct financial assistance received 
from the U.S. government that enables the repayments of the U.S. 
Government-sponsored enterprise's eligible securities;

[[Page 63]]

    (v) A publicly traded debt security that meets the terms of 12 CFR 
1.2(d) and is issued by a U.S. Government-sponsored enterprise not 
operating with capital support or another form of direct financial 
assistance from the U.S. government, and is not an asset-backed 
security;
    (vi) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the Bank for International 
Settlements, the International Monetary Fund, or a multilateral 
development bank;
    (vii) A security solely in the form of:
    (A) Publicly traded debt not otherwise described in paragraph (a)(2) 
of this section that meets the terms of 12 CFR 1.2(d) and is not an 
asset-backed security;
    (B) Publicly traded common equity that is included in:
    (1) The Standard & Poor's Composite 1500 Index or any other similar 
index of liquid and readily marketable equity securities as determined 
by the Board; or
    (2) An index that a covered swap entity's supervisor in a foreign 
jurisdiction recognizes for purposes of including publicly traded common 
equity as initial margin under applicable regulatory policy, if held in 
that foreign jurisdiction;
    (viii) Securities in the form of redeemable securities in a pooled 
investment fund representing the security-holder's proportional interest 
in the fund's net assets and that are issued and redeemed only on the 
basis of the market value of the fund's net assets prepared each 
business day after the security-holder makes its investment commitment 
or redemption request to the fund, if:
    (A) The fund's investments are limited to the following:
    (1) Securities that are issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury, and immediately-available cash funds denominated in 
U.S. dollars; or
    (2) Securities denominated in a common currency and issued by, or 
fully guaranteed as to the payment of principal and interest by, the 
European Central Bank or a sovereign entity that is assigned no higher 
than a 20 percent risk weight under the capital rules applicable to the 
covered swap entity as set forth in Sec. 237.12, and immediately-
available cash funds denominated in the same currency; and
    (B) Assets of the fund may not be transferred through securities 
lending, securities borrowing, repurchase agreements, reverse repurchase 
agreements, or other means that involve the fund having rights to 
acquire the same or similar assets from the transferee; or
    (ix) Gold.
    (b) Non-cleared swaps and non-cleared security-based swaps with a 
financial end user. For a non-cleared swap or non-cleared security-based 
swap with a financial end user, a covered swap entity shall collect and 
post initial margin and variation margin required pursuant to this 
subpart solely in the form of the following types of collateral:
    (1) Immediately available cash funds that are denominated in:
    (i) U.S. dollars or another major currency; or
    (ii) The currency of settlement for the non-cleared swap or non-
cleared security-based swap;
    (2) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury;
    (3) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of Treasury) whose obligations 
are fully guaranteed by the full faith and credit of the United States 
government;
    (4) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the European Central Bank or a 
sovereign entity that is assigned no higher than a 20 percent risk 
weight under the capital rules applicable to the covered swap entity as 
set forth in Sec. 237.12;
    (5) A publicly traded debt security issued by, or an asset-backed 
security fully guaranteed as to the payment of principal and interest 
by, a U.S. Government-sponsored enterprise that is

[[Page 64]]

operating with capital support or another form of direct financial 
assistance received from the U.S. government that enables the repayments 
of the U.S. Government-sponsored enterprise's eligible securities;
    (6) A publicly traded debt security that meets the terms of 12 CFR 
1.2(d) and is issued by a U.S. Government-sponsored enterprise not 
operating with capital support or another form of direct financial 
assistance from the U.S. government, and is not an asset-backed 
security;
    (7) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the Bank for International 
Settlements, the International Monetary Fund, or a multilateral 
development bank;
    (8) A security solely in the form of:
    (i) Publicly traded debt not otherwise described in this paragraph 
(b) that meets the terms of 12 CFR 1.2(d) and is not an asset-backed 
security;
    (ii) Publicly traded common equity that is included in:
    (A) The Standard & Poor's Composite 1500 Index or any other similar 
index of liquid and readily marketable equity securities as determined 
by the Board; or
    (B) An index that a covered swap entity's supervisor in a foreign 
jurisdiction recognizes for purposes of including publicly traded common 
equity as initial margin under applicable regulatory policy, if held in 
that foreign jurisdiction;
    (9) Securities in the form of redeemable securities in a pooled 
investment fund representing the security-holder's proportional interest 
in the fund's net assets and that are issued and redeemed only on the 
basis of the market value of the fund's net assets prepared each 
business day after the security-holder makes its investment commitment 
or redemption request to the fund, if:
    (i) The fund's investments are limited to the following:
    (A) Securities that are issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury, and immediately-available cash funds denominated in 
U.S. dollars; or
    (B) Securities denominated in a common currency and issued by, or 
fully guaranteed as to the payment of principal and interest by, the 
European Central Bank or a sovereign entity that is assigned no higher 
than a 20 percent risk weight under the capital rules applicable to the 
covered swap entity as set forth in Sec. 237.12, and immediately-
available cash funds denominated in the same currency; and
    (ii) Assets of the fund may not be transferred through securities 
lending, securities borrowing, repurchase agreements, reverse repurchase 
agreements, or other means that involve the fund having rights to 
acquire the same or similar assets from the transferee; or
    (10) Gold.
    (c)(1) The value of any eligible collateral collected or posted to 
satisfy margin requirements pursuant to this subpart is subject to the 
sum of the following discounts, as applicable:
    (i) An 8 percent discount for variation margin collateral 
denominated in a currency that is not the currency of settlement for the 
non-cleared swap or non-cleared security-based swap, except for 
immediately available cash funds denominated in U.S. dollars or another 
major currency;
    (ii) An 8 percent discount for initial margin collateral denominated 
in a currency that is not the currency of settlement for the non-cleared 
swap or non-cleared security-based swap, except for eligible types of 
collateral denominated in a single termination currency designated as 
payable to the non-posting counterparty as part of the eligible master 
netting agreement; and
    (iii) For variation and initial margin non-cash collateral, the 
discounts described in appendix B of this subpart.
    (2) The value of variation margin or initial margin collateral is 
computed as the product of the cash or market value of the eligible 
collateral asset times one minus the applicable discounts pursuant to 
paragraph (c)(1) of this section expressed in percentage terms. The 
total value of all variation margin or initial margin collateral is 
calculated as the sum of those values for each eligible collateral 
asset.
    (d) Notwithstanding paragraphs (a) and (b) of this section, eligible 
collateral for initial margin and variation

[[Page 65]]

margin required by this subpart does not include a security issued by:
    (1) The party or an affiliate of the party pledging such collateral;
    (2) A bank holding company, a savings and loan holding company, a 
U.S. intermediate holding company established or designated for purposes 
of compliance with 12 CFR 252.153, a foreign bank, a depository 
institution, a market intermediary, a company that would be any of the 
foregoing if it were organized under the laws of the United States or 
any State, or an affiliate of any of the foregoing institutions; or
    (3) A nonbank financial institution supervised by the Board of 
Governors of the Federal Reserve System under Title I of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323).
    (e) A covered swap entity shall monitor the market value and 
eligibility of all collateral collected and posted to satisfy the 
minimum initial margin and minimum variation margin requirements of this 
subpart. To the extent that the market value of such collateral has 
declined, the covered swap entity shall promptly collect or post such 
additional eligible collateral as is necessary to maintain compliance 
with the margin requirements of this subpart. To the extent that the 
collateral is no longer eligible, the covered swap entity shall promptly 
collect or post sufficient eligible replacement collateral to comply 
with the margin requirements of this subpart.
    (f) A covered swap entity may collect or post initial margin and 
variation margin that is required by Sec. 237.3(d) or Sec. 237.4(c) or 
that is not required pursuant to this subpart in any form of collateral.

[80 FR 74898, 74911, Nov. 30, 2015, as amended at 80 FR 74912, Nov. 30, 
2015]



Sec. 237.7  Segregation of collateral.

    (a) A covered swap entity that posts any collateral other than for 
variation margin with respect to a non-cleared swap or a non-cleared 
security-based swap shall require that all funds or other property other 
than variation margin provided by the covered swap entity be held by one 
or more custodians that are not the covered swap entity or counterparty 
and not affiliates of the covered swap entity or the counterparty.
    (b) A covered swap entity that collects initial margin required by 
Sec. 237.3(a) with respect to a non-cleared swap or a non-cleared 
security-based swap shall require that such initial margin be held by 
one or more custodians that are not the covered swap entity or 
counterparty and not affiliates of the covered swap entity or the 
counterparty.
    (c) For purposes of paragraphs (a) and (b) of this section, the 
custodian must act pursuant to a custody agreement that:
    (1) Prohibits the custodian from rehypothecating, repledging, 
reusing, or otherwise transferring (through securities lending, 
securities borrowing, repurchase agreement, reverse repurchase agreement 
or other means) the collateral held by the custodian, except that cash 
collateral may be held in a general deposit account with the custodian 
if the funds in the account are used to purchase an asset described in 
Sec. 237.6(a)(2) or (b), such asset is held in compliance with this 
Sec. 237.7, and such purchase takes place within a time period 
reasonably necessary to consummate such purchase after the cash 
collateral is posted as initial margin; and
    (2) Is a legal, valid, binding, and enforceable agreement under the 
laws of all relevant jurisdictions, including in the event of 
bankruptcy, insolvency, or a similar proceeding.
    (d) Notwithstanding paragraph (c)(1) of this section, a custody 
agreement may permit the posting party to substitute or direct any 
reinvestment of posted collateral held by the custodian, provided that, 
with respect to collateral collected by a covered swap entity pursuant 
to Sec. 237.3(a) or posted by a covered swap entity pursuant to 
Sec. 237.3(b), the agreement requires the posting party to:
    (1) Substitute only funds or other property that would qualify as 
eligible collateral under Sec. 237.6, and for which the amount net of 
applicable discounts described in appendix B of this subpart would be 
sufficient to meet the requirements of Sec. 237.3; and
    (2) Direct reinvestment of funds only in assets that would qualify 
as eligible collateral under Sec. 237.6, and for which

[[Page 66]]

the amount net of applicable discounts described in appendix B of this 
subpart would be sufficient to meet the requirements of Sec. 237.3.



Sec. 237.8  Initial margin models and standardized amounts.

    (a) Standardized amounts. Unless a covered swap entity's initial 
margin model conforms to the requirements of this section, the covered 
swap entity shall calculate the amount of initial margin required to be 
collected or posted for one or more non-cleared swaps or non-cleared 
security-based swaps with a given counterparty pursuant to Sec. 237.3 on 
a daily basis pursuant to appendix A of this subpart.
    (b) Use of initial margin models. A covered swap entity may 
calculate the amount of initial margin required to be collected or 
posted for one or more non-cleared swaps or non-cleared security-based 
swaps with a given counterparty pursuant to Sec. 237.3 on a daily basis 
using an initial margin model only if the initial margin model meets the 
requirements of this section.
    (c) Requirements for initial margin model. (1) A covered swap entity 
must obtain the prior written approval of the Board before using any 
initial margin model to calculate the initial margin required in this 
subpart.
    (2) A covered swap entity must demonstrate that the initial margin 
model satisfies all of the requirements of this section on an ongoing 
basis.
    (3) A covered swap entity must notify the Board in writing 60 days 
prior to:
    (i) Extending the use of an initial margin model that the Board has 
approved under this section to an additional product type;
    (ii) Making any change to any initial margin model approved by the 
Board under this section that would result in a material change in the 
covered swap entity's assessment of initial margin requirements; or
    (iii) Making any material change to modeling assumptions used by the 
initial margin model.
    (4) The Board may rescind its approval of the use of any initial 
margin model, in whole or in part, or may impose additional conditions 
or requirements if the Board determines, in its sole discretion, that 
the initial margin model no longer complies with this section.
    (d) Quantitative requirements. (1) The covered swap entity's initial 
margin model must calculate an amount of initial margin that is equal to 
the potential future exposure of the non-cleared swap, non-cleared 
security-based swap or netting portfolio of non-cleared swaps or non-
cleared security-based swaps covered by an eligible master netting 
agreement. Potential future exposure is an estimate of the one-tailed 99 
percent confidence interval for an increase in the value of the non-
cleared swap, non-cleared security-based swap or netting portfolio of 
non-cleared swaps or non-cleared security-based swaps due to an 
instantaneous price shock that is equivalent to a movement in all 
material underlying risk factors, including prices, rates, and spreads, 
over a holding period equal to the shorter of ten business days or the 
maturity of the non-cleared swap, non-cleared security-based swap or 
netting portfolio.
    (2) All data used to calibrate the initial margin model must be 
based on an equally weighted historical observation period of at least 
one year and not more than five years and must incorporate a period of 
significant financial stress for each broad asset class that is 
appropriate to the non-cleared swaps and non-cleared security-based 
swaps to which the initial margin model is applied.
    (3) The covered swap entity's initial margin model must use risk 
factors sufficient to measure all material price risks inherent in the 
transactions for which initial margin is being calculated. The risk 
categories must include, but should not be limited to, foreign exchange 
or interest rate risk, credit risk, equity risk, and commodity risk, as 
appropriate. For material exposures in significant currencies and 
markets, modeling techniques must capture spread and basis risk and must 
incorporate a sufficient number of segments of the yield curve to 
capture differences in volatility and imperfect correlation of rates 
along the yield curve.

[[Page 67]]

    (4) In the case of a non-cleared cross-currency swap, the covered 
swap entity's initial margin model need not recognize any risks or risk 
factors associated with the fixed, physically-settled foreign exchange 
transaction associated with the exchange of principal embedded in the 
non-cleared cross-currency swap. The initial margin model must recognize 
all material risks and risk factors associated with all other payments 
and cash flows that occur during the life of the non-cleared cross-
currency swap.
    (5) The initial margin model may calculate initial margin for a non-
cleared swap or non-cleared security-based swap or a netting portfolio 
of non-cleared swaps or non-cleared security-based swaps covered by an 
eligible master netting agreement. It may reflect offsetting exposures, 
diversification, and other hedging benefits for non-cleared swaps and 
non-cleared security-based swaps that are governed by the same eligible 
master netting agreement by incorporating empirical correlations within 
the following broad risk categories, provided the covered swap entity 
validates and demonstrates the reasonableness of its process for 
modeling and measuring hedging benefits: Commodity, credit, equity, and 
foreign exchange or interest rate. Empirical correlations under an 
eligible master netting agreement may be recognized by the initial 
margin model within each broad risk category, but not across broad risk 
categories.
    (6) If the initial margin model does not explicitly reflect 
offsetting exposures, diversification, and hedging benefits between 
subsets of non-cleared swaps or non-cleared security-based swaps within 
a broad risk category, the covered swap entity must calculate an amount 
of initial margin separately for each subset within which such 
relationships are explicitly recognized by the initial margin model. The 
sum of the initial margin amounts calculated for each subset of non-
cleared swaps and non-cleared security-based swaps within a broad risk 
category will be used to determine the aggregate initial margin due from 
the counterparty for the portfolio of non-cleared swaps and non-cleared 
security-based swaps within the broad risk category.
    (7) The sum of the initial margin amounts calculated for each broad 
risk category will be used to determine the aggregate initial margin due 
from the counterparty.
    (8) The initial margin model may not permit the calculation of any 
initial margin collection amount to be offset by, or otherwise take into 
account, any initial margin that may be owed or otherwise payable by the 
covered swap entity to the counterparty.
    (9) The initial margin model must include all material risks arising 
from the nonlinear price characteristics of option positions or 
positions with embedded optionality and the sensitivity of the market 
value of the positions to changes in the volatility of the underlying 
rates, prices, or other material risk factors.
    (10) The covered swap entity may not omit any risk factor from the 
calculation of its initial margin that the covered swap entity uses in 
its initial margin model unless it has first demonstrated to the 
satisfaction of the Board that such omission is appropriate.
    (11) The covered swap entity may not incorporate any proxy or 
approximation used to capture the risks of the covered swap entity's 
non-cleared swaps or non-cleared security-based swaps unless it has 
first demonstrated to the satisfaction of the Board that such proxy or 
approximation is appropriate.
    (12) The covered swap entity must have a rigorous and well-defined 
process for re-estimating, re-evaluating, and updating its internal 
margin model to ensure continued applicability and relevance.
    (13) The covered swap entity must review and, as necessary, revise 
the data used to calibrate the initial margin model at least annually, 
and more frequently as market conditions warrant, to ensure that the 
data incorporate a period of significant financial stress appropriate to 
the non-cleared swaps and non-cleared security-based swaps to which the 
initial margin model is applied.

[[Page 68]]

    (14) The level of sophistication of the initial margin model must be 
commensurate with the complexity of the non-cleared swaps and non-
cleared security-based swaps to which it is applied. In calculating an 
initial margin collection amount, the initial margin model may make use 
of any of the generally accepted approaches for modeling the risk of a 
single instrument or portfolio of instruments.
    (15) The Board may in its sole discretion require a covered swap 
entity using an initial margin model to collect a greater amount of 
initial margin than that determined by the covered swap entity's initial 
margin model if the Board determines that the additional collateral is 
appropriate due to the nature, structure, or characteristics of the 
covered swap entity's transaction(s), or is commensurate with the risks 
associated with the transaction(s).
    (e) Periodic review. A covered swap entity must periodically, but no 
less frequently than annually, review its initial margin model in light 
of developments in financial markets and modeling technologies, and 
enhance the initial margin model as appropriate to ensure that the 
initial margin model continues to meet the requirements for approval in 
this section.
    (f) Control, oversight, and validation mechanisms. (1) The covered 
swap entity must maintain a risk control unit that reports directly to 
senior management and is independent from the business trading units.
    (2) The covered swap entity's risk control unit must validate its 
initial margin model prior to implementation and on an ongoing basis. 
The covered swap entity's validation process must be independent of the 
development, implementation, and operation of the initial margin model, 
or the validation process must be subject to an independent review of 
its adequacy and effectiveness. The validation process must include:
    (i) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the initial margin model;
    (ii) An ongoing monitoring process that includes verification of 
processes and benchmarking by comparing the covered swap entity's 
initial margin model outputs (estimation of initial margin) with 
relevant alternative internal and external data sources or estimation 
techniques. The benchmark(s) must address the chosen model's 
limitations. When applicable, the covered swap entity should consider 
benchmarks that allow for non-normal distributions such as historical 
and Monte Carlo simulations. When applicable, validation shall include 
benchmarking against observable margin standards to ensure that the 
initial margin required is not less than what a derivatives clearing 
organization or a clearing agency would require for similar cleared 
transactions; and
    (iii) An outcomes analysis process that includes backtesting the 
initial margin model. This analysis must recognize and compensate for 
the challenges inherent in back-testing over periods that do not contain 
significant financial stress.
    (3) If the validation process reveals any material problems with the 
initial margin model, the covered swap entity must promptly notify the 
Board of the problems, describe to the Board any remedial actions being 
taken, and adjust the initial margin model to ensure an appropriately 
conservative amount of required initial margin is being calculated.
    (4) The covered swap entity must have an internal audit function 
independent of business-line management and the risk control unit that 
at least annually assesses the effectiveness of the controls supporting 
the covered swap entity's initial margin model measurement systems, 
including the activities of the business trading units and risk control 
unit, compliance with policies and procedures, and calculation of the 
covered swap entity's initial margin requirements under this subpart. At 
least annually, the internal audit function must report its findings to 
the covered swap entity's board of directors or a committee thereof.
    (g) Documentation. The covered swap entity must adequately document 
all material aspects of its initial margin model, including the 
management and valuation of the non-cleared swaps and non-cleared 
security-based swaps to which it applies, the control, oversight,

[[Page 69]]

and validation of the initial margin model, any review processes and the 
results of such processes.
    (h) Escalation procedures. The covered swap entity must adequately 
document internal authorization procedures, including escalation 
procedures, that require review and approval of any change to the 
initial margin calculation under the initial margin model, demonstrable 
analysis that any basis for any such change is consistent with the 
requirements of this section, and independent review of such 
demonstrable analysis and approval.



Sec. 237.9  Cross-border application of margin requirements.

    (a) Transactions to which this rule does not apply. The requirements 
of Secs. 237.3 through 237.8 and Secs. 237.10 through 237.12 shall not 
apply to any foreign non-cleared swap or foreign non-cleared security-
based swap of a foreign covered swap entity.
    (b) For purposes of this section, a foreign non-cleared swap or 
foreign non-cleared security-based swap is any non-cleared swap or non-
cleared security-based swap with respect to which neither the 
counterparty to the foreign covered swap entity nor any party that 
provides a guarantee of either party's obligations under the non-cleared 
swap or non-cleared security-based swap is:
    (1) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or subsidiary of a foreign bank) 
or a natural person who is a resident of the United States;
    (2) A branch or office of an entity organized under the laws of the 
United States or any State; or
    (3) A swap entity that is a subsidiary of an entity that is 
organized under the laws of the United States or any State.
    (c) For purposes of this section, a foreign covered swap entity is 
any covered swap entity that is not:
    (1) An entity organized under the laws of the United States or any 
State, including a U.S. branch, agency, or subsidiary of a foreign bank;
    (2) A branch or office of an entity organized under the laws of the 
United States or any State; or
    (3) An entity that is a subsidiary of an entity that is organized 
under the laws of the United States or any State.
    (d) Transactions for which substituted compliance determination may 
apply--(1) Determinations and reliance. For non-cleared swaps and non-
cleared security-based swaps entered into by covered swap entities 
described in paragraph (d)(3) of this section, a covered swap entity may 
satisfy the provisions of this subpart by complying with the foreign 
regulatory framework for non-cleared swaps and non-cleared security-
based swaps that the prudential regulators jointly, conditionally or 
unconditionally, determine by public order satisfy the corresponding 
requirements of Secs. 237.3 through 237.8 and Secs. 237.10 through 
237.12.
    (2) Standard. In determining whether to make a determination under 
paragraph (d)(1) of this section, the prudential regulators will 
consider whether the requirements of such foreign regulatory framework 
for non-cleared swaps and non-cleared security-based swaps applicable to 
such covered swap entities are comparable to the otherwise applicable 
requirements of this subpart and appropriate for the safe and sound 
operation of the covered swap entity, taking into account the risks 
associated with non-cleared swaps and non-cleared security-based swaps.
    (3) Covered swap entities eligible for substituted compliance. A 
covered swap entity may rely on a determination under paragraph (d)(1) 
of this section only if:
    (i) The covered swap entity's obligations under the non-cleared swap 
or non-cleared security-based swap do not have a guarantee from:
    (A) An entity organized under the laws of the United States or any 
State (other than a U.S. branch or agency of a foreign bank) or a 
natural person who is a resident of the United States; or
    (B) A branch or office of an entity organized under the laws of the 
United States or any State; and
    (ii) The covered swap entity is:
    (A) A foreign covered swap entity;
    (B) A U.S. branch or agency of a foreign bank; or
    (C) An entity that is not organized under the laws of the United 
States or

[[Page 70]]

any State and is a subsidiary of a depository institution, Edge 
corporation, or agreement corporation.
    (4) Compliance with foreign margin collection requirement. A covered 
swap entity satisfies its requirement to post initial margin under 
Sec. 237.3(b) by posting to its counterparty initial margin in the form 
and amount, and at such times, that its counterparty is required to 
collect pursuant to a foreign regulatory framework, provided that the 
counterparty is subject to the foreign regulatory framework and the 
prudential regulators have made a determination under paragraph (d)(1) 
of this section, unless otherwise stated in that determination, and the 
counterparty's obligations under the non-cleared swap or non-cleared 
security-based swap do not have a guarantee from:
    (i) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or subsidiary of a foreign bank) 
or a natural person who is a resident of the United States; or
    (ii) A branch or office of an entity organized under the laws of the 
United States or any State.
    (e) Requests for determinations. (1) A covered swap entity described 
in paragraph (d)(3) of this section may request that the prudential 
regulators make a determination pursuant to this section. A request for 
a determination must include a description of:
    (i) The scope and objectives of the foreign regulatory framework for 
non-cleared swaps and non-cleared security-based swaps;
    (ii) The specific provisions of the foreign regulatory framework for 
non-cleared swaps and non-cleared security-based swaps that govern:
    (A) The scope of transactions covered;
    (B) The determination of the amount of initial margin and variation 
margin required and how that amount is calculated;
    (C) The timing of margin requirements;
    (D) Any documentation requirements;
    (E) The forms of eligible collateral;
    (F) Any segregation and rehypothecation requirements; and
    (G) The approval process and standards for models used in 
calculating initial margin and variation margin;
    (iii) The supervisory compliance program and enforcement authority 
exercised by a foreign financial regulatory authority or authorities in 
such system to support its oversight of the application of the non-
cleared swap or non-cleared security-based swap regulatory framework and 
how that framework applies to the non-cleared swaps or non-cleared 
security-based swaps of the covered swap entity; and
    (iv) Any other descriptions and documentation that the prudential 
regulators determine are appropriate.
    (2) A covered swap entity described in paragraph (d)(3) of this 
section may make a request under this section only if the non-cleared 
swap or non-cleared security-based swap activities of the covered swap 
entity are directly supervised by the authorities administering the 
foreign regulatory framework for non-cleared swaps and non-cleared 
security-based swaps.
    (f) Segregation unavailable. Sections 237.3(b) and 237.7 do not 
apply to a non-cleared swap or non-cleared security-based swap entered 
into by:
    (1) A foreign branch of a covered swap entity that is a depository 
institution; or
    (2) A covered swap entity that is not organized under the laws of 
the United States or any State and is a subsidiary of a depository 
institution, Edge corporation, or agreement corporation, if:
    (i) Inherent limitations in the legal or operational infrastructure 
in the foreign jurisdiction make it impracticable for the covered swap 
entity and the counterparty to post any form of eligible initial margin 
collateral recognized pursuant to Sec. 237.6(b) in compliance with the 
segregation requirements of Sec. 237.7;
    (ii) The covered swap entity is subject to foreign regulatory 
restrictions that require the covered swap entity to transact in the 
non-cleared swap or non-cleared security-based swap with the 
counterparty through an establishment within the foreign jurisdiction 
and do not accommodate the posting of collateral for the non-cleared 
swap or non-cleared security-based swap outside the jurisdiction;

[[Page 71]]

    (iii) The counterparty to the non-cleared swap or non-cleared 
security-based swap is not, and the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap do not have a 
guarantee from:
    (A) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or subsidiary of a foreign bank) 
or a natural person who is a resident of the United States; or
    (B) A branch or office of an entity organized under the laws of the 
United States or any State;
    (iv) The covered swap entity collects initial margin for the non-
cleared swap or non-cleared security-based swap in accordance with 
Sec. 237.3(a) in the form of cash pursuant to Sec. 237.6(b)(1), and 
posts and collects variation margin in accordance with Sec. 237.4(a) in 
the form of cash pursuant to Sec. 237.6(b)(1); and
    (v) The Board provides the covered swap entity with prior written 
approval for the covered swap entity's reliance on this paragraph (f) 
for the foreign jurisdiction.
    (g) Guarantee means an arrangement pursuant to which one party to a 
non-cleared swap or non-cleared security-based swap has rights of 
recourse against a third-party guarantor, with respect to its 
counterparty's obligations under the non-cleared swap or non-cleared 
security-based swap. For these purposes, a party to a non-cleared swap 
or non-cleared security-based swap has rights of recourse against a 
guarantor if the party has a conditional or unconditional legally 
enforceable right to receive or otherwise collect, in whole or in part, 
payments from the guarantor with respect to its counterparty's 
obligations under the non-cleared swap or non-cleared security-based 
swap. In addition, any arrangement pursuant to which the guarantor has a 
conditional or unconditional legally enforceable right to receive or 
otherwise collect, in whole or in part, payments from any other third 
party guarantor with respect to the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap, such arrangement 
will be deemed a guarantee of the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap by the other 
guarantor.



Sec. 237.10  Documentation of margin matters.

    A covered swap entity shall execute trading documentation with each 
counterparty that is either a swap entity or financial end user 
regarding credit support arrangements that:
    (a) Provides the covered swap entity and its counterparty with the 
contractual right to collect and post initial margin and variation 
margin in such amounts, in such form, and under such circumstances as 
are required by this subpart; and
    (b) Specifies:
    (1) The methods, procedures, rules, and inputs for determining the 
value of each non-cleared swap or non-cleared security-based swap for 
purposes of calculating variation margin requirements; and
    (2) The procedures by which any disputes concerning the valuation of 
non-cleared swaps or non-cleared security-based swaps, or the valuation 
of assets collected or posted as initial margin or variation margin, may 
be resolved; and
    (c) Describes the methods, procedures, rules, and inputs used to 
calculate initial margin for non-cleared swaps and non-cleared security 
based swaps entered into between the covered swap entity and the 
counterparty.



Sec. 237.11  Special rules for affiliates.

    (a) Affiliates. This subpart applies to a non-cleared swap or non-
cleared security-based swap of a covered swap entity with its affiliate, 
unless the swap or security-based swap is excluded from coverage under 
Sec. 237.1(d) or as otherwise provided in this section. To the extent of 
any inconsistency between this section and any other provision of this 
subpart, this section will apply.
    (b) Initial margin--(1) Posting of initial margin. The requirement 
for a covered swap entity to post initial margin under Sec. 237.3(b) 
does not apply with respect to any non-cleared swap or non-cleared 
security-based swap with a counterparty that is an affiliate. A covered 
swap entity shall calculate the amount of initial margin that would be 
required to be posted to an affiliate

[[Page 72]]

that is a financial end user with material swaps exposure pursuant to 
Sec. 237.3(b) and provide documentation of such amount to each affiliate 
on a daily basis.
    (2) Initial margin threshold amount. For purposes of calculating the 
amount of initial margin to be collected from an affiliate counterparty 
in accordance with Sec. 237.3(a) or calculating the amount of initial 
margin that would have been posted to an affiliate counterparty in 
accordance with paragraph (b)(1) of this section, the initial margin 
threshold amount is an aggregate credit exposure of $20 million 
resulting from all non-cleared swaps and non-cleared security-based 
swaps between the covered swap entity and that affiliate. For purposes 
of this calculation, an entity shall not count a non-cleared swap or 
non-cleared security-based swap that is exempt pursuant to 
Sec. 237.1(d).
    (c) Variation margin. A covered swap entity shall collect and post 
variation margin with respect to a non-cleared swap or non-cleared 
security-based swap with any counterparty that is an affiliate as 
provided in Sec. 237.4.
    (d) Custodian for non-cash collateral. To the extent that a covered 
swap entity collects initial margin required by Sec. 237.3(a) from an 
affiliate with respect to any non-cleared swap or non-cleared security-
based swap in the form of collateral other than cash collateral, the 
custodian for such collateral may be the covered swap entity or an 
affiliate of the covered swap entity.
    (e) Model holding period and netting--(1) Model holding period. For 
any non-cleared swap or non-cleared security-based swap (or netting 
portfolio) between a covered swap entity and an affiliate that would be 
subject to the clearing requirements of section 2(h)(1)(A) of the 
Commodity Exchange Act of 1936 or section 3C(a)(1) of the Securities 
Exchange Act of 1934 but for an exemption under section 2(h)(7)(C)(iii) 
or (D) or section 4(c)(1) of the Commodity Exchange Act of 1936 or 
regulations of the Commodity Futures Trading Commission or section 
3C(g)(4) of the Securities Exchange Act of 1934 or regulations of the 
U.S. Securities and Exchange Commission, the covered swap entity's 
initial margin model calculation as described in Sec. 237.8(d)(1) may 
use a holding period equal to the shorter of five business days or the 
maturity of the non-cleared swap or non-cleared security-based swap (or 
netting portfolio).
    (2) Netting arrangements. Any netting portfolio that contains any 
non-cleared swap or non-cleared security-based swap with a model holding 
period equal to the shorter of five business days or the maturity of the 
non-cleared swap or non-cleared security-based swap pursuant to 
paragraph (e)(1) of this section must be identified and separate from 
any other netting portfolio for purposes of calculating and complying 
with the initial margin requirements of this subpart.
    (f) Standardized amounts. If a covered swap entity's initial margin 
model does not conform to the requirements of Sec. 237.8, the covered 
swap entity shall calculate the amount of initial margin required to be 
collected for one or more non-cleared swaps or non-cleared security-
based swaps with a given affiliate counterparty pursuant to section 
Sec. 237.3 on a daily basis pursuant to appendix A with the gross 
initial margin multiplied by 0.7.



Sec. 237.12  Capital.

    A covered swap entity shall comply with:
    (a) In the case of a covered swap entity that is a state member bank 
(as defined in 12 CFR 208.2(g)), the provisions of the Board's 
Regulation Q (12 CFR part 217) applicable to the state member bank;
    (b) In the case of a covered swap entity that is a bank holding 
company (as defined in 12 U.S.C. 1842) or a savings and loan holding 
company (as defined in 12 U.S.C. 1467a), the provisions of the Board's 
Regulation Q (12 CFR part 217) applicable to the covered swap entity;
    (c) In the case of a covered swap entity that is a foreign banking 
organization (as defined in 12 CFR 211.21(o)), a U.S. intermediate 
holding company subsidiary of a foreign banking organization (as defined 
in 12 CFR 252.3(y)) or any state branch or state agency of a foreign 
bank (as defined in 12 U.S.C. 3101(b)(11) and (12)), the capital 
standards that are applicable to such covered swap entity under 
Sec. 225.2(r)(3) of

[[Page 73]]

the Board's Regulation Y (12 CFR 225.2(r)(3)) or the Board's Regulation 
YY (12 CFR part 252); and
    (d) In the case of a covered swap entity that is an Edge or 
agreement corporation (as defined in 12 CFR 211.1(c)(2) and (3)), the 
capital standards applicable to an Edge corporation under Sec. 211.12(c) 
of the Board's Regulation K (12 CFR 211.12(c)) and to an agreement 
corporation under Secs. 211.5(g) and 211.12(c) of the Board's Regulation 
K (12 CFR 211.5(g) and 211.12(c)).

[80 FR 74912, Nov. 30, 2015]



 Sec. Appendix A to Subpart A to Part 237--Standardized Minimum Initial 
  Margin Requirements for Non-Cleared Swaps and Non--Cleared Security-
                               Based Swaps

Table A--Standardized Minimum Gross Initial Margin Requirements for Non-
          Cleared Swaps and Non-Cleared Security-Based Swaps\1\
------------------------------------------------------------------------
                                                           Gross initial
                                                           margin  (% of
                       Asset Class                           notional
                                                             exposure)
------------------------------------------------------------------------
Credit: 0-2 year duration...............................               2
Credit: 2-5 year duration...............................               5
Credit: 5+ year duration................................              10
Commodity...............................................              15
Equity..................................................              15
Foreign Exchange/Currency...............................               6
Cross Currency Swaps: 0-2 year duration.................               1
Cross-Currency Swaps: 2-5 year duration.................               2
Cross-Currency Swaps: 5+ year duration..................               4
Interest Rate: 0-2 year duration........................               1
Interest Rate: 2-5 year duration........................               2
Interest Rate: 5+ year duration.........................               4
Other...................................................              15
------------------------------------------------------------------------
\1\ The initial margin amount applicable to multiple non-cleared swaps
  or non-cleared security-based swaps subject to an eligible master
  netting agreement that is calculated according to Appendix A will be
  computed as follows:
Initial Margin=0.4xGross Initial Margin +0.6x NGRxGross Initial Margin
where;
Gross Initial Margin = the sum of the product of each non-cleared swap's
  or non-cleared security-based swap's effective notional amount and the
  gross initial margin requirement for all non-cleared swaps and non-
  cleared security-based swaps subject to the eligible master netting
  agreement;
and
NGR = the net-to-gross ratio (that is, the ratio of the net current
  replacement cost to the gross current replacement cost). In
  calculating NGR, the gross current replacement cost equals the sum of
  the replacement cost for each non-cleared swap and non-cleared
  security-based swap subject to the eligible master netting agreement
  for which the cost is positive. The net current replacement cost
  equals the total replacement cost for all non-cleared swaps and non-
  cleared security-based swaps subject to the eligible master netting
  agreement. In cases where the gross replacement cost is zero, the NGR
  should be set to 1.0.



  Sec. Appendix B to Subpart A to Part 237--Margin Values for Eligible 
                        Noncash Margin Collateral

      Table B--Margin Values for Eligible Noncash Margin Collateral
------------------------------------------------------------------------
                       Asset class                         Discount (%)
------------------------------------------------------------------------
Eligible government and related (e.g., central bank,                 0.5
 multilateral development bank, GSE securities
 identified in Sec.  237.6(a)(2)(iv) or (b)(5) debt:
 residual maturity less than one-year...................
Eligible government and related (e.g., central bank,                 2.0
 multilateral development bank, GSE securities
 identified in Sec.  237.6(a)(2)(iv) or (b)(5) debt:
 residual maturity between one and five years...........
Eligible government and related (e.g., central bank,                 4.0
 multilateral development bank, GSE securities
 identified in Sec.  237.6(a)(2)(iv) or (b)(5) debt:
 residual maturity greater than five years..............
Eligible GSE debt securities not identified in Sec.                  1.0
 237.6(a)(2)(iv) or (b)(5): residual maturity less than
 one-year...............................................
Eligible GSE debt securities not identified in Sec.                  4.0
 237.6(a)(2)(iv) or (b)(5): residual maturity between
 one and five years:....................................
Eligible GSE debt securities not identified in Sec.                  8.0
 237.6(a)(2)(iv) or (b)(5): residual maturity greater
 than five years:.......................................
Other eligible publicly traded debt: residual maturity               1.0
 less than one-year.....................................
Other eligible publicly traded debt: residual maturity               4.0
 between one and five years.............................
Other eligible publicly traded debt: residual maturity               8.0
 greater than five years................................
Equities included in S&P 500 or related index...........            15.0
Equities included in S&P 1500 Composite or related index            25.0
 but not S&P 500 or related index.......................

[[Page 74]]

 
Gold....................................................            15.0
------------------------------------------------------------------------
\1\ The discount to be applied to an eligible investment fund is the
  weighted average discount on all assets within the eligible investment
  fund at the end of the prior month. The weights to be applied in the
  weighted average should be calculated as a fraction of the fund's
  total market value that is invested in each asset with a given
  discount amount. As an example, an eligible investment fund that is
  comprised solely of $100 of 91 day Treasury bills and $100 of 3 year
  US Treasury bonds would receive a discount of (100/200)*0.5+(100/
  200)*2.0=(0.5)*0.5+(0.5)*2.0=1.25 percent.



   Subpart B_Prohibition Against Federal Assistance to Swaps Entities

    Source: 79 FR 343, Jan. 3, 2014, unless otherwise noted.



Sec. 237.20  Definitions.

    Unless otherwise specified, for purposes of this subpart:
    (a) Board means the Board of Governors of the Federal Reserve 
System.
    (b) Dodd-Frank Act means the Dodd-Frank Wall Street Reform and 
Consumer Protection Act.
    (c) Foreign bank has the same meaning as in Sec. 211.21(n) of the 
Board's Regulation K (12 CFR 211.21(n)).
    (d) Major security-based swap participant has the same meaning as in 
section 3(a)(67) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(67)) and as implemented in rules and orders issued by the 
Securities and Exchange Commission.
    (e) Major swap participant has the same meaning as in section 1a(33) 
of the Commodity Exchange Act (7 U.S.C. 1a(33)) and as implemented in 
rules and orders issued by the Commodity Futures Trading Commission.
    (f) Security-based swap has the same meaning as in section 3(a)(68) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)) and as 
implemented in rules and orders issued by the Securities and Exchange 
Commission.
    (g) Security-based swap dealer has the same meaning as in section 
3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71)) 
and as implemented in rules and orders issued by the Securities and 
Exchange Commission.
    (h) Swap dealer has the same meaning as in section 1a(49) of the 
Commodity Exchange Act (7 U.S.C. 1a(49)) and as implemented in rules and 
orders issued by the Commodity Futures Trading Commission.
    (i) Swaps entity means a person that is registered as a swap dealer, 
security-based swap dealer, major swap participant, or major security-
based swap participant under the Commodity Exchange Act or Securities 
Exchange Act of 1934, other than an insured depository institution that 
is registered as a major swap participant or major security-based swap 
participant.



Sec. 237.21  Definition of insured depository institution for purposes of 
section 716 of the Dodd-Frank Act.

    For purposes of section 716 of the Dodd-Frank Act (15 U.S.C. 8305) 
and this rule, the term ``insured depository institution'' includes any 
insured depository institution as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813) and any uninsured U.S. branch or 
agency of a foreign bank. The terms branch, agency, and foreign bank are 
defined in section 1 of the International Banking Act of 1978 (12 U.S.C. 
3101).



Sec. 237.22  Transition period for insured depository institutions.

    (a) Approval of transition period. (1) To the extent an insured 
depository institution for which the Board is the appropriate Federal 
banking agency qualifies as a ``swaps entity'' and would be subject to 
the Federal assistance prohibition in section 716(a) of the Dodd-Frank 
Act (15 U.S.C. 8305(a)), the insured depository institution may request 
a transition period of up to 24 months from the later of July 16, 2013, 
or the date on which it becomes a swaps entity, during which to conform 
its swaps activities to the requirements of section 716 of the Dodd-
Frank Act (15 U.S.C. 8305) by submitting a request in writing to the 
Board.
    (2) Any request submitted pursuant to this paragraph (a) of this 
section

[[Page 75]]

shall, at a minimum, include the following information:
    (i) The length of the transition period requested;
    (ii) A description of the quantitative and qualitative impacts of 
divestiture or cessation of swap or security-based swaps activities on 
the insured depository institution, including information that addresses 
the factors in paragraph (c) of this section; and
    (iii) A detailed explanation of the insured depository institution's 
plan for conforming its activities to the requirements of section 716 of 
the Dodd-Frank Act (15 U.S.C. 8305) and this part.
    (3) The Board may, at any time, request additional information that 
it believes is necessary for its decision.
    (b) Transition period for insured depository institutions. Following 
review of a written request submitted under paragraph (a) of this 
section, the Board shall permit an insured depository institution for 
which it is the appropriate Federal banking agency up to 24 months after 
the later of July 16, 2013, or the date on which the insured depository 
institution becomes a swaps entity, to comply with the requirements of 
section 716 of the Dodd-Frank Act (15 U.S.C. 8305) and this subpart 
based on its consideration of the factors in paragraph (c).
    (c) Factors governing Board determinations. In establishing an 
appropriate transition period pursuant to any request under this 
section, the Board will take into account and make written findings 
regarding:
    (1) The potential impact of divestiture or cessation of swap or 
security-based swaps activities on the insured depository institution's:
    (i) Mortgage lending;
    (ii) Small business lending;
    (iii) Job creation; and
    (iv) Capital formation versus the potential negative impact on 
insured depositors and the Deposit Insurance Fund of the Federal Deposit 
Insurance Corporation; and
    (2) Any other factor that the Board believes appropriate.
    (d) Timing of Board review. The Board will seek to act on a request 
under paragraph (a) of this section expeditiously after the receipt of a 
complete request.
    (e) Extension of transition period. The Board may extend a 
transition period provided under this section for a period of up to one 
additional year. To request an extension of the transition period, an 
insured depository institution must submit a written request containing 
the information set forth in paragraph (a) of this section no later than 
60 days before the end of the transition period.
    (f) Authority to impose restrictions during any transition period. 
The Board may impose such conditions on any transition period granted 
under this section as the Board determines are necessary or appropriate.
    (g) Consultation. The Board shall consult with the Commodity Futures 
Trading Commission or the Securities and Exchange Commission, as 
appropriate, prior to the approval of a request by an insured depository 
institution for a transition period under this section.



PART 238_SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)--Table of Contents



                      Subpart A_General Provisions

Sec.
238.1  Authority, purpose and scope.
238.2  Definitions.
238.3  Administration.
238.4  Records, reports, and inspections.
238.5  Audit of savings association holding companies.
238.6  Penalties for violations.
238.7  Tying restriction exception.
238.8  Safe and sound operations.
238.9  Small Bank Holding Company Policy Statement.

   Subpart B_Acquisitions of Savings Association Securities or Assets

238.11  Transactions requiring Board approval.
238.12  Transactions not requiring Board approval.
238.13  Prohibited acquisitions.
238.14  Procedural requirements.
238.15  Factors considered in acting on applications.

                      Subpart C_Control Proceedings

238.21  Control proceedings.

[[Page 76]]

                    Subpart D_Change in Bank Control

238.31  Transactions requiring prior notice.
238.32  Transactions not requiring prior notice.
238.33  Procedures for filing, processing, publishing, and acting on 
          notices.

                   Subpart E_Qualified Stock Issuances

238.41  Qualified stock issuances by undercapitalized savings 
          associations or holding companies.

 Subpart F_Savings and Loan Holding Company Activities and Acquisitions

238.51  Prohibited activities.
238.52  Exempt savings and loan holding companies and grandfathered 
          activities.
238.53  Prescribed services and activities of savings and loan holding 
          companies.
238.54  Permissible bank holding company activities of savings and loan 
          holding companies.

             Subpart G_Financial Holding Company Activities

238.61  Scope.
238.62  Definitions.
238.63  Requirements to engage in financial holding company activities.
238.64  Election required.
238.65  Election procedures.
238.66  Ongoing requirements.

   Subpart H_Notice of Change of Director or Senior Executive Officer

238.71  Purpose.
238.72  Definitions.
238.73  Prior notice requirement.
238.74  Filing and processing procedures.
238.75  Standards for review.
238.76  Waiting period.
238.77  Waiver of prior notice requirement.

   Subpart I_Prohibited Service at Savings and Loan Holding Companies

238.81  Purpose.
238.82  Definitions.
238.83  Prohibited actions.
238.84  Covered convictions or agreements to enter into pre-trial 
          diversions or similar programs.
238.85  Adjudications and offenses not covered.
238.86  Exemptions.
238.87  Filing procedures.
238.88  Factors for review.
238.89  Board action.
239.90  Hearings.

                Subpart J_Management Official Interlocks

238.91  Authority, purpose, and scope.
238.92  Definitions.
238.93  Prohibitions.
238.94  Interlocking relationships permitted by statute.
238.95  Small market share exemption.
238.96  General exemption.
238.97  Change in circumstances.
238.98  Enforcement.
238.99  Interlocking relationships permitted pursuant to Federal Deposit 
          Insurance Act.

         Subpart K_Dividends by Subsidiary Savings Associations

238.101  Authority and purpose.
238.102  Definitions.
238.103  Filing requirement.
238.104  Board action and criteria for review.

 Subpart L_Investigative Proceedings and Formal Examination Proceedings

238.111  Scope.
238.112  Definitions.
238.113  Confidentiality of proceedings.
238.114  Transcripts.
238.115  Rights of witnesses.
238.116  Obstruction of the proceedings.
238.117  Subpoenas.

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 
1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 78 l.

    Source: Reg. LL, 76 FR 56532, Sept. 13, 2011, unless otherwise 
noted.



                      Subpart A_General Provisions



Sec. 238.1  Authority, purpose and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (Board) under section 10(g) of the Home Owners' 
Loan Act (HOLA); section 7(j)(13) of the Federal Deposit Insurance Act, 
as amended by the Change in Bank Control Act of 1978 (12 U.S.C. 
1817(j)(13)) (Bank Control Act); sections 8(b), 19 and 32 of the Federal 
Deposit Insurance Act (12 U.S.C. 1818(b), 1829, and 1831i); and section 
914 of the Financial Institutions Reform, Recovery and Enforcement Act 
of 1989 (12 U.S.C. 1831i) and the Depository Institution Management 
Interlocks Act (12 U.S.C. 3201 et seq.).
    (b) Purpose. The principal purposes of this part are to:
    (1) Regulate the acquisition of control of savings associations by 
companies and individuals;

[[Page 77]]

    (2) Define and regulate the activities in which savings and loan 
holding companies may engage;
    (3) Set forth the procedures for securing approval for these 
transactions and activities; and
    (4) Set forth the procedures under which directors and executive 
officers may be appointed or employed by savings and loan holding 
companies in certain circumstances.



Sec. 238.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Affiliate means any person or company which controls, is 
controlled by or is under common control with a person, savings 
association or company.
    (b) Bank means any national bank, state bank, state-chartered 
savings bank, cooperative bank, or industrial bank, the deposits of 
which are insured by the Deposit Insurance Fund.
    (c) Bank holding company has the meaning found in the Board's 
Regulation Y (12 CFR 225.2(c)).
    (d) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (o) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, or any Federal Home Loan Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State,
    (ii) An officer of the United States or any State in his or her 
official capacity, or
    (iii) An instrumentality of the United States or any State.
    (e) A person shall be deemed to have control of:
    (1) A savings association if the person directly or indirectly or 
acting in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares of such 
savings association, or controls in any manner the election of a 
majority of the directors of such association;
    (2) Any other company if the person directly or indirectly or acting 
in concert with one or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 25 percent of the voting shares or 
rights of such other company, or controls in any manner the election or 
appointment of a majority of the directors or trustees of such other 
company, or is a general partner in or has contributed more than 25 
percent of the capital of such other company;
    (3) A trust if the person is a trustee thereof; or
    (4) A savings association or any other company if the Board 
determines, after reasonable notice and opportunity for hearing, that 
such person directly or indirectly exercises a controlling influence 
over the management or policies of such association or other company.
    (f) Director means any director of a corporation or any individual 
who performs similar functions in respect of any company, including a 
trustee under a trust.
    (g) Management official means any president, chief executive 
officer, chief operating officer, vice president, director, partner, or 
trustee, or any other person who performs or has a representative or 
nominee performing similar policymaking functions, including executive 
officers of principal business units or divisions or subsidiaries who 
perform policymaking functions, for a savings association or a company, 
whether or not incorporated.
    (h) Multiple savings and loan holding company means any savings and 
loan holding company which directly or indirectly controls two or more 
savings associations.
    (i) Officer means the chairman of the board, president, vice 
president, treasurer, secretary, or comptroller of any company, or any 
other person who participates in its major policy decisions.
    (j) Person includes an individual, bank, corporation, partnership, 
trust, association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, or any other form of entity.

[[Page 78]]

    (k) Qualified thrift lender means a financial institution that meets 
the appropriate qualified thrift lender test set forth in 12 U.S.C. 
1467a(m).
    (l) Savings Association means a Federal savings and loan association 
or a Federal savings bank chartered under section 5 of the Home Owners' 
Loan Act, a building and loan, savings and loan or homestead association 
or a cooperative bank (other than a cooperative bank described in 12 
U.S.C. 1813(a)(2)) the deposits of which are insured by the Federal 
Deposit Insurance Corporation, and any corporation (other than a bank) 
the deposits of which are insured by the Federal Deposit Insurance 
Corporation that the Office of the Comptroller of the Currency and the 
Federal Deposit Insurance Corporation jointly determine to be operating 
in substantially the same manner as a savings association, and shall 
include any savings bank or any cooperative bank which is deemed by the 
Office of the Comptroller of the Currency to be a savings association 
under 12 U.S.C. 1467a(1).
    (m) Savings and loan holding company means any company (including a 
savings association) that directly or indirectly controls a savings 
association, but does not include:
    (1) Any company by virtue of its ownership or control of voting 
stock of a savings association acquired in connection with the 
underwriting of securities if such stock is held only for such period of 
time (not exceeding 120 days unless extended by the Board) as will 
permit the sale thereof on a reasonable basis;
    (2) Any trust (other than a pension, profit-sharing, stockholders', 
voting, or business trust) which controls a savings association if such 
trust by its terms must terminate within 25 years or not later than 21 
years and 10 months after the death of individuals living on the 
effective date of the trust, and:
    (i) Was in existence and in control of a savings association on June 
26, 1967, or
    (ii) Is a testamentary trust;
    (3) A bank holding company that is registered under, and subject to, 
the Bank Holding Company Act of 1956, or any company directly or 
indirectly controlled by such company (other than a savings 
association);
    (4) A company that controls a savings association that functions 
solely in a trust or fiduciary capacity as provided in section 
2(c)(2)(D) of the Bank Holding Company Act; or
    (5) A company described in section 10(c)(9)(C) of HOLA solely by 
virtue of such company's control of an intermediate holding company 
established under section 10A of the Home Owners' Loan Act.
    (n) Shareholder--(1) Controlling shareholder means a person that 
owns or control, directly or indirectly, more than 25 percent of any 
class of voting securities of a savings association or other company.
    (2) Principal shareholder means a person that owns or controls, 
directly or indirectly, 10 percent or more of any class of voting 
securities of a savings association or other company, or any person that 
the Board determines has the power, directly or indirectly, to exercise 
a controlling influence over the management or policies of a savings 
association or other company.
    (o) Stock means common or preferred stock, general or limited 
partnership shares or interests, or similar interests.
    (p) Subsidiary means any company which is owned or controlled 
directly or indirectly by a person, and includes any service corporation 
owned in whole or in part by a savings association, or a subsidiary of 
such service corporation.
    (q) Uninsured institution means any financial institution the 
deposits of which are not insured by the Federal Deposit Insurance 
Corporation.
    (r)(1) Voting securities means shares of common or preferred stock, 
general or limited partnership shares or interests, or similar interests 
if the shares or interest, by statute, charter, or in any manner, 
entitle the holder:
    (i) To vote for or to select directors, trustees, or partners (or 
persons exercising similar functions of the issuing company); or
    (ii) To vote on or to direct the conduct of the operations or other 
significant policies of the issuing company.
    (2) Nonvoting shares. Preferred shares, limited partnership shares 
or interests,

[[Page 79]]

or similar interests are not voting securities if:
    (i) Any voting rights associated with the shares or interest are 
limited solely to the type customarily provided by statute with regard 
to matters that would significantly and adversely affect the rights or 
preference of the security or other interest, such as the issuance of 
additional amounts or classes of senior securities, the modification of 
the terms of the security or interest, the dissolution of the issuing 
company, or the payment of dividends by the issuing company when 
preferred dividends are in arrears;
    (ii) The shares or interest represent an essentially passive 
investment or financing device and do not otherwise provide the holder 
with control over the issuing company; and
    (iii) The shares or interest do not entitle the holder, by statute, 
charter, or in any manner, to select or to vote for the selection of 
directors, trustees, or partners (or persons exercising similar 
functions) of the issuing company.
    (3) Class of voting shares. Shares of stock issued by a single 
issuer are deemed to be the same class of voting shares, regardless of 
differences in dividend rights or liquidation preference, if the shares 
are voted together as a single class on all matters for which the shares 
have voting rights other than matters described in paragraph (r)(2)(i) 
of this section that affect solely the rights or preferences of the 
shares.
    (s) Well capitalized. (1) A savings and loan holding company is well 
capitalized if:
    (i) Each of the savings and loan holding company's depository 
institutions is well capitalized; and
    (ii) The savings and loan holding company is not subject to any 
written agreement, order, capital directive, or prompt corrective action 
directive issued by the Board to meet and maintain a specific capital 
level for any capital measure.
    (2) In the case of a savings association, ``well capitalized'' takes 
the meaning provided in Sec. 225.2(r)(2) of this chapter.
    (t) Well managed. The term ``well managed'' takes the meaning 
provided in Sec. 225.2(s) of this chapter except that a ``satisfactory 
rating for management'' refers to a management rating, if such rating is 
given, or otherwise a risk-management rating, if such rating is given.
    (u) Depository institution. For purposes of this part, the term 
``depository institution'' has the same meaning as in section 3(c) of 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).



Sec. 238.3  Administration.

    (a) Delegation of authority. Designated Board members and officers 
and the Federal Reserve Banks are authorized by the Board to exercise 
various functions prescribed in this regulation, in the Board's Rules 
Regarding Delegation of Authority (12 CFR part 265), the Board's Rules 
of Procedure (12 CFR part 262), and in Board orders.
    (b) Appropriate Federal Reserve Bank. In administering this 
regulation, unless a different Federal Reserve Bank is designated by the 
Board, the appropriate Federal Reserve Bank is as follows:
    (1) For a savings and loan holding company (or a company applying to 
become a savings and loan holding company): the Reserve Bank of the 
Federal Reserve district in which the company's banking operations are 
principally conducted, as measured by total domestic deposits in its 
subsidiary savings association on the date it became (or will become) a 
savings and loan holding company;
    (2) For an individual or company submitting a notice under subpart D 
of this part: The Reserve Bank of the Federal Reserve district in which 
the banking operations of the savings and loan holding company to be 
acquired are principally conducted, as measured by total domestic 
deposits on the date the notice is filed.



Sec. 238.4  Records, reports, and inspections.

    (a) Records. Each savings and loan holding company shall maintain 
such books and records as may be prescribed by the Board. Each savings 
and loan holding company and its non-depository affiliates shall 
maintain accurate and complete records of all business transactions. 
Such records shall support and be readily reconcilable to any regulatory 
reports submitted to the

[[Page 80]]

Board and financial reports prepared in accordance with GAAP.
    The records shall be maintained in the United States and be readily 
accessible for examination and other supervisory purposes within 5 
business days upon request by the Board, at a location acceptable to the 
Board.
    (b) Reports. Each savings and loan holding company and each 
subsidiary thereof, other than a savings association, shall file with 
the Board such reports as may be required by the Board. Such reports 
shall be made under oath or otherwise, and shall be in such form and for 
such periods, as the Board may prescribe. Each report shall contain 
information concerning the operations of such savings and loan holding 
company and its subsidiaries as the Board may require.
    (c) Registration statement--(1) Filing of registration statement. 
Not later than 90 days after becoming a savings and loan holding 
company, each savings and loan holding company shall register with the 
Board by furnishing information in the manner and form prescribed by the 
Board.
    (2) Date of registration. The date of registration of a savings and 
loan holding company shall be the date on which its registration 
statement is received by the Board.
    (3) Extension of time for registration. For timely and good cause 
shown, the Board may extend the time within which a savings and loan 
holding company shall register.
    (d) Release from registration. The Board may at any time, upon its 
own motion or upon application, release a registered savings and loan 
holding company from any registration theretofore made by such company, 
if the Board shall determine that such company no longer has control of 
any savings association or no longer qualifies as a savings and loan 
holding company.
    (e) Examinations. Each savings and loan holding company and each 
subsidiary thereof shall be subject to such examinations as the Board 
may prescribe. The Board shall, to the extent deemed feasible, use for 
the purposes of this section reports filed with or examinations made by 
other Federal agencies or the appropriate State supervisory authority.
    (f) Appointment of agent. The Board may require any savings and loan 
holding company, or persons connected therewith if it is not a 
corporation, to execute and file a prescribed form of irrevocable 
appointment of agent for service of process.



Sec. 238.5  Audit of savings association holding companies.

    (a) General. The Board may require, at any time, an independent 
audit of the financial statements of, or the application of procedures 
agreed upon by the Board to a savings and loan holding company, or 
nondepository affiliate by qualified independent public accountants when 
needed for any safety and soundness reason identified by the Board.
    (b) Audits required for safety and soundness purposes. The Board 
requires an independent audit for safety and soundness purposes if, as 
of the beginning of its fiscal year, a savings and loan holding company 
controls savings association subsidiary(ies) with aggregate consolidated 
assets of $500 million or more.
    (c) Procedures. (1) When the Board requires an independent audit 
because such an audit is needed for safety and soundness purposes, the 
Board shall determine whether the audit was conducted and filed in a 
manner satisfactory to the Board.
    (2) When the Board requires the application of procedures agreed 
upon by the Board for safety and soundness purposes, the Board shall 
identify the procedures to be performed. The Board shall also determine 
whether the agreed upon procedures were conducted and filed in a manner 
satisfactory to the Board.
    (d) Qualifications for independent public accountants. The audit 
shall be conducted by an independent public accountant who:
    (1) Is registered or licensed to practice as a public accountant, 
and is in good standing, under the laws of the state or other political 
subdivision of the United States in which the savings association's or 
holding company's principal office is located;
    (2) Agrees in the engagement letter to provide the Board with access 
to and copies of any work papers, policies, and

[[Page 81]]

procedures relating to the services performed;
    (3)(i) Is in compliance with the American Institute of Certified 
Public Accountants' (AICPA) Code of Professional Conduct; and
    (ii) Meets the independence requirements and interpretations of the 
Securities and Exchange Commission and its staff; and
    (4) Has received, or is enrolled in, a peer review program that 
meets guidelines acceptable to the Board.
    (e) Voluntary audits. When a savings and loan holding company or 
nondepository affiliate obtains an independent audit voluntarily, it 
must be performed by an independent public accountant who satisfies the 
requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this 
section.



Sec. 238.6  Penalties for violations.

    (a) Criminal and civil penalties. (1) Section 10 of the HOLA 
provides criminal penalties for willful violation, and civil penalties 
for violation, by any company or individual, of HOLA or any regulation 
or order issued under it, or for making a false entry in any book, 
report, or statement of a savings and loan holding company.
    (2) Civil money penalty assessments for violations of HOLA shall be 
made in accordance with subpart C of the Board's Rules of Practice for 
Hearings (12 CFR part 263, subpart C). For any willful violation of the 
Bank Control Act or any regulation or order issued under it, the Board 
may assess a civil penalty as provided in 12 U.S.C. 1817(j)(15).
    (b) Cease-and-desist proceedings. For any violation of HOLA, the 
Bank Control Act, this regulation, or any order or notice issued 
thereunder, the Board may institute a cease-and-desist proceeding in 
accordance with the Financial Institutions Supervisory Act of 1966, as 
amended (12 U.S.C. 1818(b) et seq.).



Sec. 238.7  Tying restriction exception.

    (a) Safe harbor for combined-balance discounts. A savings and loan 
holding company or any savings association or any affiliate of either 
may vary the consideration for any product or package of products based 
on a customer's maintaining a combined minimum balance in certain 
products specified by the company varying the consideration (eligible 
products), if:
    (1) That company (if it is a savings association) or a savings 
association affiliate of that company (if it is not a savings 
association) offers deposits, and all such deposits are eligible 
products; and
    (2) Balances in deposits count at least as much as non-deposit 
products toward the minimum balance.
    (b) Limitations on exception. This exception shall terminate upon a 
finding by the Board that the arrangement is resulting in anti-
competitive practices. The eligibility of a savings and loan holding 
company or savings association or affiliate of either to operate under 
this exception shall terminate upon a finding by the Board that its 
exercise of this authority is resulting in anti-competitive practices.



Sec. 238.8  Safe and sound operations.

    (a) Savings and loan holding company policy and operations. (1) A 
savings and loan holding company shall serve as a source of financial 
and managerial strength to its subsidiary savings associations and shall 
not conduct its operations in an unsafe or unsound manner.
    (2) Whenever the Board believes an activity of a savings and loan 
holding company or control of a nonbank subsidiary (other than a nonbank 
subsidiary of a savings association) constitutes a serious risk to the 
financial safety, soundness, or stability of a subsidiary savings 
association of the savings and loan holding company and is inconsistent 
with sound banking principles or the purposes of HOLA or the Financial 
Institutions Supervisory Act of 1966, as amended (12 U.S.C. 1818(b) et 
seq.), the Board may require the savings and loan holding company to 
terminate the activity or to terminate control of the subsidiary, as 
provided in section 10(g)(5) of the HOLA.



Sec. 238.9  Small Bank Holding Company Policy Statement.

    (a) The Board's Small Bank Holding Company Policy Statement (12 CFR 
part 225, appendix C) (Policy Statement) applies to savings and loan 
holding companies as if they were bank

[[Page 82]]

holding companies. To qualify or rely on the Policy Statement, savings 
and loan holding companies must meet all qualifying requirements in the 
Policy Statement as if they were a bank holding company. For purposes of 
applying the Policy Statement, the term ``nonbank subsidiary'' as used 
in the Policy Statement refers to a subsidiary of a savings and loan 
holding company other than a savings association or a subsidiary of a 
savings association.
    (b) The Board may exclude any savings and loan holding company, 
regardless of asset size, from the Policy Statement under paragraph (a) 
of this section if the Board determines that such action is warranted 
for supervisory purposes.

[80 FR 20158, Apr. 15, 2015]



    Subpart B_Acquisitions of Saving Association Securities or Assets



Sec. 238.11  Transactions requiring Board approval.

    The following transactions require the Board's prior approval under 
section 10 of HOLA except as exempted under Sec. 238.12:
    (a) Formation of savings and loan holding company. Any action that 
causes a savings association or other company to become a savings and 
loan holding company.
    (b) Acquisition of subsidiary savings association. Any action that 
causes a savings association to become a subsidiary of a savings and 
loan holding company.
    (c) Acquisition of control of savings association or savings and 
loan holding company securities. (1) The acquisition by a savings and 
loan holding company of direct or indirect ownership or control of any 
voting securities of a savings association or savings and loan holding 
company, that is not a subsidiary, if the acquisition results in the 
company's control of more than 5 percent of the outstanding shares of 
any class of voting securities of the savings association or savings and 
loan holding company.
    (2) An acquisition includes the purchase of additional securities 
through the exercise of preemptive rights, but does not include 
securities received in a stock dividend or stock split that does not 
alter the savings and loan holding company's proportional share of any 
class of voting securities.
    (3) In the case of a multiple savings and loan holding company, 
acquisition of direct or indirect ownership or control of any voting 
securities of a savings association or savings and loan holding company, 
that is not a subsidiary, if the acquisition results in the company's 
control of more than 5 percent of the outstanding shares of any class of 
voting securities of the savings association or savings and loan holding 
company that is engaged in any business activity other than those 
specified in Sec. 238.51 of this part.
    (d) Acquisition of savings association or savings and loan holding 
company assets. The acquisition by a savings and loan holding company or 
by a subsidiary thereof (other than a savings association) of all or 
substantially all of the assets of a savings association, or savings and 
loan holding company.
    (e) Merger of savings and loan holding companies. The merger or 
consolidation of savings and loan holding companies, and the acquisition 
of a savings association through a merger or consolidation.
    (f) Acquisition of control by certain individuals. The acquisition, 
by a director or officer of a savings and loan holding company, or by 
any individual who owns, controls, or holds the power to vote (or holds 
proxies representing) more than 25 percent of the voting shares of such 
savings and loan holding company, of control of any savings association 
that is not a subsidiary of such savings and loan holding company.



Sec. 238.12  Transactions not requiring Board approval.

    (a) The requirements of Sec. 238.11(a), (b), (d), (e) and (f) do not 
apply to:
    (1) Control of a savings association acquired by devise under the 
terms of a will creating a trust which is excluded from the definition 
of savings and loan holding company;
    (2) Control of a savings association acquired in connection with a 
reorganization that involves solely the acquisition of control of that 
association by

[[Page 83]]

a newly formed company that is controlled by the same acquirors that 
controlled the savings association for the immediately preceding three 
years, and entails no other transactions, such as an assumption of the 
acquirors' debt by the newly formed company: Provided, that the 
acquirors have filed the designated form with the appropriate Reserve 
Bank and have provided all additional information requested by the Board 
or Reserve Bank, and the Board nor the appropriate Reserve Bank object 
to the acquisition within 30 days of the filing date;
    (3) Control of a savings association acquired by a bank holding 
company that is registered under and subject to, the Bank Holding 
Company Act of 1956, or any company controlled by such bank holding 
company;
    (4) Control of a savings association acquired solely as a result of 
a pledge or hypothecation of stock to secure a loan contracted for in 
good faith or the liquidation of a loan contracted for in good faith, in 
either case where such loan was made in the ordinary course of the 
business of the lender: Provided, further, That acquisition of control 
pursuant to such pledge, hypothecation or liquidation is reported to the 
Board within 30 days, and Provided, further, That the acquiror shall not 
retain such control for more than one year from the date on which such 
control was acquired; however, the Board may, upon application by an 
acquiror, extend such one-year period from year to year, for an 
additional period of time not exceeding three years, if the Board finds 
such extension is warranted and would not be detrimental to the public 
interest;
    (5) Control of a savings association acquired through a percentage 
increase in stock ownership following a pro rata stock dividend or stock 
split, if the proportional interests of the recipients remain 
substantially the same;
    (6) Acquisitions of up to twenty-five percent (25%) of a class of 
stock by a tax-qualified employee stock benefit plan; and
    (7) Acquisitions of up to 15 percent of the voting stock of any 
savings association by a savings and loan holding company (other than a 
bank holding company) in connection with a qualified stock issuance if 
such acquisition is approved by the Board pursuant to subpart E.
    (b) The requirements of Sec. 238.11(c) do not apply to voting shares 
of a savings association or of a savings and loan holding company--
    (1) Held as a bona fide fiduciary (whether with or without the sole 
discretion to vote such shares);
    (2) Held temporarily pursuant to an underwriting commitment in the 
normal course of an underwriting business;
    (3) Held in an account solely for trading purposes or over which no 
control is held other than control of voting rights acquired in the 
normal course of a proxy solicitation;
    (4) Acquired in securing or collecting a debt previously contracted 
in good faith, for two years after the date of acquisition or for such 
additional time (not exceeding three years) as the Board may permit if, 
in the Board's judgment, such an extension would not be detrimental to 
the public interest;
    (5) Acquired under section 13(k)(1)(A)(i) of the Federal Deposit 
Insurance Act (or section 408(m) of the National Housing Act as in 
effect immediately prior to the enactment of the Financial Institutions 
Reform, Recovery and Enforcement Act of 1989);
    (6) Held by any insurance companies as defined in section 2(a)(17) 
of the Investment Company Act of 1940: Provided, That all shares held by 
all insurance company affiliates of such savings association or savings 
and loan holding company may not, in the aggregate, exceed five percent 
of all outstanding shares or of the voting power of the savings 
association or savings and loan holding company, and such shares are not 
acquired or retained with a view to acquiring, exercising, or 
transferring control of the savings association or savings and loan 
holding company; and
    (7) Acquired pursuant to a qualified stock issuance if such a 
purchase is approved pursuant to subpart E of this part.
    (c) The aggregate amount of shares held under paragraph (b) of this 
section (other than pursuant to paragraphs (b)(1) through (4) and 
(b)(6)) may not exceed 15 percent of all outstanding shares or the 
voting power of a savings

[[Page 84]]

association or savings and loan holding company.
    (d) Acquisitions involving savings association mergers and internal 
corporate reorganizations--The requirements of Sec. 238.11 do not apply 
to:
    (1) Certain transactions subject to the Bank Merger Act. The 
acquisition by a savings and loan holding company of shares of a savings 
association or company controlling a savings association or the merger 
of a company controlling a savings association with the savings and loan 
holding company, if the transaction is part of the merger or 
consolidation of the savings association with a subsidiary savings 
association (other than a nonoperating subsidiary savings association) 
of the acquiring savings and loan holding company, or is part of the 
purchase of substantially all of the assets of the savings association 
by a subsidiary savings association (other than a nonoperating 
subsidiary savings association) of the acquiring savings and loan 
holding company, and if:
    (i) The savings association merger, consolidation, or asset purchase 
occurs simultaneously with the acquisition of the shares of the savings 
association or savings and loan holding company or the merger of holding 
companies, and the savings association is not operated by the acquiring 
savings and loan holding company as a separate entity other than as the 
survivor of the merger, consolidation, or asset purchase;
    (ii) The transaction requires the prior approval of a federal 
supervisory agency under the Bank Merger Act (12 U.S.C. 1828(c));
    (iii) The transaction does not involve the acquisition of any 
company that would require prior notice or approval under section 10(c) 
of the HOLA;
    (iv) The transaction does not involve a depository institution 
organized in mutual form, a savings and loan holding company organized 
in mutual form, a subsidiary holding company of a savings and loan 
holding company organized in mutual form, or a bank holding company 
organized in mutual form;
    (v) The transaction will not have a material adverse impact on the 
financial condition of the acquiring savings and loan holding company;
    (vi) At least 10 days prior to the transaction, the acquiring 
savings and loan holding company has provided to the Reserve Bank 
written notice of the transaction that contains:
    (A) A copy of the filing made to the appropriate federal banking 
agency under the Bank Merger Act; and
    (B) A description of the holding company's involvement in the 
transaction, the purchase price, and the source of funding for the 
purchase price; and
    (vii) Prior to expiration of the period provided in paragraph 
(d)(1)(vi) of this section, neither the Board nor the Reserve Bank has 
informed the savings and loan holding company that an application under 
Sec. 238.11 is required.
    (2) Internal corporate reorganizations. (i) Subject to paragraph 
(d)(2)(ii) of this section, any of the following transactions performed 
in the United States by a savings and loan holding company:
    (A) The merger of holding companies that are subsidiaries of the 
savings and loan holding company;
    (B) The formation of a subsidiary holding company; \1\
---------------------------------------------------------------------------

    \1\ In the case of a transaction that results in the formation or 
designation of a new savings and loan holding company, the new savings 
and loan holding company must complete the registration requirements 
described in section 238.11.
---------------------------------------------------------------------------

    (C) The transfer of control or ownership of a subsidiary savings 
association or a subsidiary holding company between one subsidiary 
holding company and another subsidiary holding company or the savings 
and loan holding company.
    (ii) A transaction described in paragraph (d)(2)(i) of this section 
qualifies for this exception if--
    (A) The transaction represents solely a corporate reorganization 
involving companies and insured depository institutions that, both 
preceding and following the transaction, are lawfully controlled and 
operated by the savings and loan holding company;
    (B) The transaction does not involve the acquisition of additional 
voting shares of an insured depository institution that, prior to the 
transaction, was less than majority owned by the savings and loan 
holding company;
    (C) The transaction does not involve a savings and loan holding 
company organized in mutual form, a subsidiary

[[Page 85]]

holding company of a savings and loan holding company organized in 
mutual form, or a bank holding company organized in mutual form; and
    (D) The transaction will not have a material adverse impact on the 
financial condition of the holding company.



Sec. 238.13  Prohibited acquisitions.

    (a) No savings and loan holding company may, directly or indirectly, 
or through one or more subsidiaries or through one or more transactions, 
acquire control of an uninsured institution or retain, for more than one 
year after the date any savings association subsidiary becomes 
uninsured, control of such association.
    (b) Control of mutual savings association. No savings and loan 
holding company or any subsidiary thereof, or any director, officer, or 
employee of a savings and loan holding company or subsidiary thereof, or 
person owning, controlling, or holding with power to vote, or holding 
proxies representing, more than 25 percent of the voting shares of such 
holding company or subsidiary, may hold, solicit, or exercise any 
proxies in respect of any voting rights in a mutual savings association.



Sec. 238.14  Procedural requirements.

    (a) Filing application. An application for the Board's prior 
approval under Sec. 238.11 shall be governed by the provisions of this 
section and shall be filed with the appropriate Reserve Bank on the 
designated form.
    (b) Request for confidential treatment. An applicant may request 
confidential treatment for portions of its application pursuant to 12 
CFR 261.15.
    (c) Public notice--(1) Newspaper publication--(i) Location of 
publication. In the case of each application, the applicant shall 
publish a notice in a newspaper of general circulation, in the form and 
at the locations specified in Sec. 262.3 of the Rules of Procedure (12 
CFR 262.3) in this chapter;
    (ii) Contents of notice. A newspaper notice under this paragraph 
shall provide an opportunity for interested persons to comment on the 
proposal for a period of at least 30 calendar days;
    (iii) Timing of publication. Each newspaper notice published in 
connection with a proposal under this paragraph shall be published no 
more than 15 calendar days before and no later than 7 calendar days 
following the date that an application is filed with the appropriate 
Reserve Bank.
    (2) Federal Register Notice--(i) Publication by Board. Upon receipt 
of an application, the Board shall promptly publish notice of the 
proposal in the Federal Register and shall provide an opportunity for 
interested persons to comment on the proposal for a period of no more 
than 30 days;
    (ii) Request for advance publication. An applicant may request that, 
during the 15-day period prior to filing an application, the Board 
publish notice of a proposal in the Federal Register. A request for 
advance Federal Register Notice publication shall be made in writing to 
the appropriate Reserve Bank and shall contain the identifying 
information prescribed by the Board for Federal Register Notice 
publication.
    (3) Waiver or shortening of notice. The Board may waive or shorten 
the required notice periods under this section if the Board determines 
that an emergency exists requiring expeditious action on the proposal, 
or if the Board finds that immediate action is necessary to prevent the 
probable failure of an insured depository institution.
    (d) Public comment--(1) Timely comments. Interested persons may 
submit information and comments regarding a proposal filed under this 
subpart. A comment shall be considered timely for purposes of this 
subpart if the comment, together with all supplemental information, is 
submitted in writing in accordance with the Board's Rules of Procedure 
and received by the Board or the appropriate Reserve Bank prior to the 
expiration of the latest public comment period provided in paragraph (c) 
of this section.
    (2) Extension of comment period--(i) In general. The Board may, in 
its discretion, extend the public comment period regarding any proposal 
submitted under this subpart.
    (ii) Requests in connection with obtaining application or notice. In 
the event that an interested person has requested a copy of a notice or 
application submitted under this subpart, the Board may, in its 
discretion and based on the

[[Page 86]]

facts and circumstances, grant such person an extension of the comment 
period for up to 15 calendar days.
    (iii) Joint requests by interested person and applicant. The Board 
will grant a joint request by an interested person and the applicant for 
an extension of the comment period for a reasonable period for a purpose 
related to the statutory factors the Board must consider under this 
subpart.
    (3) Substantive comment. A comment will be considered substantive 
for purposes of this subpart unless it involves individual complaints, 
or raises frivolous, previously-considered or wholly unsubstantiated 
claims or irrelevant issues.
    (e) Hearings. The Board may order a formal or informal hearing or 
other proceeding on the application, as provided in Sec. 262.3(i)(2) of 
this chapter. Any request for a hearing (other than from the primary 
supervisor) shall comply with Sec. 262.3(e) in this chapter.
    (f) Accepting application for processing. Within 7 calendar days 
after the Reserve Bank receives an application under this section, the 
Reserve Bank shall accept it for processing as of the date the 
application was filed or return the application if it is substantially 
incomplete. Upon accepting an application, the Reserve Bank shall 
immediately send copies to the Board and to the primary banking 
supervisor of the savings association to be acquired and to the Attorney 
General, and shall request from the Attorney General a report on the 
competitive factors involved. The Reserve Bank or the Board may request 
additional information necessary to complete the record of an 
application at any time after accepting the application for processing.
    (g) Action on applications--(1) Action under delegated authority. 
Except as provided in paragraph (g)(4) of this section, unless the 
Reserve Bank, upon notice to the applicant, refers the application to 
the Board for decision because action under delegated authority is not 
appropriate, the Reserve Bank shall approve an application under this 
section:
    (i) Not earlier than the third business day following the close of 
the public comment period; and
    (ii) Not later than the later of the fifth business day following 
the close of the public comment period or the 30th calendar day after 
the acceptance date for the application.
    (2) Board action. The Board shall act on an application under this 
section that is referred to it for decision within 60 calendar days 
after the acceptance date for the application, unless the Board notifies 
the applicant that the 60-day period is being extended for a specified 
period and states the reasons for the extension. The Board may, at any 
time, request additional information that it believes is necessary for 
its decision.
    (3) Approval through failure to act--(i) Ninety-one day rule. An 
application shall be deemed approved if the Board fails to act on the 
application within 91 calendar days after the date of submission to the 
Board of the complete record on the application. For this purpose, the 
Board acts when it issues an order stating that the Board has approved 
or denied the application or notice, reflecting the votes of the members 
of the Board, and indicating that a statement of the reasons for the 
decision will follow promptly.
    (ii) Complete record. For the purpose of computing the commencement 
of the 91-day period, the record is complete on the latest of:
    (A) The date of receipt by the Board of an application that has been 
accepted by the Reserve Bank;
    (B) The last day provided in any notice for receipt of comments and 
hearing requests on the application or notice;
    (C) The date of receipt by the Board of the last relevant material 
regarding the application that is needed for the Board's decision, if 
the material is received from a source outside of the Federal Reserve 
System; or
    (D) The date of completion of any hearing or other proceeding.
    (4) Expedited reorganization--(i) In general. The Board or the 
appropriate Reserve Bank shall act on an application of a reorganization 
that meets the requirements of Sec. 238.15(f):
    (A) Not earlier than the third business day following the close of 
the public comment period; and

[[Page 87]]

    (B) Not later than the fifth business day following the close of the 
public comment period, except that the Board may extend the period for 
action under this paragraph (g)(4) for up to 5 business days.
    (ii) Acceptance of notice in event expedited procedure not 
available. In the event that the Board or the Reserve Bank determines 
that an application filed pursuant to Sec. 238.15(f) does not meet one 
or more of the requirements of Sec. 238.15(f), paragraph (g)(4) of this 
section shall not apply and the Board or Reserve Bank will act on the 
application according to the other provisions of paragraph (g) of this 
section.



Sec. 238.15  Factors considered in acting on applications.

    (a) Generally. The Board may not approve any application under this 
subpart if:
    (1) The transaction would result in a monopoly or would further any 
combination or conspiracy to monopolize, or to attempt to monopolize, 
the savings and loan business in any part of the United States;
    (2) The effect of the transaction may be substantially to lessen 
competition in any section of the country, tend to create a monopoly, or 
in any other manner be in restraint of trade, unless the Board finds 
that the transaction's anti-competitive effects are clearly outweighed 
by its probable effect in meeting the convenience and needs of the 
community;
    (3) The applicant has failed to provide the Board with adequate 
assurances that it will make available such information on its 
operations or activities, and the operations or activities of any 
affiliate of the applicant, that the Board deems appropriate to 
determine and enforce compliance with HOLA and other applicable federal 
banking statutes, and any regulations thereunder; or
    (4) In the case of an application involving a foreign banking 
organization, the foreign banking organization is not subject to 
comprehensive supervision or regulation on a consolidated basis by the 
appropriate authorities in its home country, as provided in 
Sec. 211.24(c)(1)(ii) of the Board's Regulation K (12 CFR 
211.24(c)(1)(ii)).
    (5) In the case of an application by a savings and loan holding 
company to acquire an insured depository institution, section 
10(e)(2)(E) of HOLA prohibits the Board from approving the transaction.
    (b) Other factors. In deciding applications under this subpart, the 
Board also considers the following factors with respect to the acquiror, 
its subsidiaries, any savings associations or banks related to the 
acquiror through common ownership or management, and the savings 
association or associations to be acquired:
    (1) Financial condition. Their financial condition and future 
prospects, including whether current and projected capital positions and 
levels of indebtedness conform to standards and policies established by 
the Board.
    (2) Managerial resources. The competence, experience, and integrity 
of the officers, directors, and principal shareholders of the acquiror, 
its subsidiaries, and the savings association and savings and loan 
holding companies concerned; their record of compliance with laws and 
regulations; and the record of the applicant and its affiliates of 
fulfilling any commitments to, and any conditions imposed by, the Board 
in connection with prior applications.
    (3) Convenience and needs of community. In the case of an 
application required under Sec. 238.11(c), (d), or (e), (or an 
application by a savings and loan holding company under Sec. 238.11(b)), 
the convenience and needs of the communities to be served, including the 
record of performance under the Community Reinvestment Act of 1977 (12 
U.S.C. 2901 et seq.) and regulations issued thereunder, including the 
Board's Regulation BB (12 CFR part 228).
    (c) Presumptive disqualifiers--(1) Integrity factors. The following 
factors shall give rise to a rebuttable presumption that an acquiror may 
fail to satisfy the managerial resources and future prospects tests of 
paragraph (b) of this section:

[[Page 88]]

    (i) During the 10-year period immediately preceding filing of the 
application or notice, criminal, civil or administrative judgments, 
consents or orders, and any indictments, formal investigations, 
examinations, or civil or administrative proceedings (excluding routine 
or customary audits, inspections and investigations) that terminated in 
any agreements, undertakings, consents or orders, issued against, 
entered into by, or involving the acquiror or affiliates of the acquiror 
by any federal or state court, any department, agency, or commission of 
the U.S. Government, any state or municipality, any Federal Home Loan 
Bank, any self-regulatory trade or professional organization, or any 
foreign government or governmental entity, which involve:
    (A) Fraud, moral turpitude, dishonesty, breach of trust or fiduciary 
duties, organized crime or racketeering;
    (B) Violation of securities or commodities laws or regulations;
    (C) Violation of depository institution laws or regulations;
    (D) Violation of housing authority laws or regulations; or
    (E) Violation of the rules, regulations, codes of conduct or ethics 
of a self-regulatory trade or professional organization;
    (ii) Denial, or withdrawal after receipt of formal or informal 
notice of an intent to deny, by the acquiror or affiliates of the 
acquiror, of
    (A) Any application relating to the organization of a financial 
institution,
    (B) An application to acquire any financial institution or holding 
company thereof under HOLA or the Bank Holding Company Act or otherwise,
    (C) A notice relating to a change in control of any of the foregoing 
under the CIC Act; or
    (D) An application or notice under a state holding company or change 
in control statute;
    (iii) The acquiror or affiliates of the acquiror were placed in 
receivership or conservatorship during the preceding 10 years, or any 
management official of the acquiror was a management official or 
director (other than an official or director serving at the request of 
the Board, the Federal Deposit Insurance Corporation, the Resolution 
Trust Corporation, the former Federal Savings and Loan Insurance 
Corporation, or their predecessors) or principal shareholder of a 
company or savings association that was placed into receivership, 
conservatorship, or a management consignment program, or was liquidated 
during his or her tenure or control or within two years thereafter;
    (iv) Felony conviction of the acquiror, an affiliate of the acquiror 
or a management official of the acquiror or an affiliate of the 
acquiror;
    (v) Knowingly making any written or oral statement to the Board or 
any predecessor agency (or its delegate) in connection with an 
application, notice or other filing under this part that is false or 
misleading with respect to a material fact or omits to state a material 
fact with respect to information furnished or requested in connection 
with such an application, notice or other filing;
    (vi) Acquisition and retention at the time of submission of an 
application or notice, of stock in the savings association by the 
acquiror in violation of this part or its predecessor regulations.
    (2) Financial factors. The following shall give rise to a rebuttable 
presumption that an acquiror may fail to satisfy the financial-resources 
and future-prospects tests of paragraph (c) of this section:
    (i) Liability for amounts of debt which, in the opinion of the 
Board, create excessive risks of default and pressure on the savings 
association to be acquired; or
    (ii) Failure to furnish a business plan or furnishing a business 
plan projecting activities which are inconsistent with economical home 
financing.
    (d) Competitive factor. Before approving any such acquisition, 
except a transaction under section 13(k) of the Federal Deposit 
Insurance Act, the Board shall consider any report rendered by the 
Attorney General within 30 days of such request under Sec. 238.14(f) on 
the competitive factors involved.
    (e) Expedited reorganizations. An application by a savings 
association solely for the purpose of obtaining approval for the 
creation of a savings and loan holding company by such savings

[[Page 89]]

association shall be eligible for expedited processing under 
Sec. 238.14(g)(4) if it satisfies the following criteria:
    (1) The holding company shall not be capitalized initially in an 
amount exceeding the amount the savings association is permitted to pay 
in dividends to its holding company as of the date of the reorganization 
pursuant to applicable regulations or, in the absence thereof, pursuant 
to the then current policy guidelines;
    (2) The creation of the savings and loan holding company by the 
association is the sole transaction contained in the application, and 
there are no other transactions requiring approval incident to the 
creation of the holding company (other than the creation of an interim 
association that will disappear upon consummation of the reorganization 
and the merger of the savings association with such interim association 
to effect the reorganization), and the holding company is not also 
seeking any regulatory waivers, regulatory forbearances, or resolution 
of legal or supervisory issues;
    (3) The board of directors and executive officers of the holding 
company are composed of persons who, at the time of acquisition, are 
executive officers and directors of the association;
    (4) The acquisition raises no significant issues of law or policy;
    (5) Prior to consummation of the reorganization transaction, the 
holding company shall enter into any dividend limitation, regulatory 
capital maintenance, or prenuptial agreement required by Board 
regulations, or in the absence thereof, required pursuant to policy 
guidelines issued by the Board; and
    (f) Conditional approvals. The Board may impose conditions on any 
approval, including conditions to address competitive, financial, 
managerial, safety and soundness, convenience and needs, compliance or 
other concerns, to ensure that approval is consistent with the relevant 
statutory factors and other provisions of HOLA.
    (g) No acquisition shall be approved by the Board pursuant to 
Sec. 238.11 which would result in the formation by any company, through 
one or more subsidiaries or through one or more transactions, of a 
multiple savings and loan holding company controlling savings 
associations in more than one state where the acquisition causes a 
savings association to become an affiliate of another savings 
association with which it was not previously affiliated unless:
    (1) Such company, or a savings association subsidiary of such 
company, is authorized to acquire control of a savings association 
subsidiary, or to operate a home or branch office, in the additional 
state or states pursuant to section 13(k) of the Federal Deposit 
Insurance Act, 12 U.S.C. 1823(k) (or section 408(m) of the National 
Housing Act as in effect immediately prior to enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989);
    (2) Such company controls a savings association subsidiary which 
operated a home or branch office in the additional state or states as of 
March 5, 1987; or
    (3) The statute laws of the state in which the savings association, 
control of which is to be acquired, is located are such that a savings 
association chartered by such state could be acquired by a savings 
association chartered by the state where the acquiring savings 
association or savings and loan holding company is located (or by a 
holding company that controls such a state chartered savings 
association), and such statute laws specifically authorize such an 
acquisition by language to that effect and not merely by implication.



                      Subpart C_Control Proceedings



Sec. 238.21  Control proceedings.

    (a) Preliminary determination of control. (1) The Board may issue a 
preliminary determination of control under the procedures set forth in 
this section in any case in which:
    (i) Any of the presumptions of control set forth in paragraph (d) of 
this section is present; or
    (ii) It otherwise appears that a company has the power to exercise a 
controlling influence over the management or policies of a savings 
association or other company.
    (2) If the Board makes a preliminary determination of control under 
this section, the Board shall send notice to

[[Page 90]]

the controlling company containing a statement of the facts upon which 
the preliminary determination is based.
    (b) Response to preliminary determination of control. Within 30 
calendar days of issuance by the Board of a preliminary determination of 
control or such longer period permitted by the Board, the company 
against whom the determination has been made shall:
    (1) Submit for the Board's approval a specific plan for the prompt 
termination of the control relationship;
    (2) File an application under this regulation to retain the control 
relationship; or
    (3) Contest the preliminary determination by filing a response, 
setting forth the facts and circumstances in support of its position 
that no control exists, and, if desired, requesting a hearing or other 
proceeding.
    (c) Hearing and final determination. (1) The Board shall order a 
formal hearing or other appropriate proceeding upon the request of a 
company that contests a preliminary determination that the company has 
the power to exercise a controlling influence over the management or 
policies of a savings association or other company, if the Board finds 
that material facts are in dispute. The Board may also in its discretion 
order a formal hearing or other proceeding with respect to a preliminary 
determination that the company controls voting securities of the savings 
association or other company under the presumptions in paragraph (d)(1) 
of this section.
    (2) At a hearing or other proceeding, any applicable presumptions 
established by paragraph (d) of this section shall be considered in 
accordance with the Federal Rules of Evidence and the Board's Rules of 
Practice for Formal Hearings (12 CFR part 263).
    (3) After considering the submissions of the company and other 
evidence, including the record of any hearing or other proceeding, the 
Board shall issue a final order determining whether the company controls 
voting securities, or has the power to exercise a controlling influence 
over the management or policies, of the savings association or other 
company. If a control relationship is found, the Board may direct the 
company to terminate the control relationship or to file an application 
for the Board's approval to retain the control relationship under 
subpart B of this part.
    (d) Rebuttable presumptions of control. The following rebuttable 
presumptions shall be used in any proceeding under this section:
    (1) Control of voting securities--(i) Securities convertible into 
voting securities. A company that owns, controls, or holds securities 
that are immediately convertible, at the option of the holder or owner, 
into voting securities of a bank or other company, controls the voting 
securities.
    (ii) Option or restriction on voting securities. A company that 
enters into an agreement or understanding under which the rights of a 
holder of voting securities of a savings association or other company 
are restricted in any manner controls the securities. This presumption 
does not apply where the agreement or understanding:
    (A) Is a mutual agreement among shareholders granting to each other 
a right of first refusal with respect to their shares;
    (B) Is incident to a bona fide loan transaction; or
    (C) Relates to restrictions on transferability and continues only 
for the time necessary to obtain approval from the appropriate Federal 
supervisory authority with respect to acquisition by the company of the 
securities.
    (2) Control over company -- (i) Management agreement. A company that 
enters into any agreement or understanding with a savings association or 
other company (other than an investment advisory agreement), such as a 
management contract, under which the first company or any of its 
subsidiaries directs or exercises significant influence over the general 
management or overall operations of the savings association or other 
company controls the savings association or other company.
    (ii) Shares controlled by company and associated individuals. A 
company that, together with its management officials or principal 
shareholders (including members of the immediate families of either), 
owns, controls, or holds with power to vote 25 percent or more of the 
outstanding shares of any class of voting securities of a savings 
association

[[Page 91]]

or other company controls the savings association or other company, if 
the first company owns, controls, or holds with power to vote more than 
5 percent of the outstanding shares of any class of voting securities of 
the savings association or other company.
    (iii) Common management officials. A company that has one or more 
management officials in common with a savings association or other 
company controls the savings association or other company, if the first 
company owns, controls or holds with power to vote more than 5 percent 
of the outstanding shares of any class of voting securities of the 
savings association or other company, and no other person controls as 
much as 5 percent of the outstanding shares of any class of voting 
securities of the savings association or other company.
    (e) Presumption of non-control-- (1) In any proceeding under this 
section, there is a presumption that any company that directly or 
indirectly owns, controls, or has power to vote less than 5 percent of 
the outstanding shares of any class of voting securities of a savings 
association or other company does not have control over that savings 
association or other company.
    (2) In any proceeding under this section, or judicial proceeding 
under the Home Owners' Loan Act, other than a proceeding in which the 
Board has made a preliminary determination that a company has the power 
to exercise a controlling influence over the management or policies of 
the savings association or other company, a company may not be held to 
have had control over the savings association or other company at any 
given time, unless that company, at the time in question, directly or 
indirectly owned, controlled, or had power to vote 5 percent or more of 
the outstanding shares of any class of voting securities of the savings 
association or other company, or had already been found to have control 
on the basis of the existence of a controlling influence relationship.



                    Subpart D_Change in Bank Control



Sec. 238.31  Transactions requiring prior notice.

    (a) Prior notice requirement. Any person acting directly or 
indirectly, or through or in concert with one or more persons, shall 
give the Board 60 days' written notice, as specified in Sec. 238.33 of 
this subpart, before acquiring control of a savings and loan holding 
company, unless the acquisition is exempt under Sec. 238.32.
    (b) Definitions. For purposes of this subpart:
    (1) Acquisition includes a purchase, assignment, transfer, or pledge 
of voting securities, or an increase in percentage ownership of a 
savings and loan holding company resulting from a redemption of voting 
securities.
    (2) Acting in concert includes knowing participation in a joint 
activity or parallel action towards a common goal of acquiring control 
of a savings and loan holding company whether or not pursuant to an 
express agreement.
    (3) Immediate family includes a person's father, mother, stepfather, 
stepmother, brother, sister, stepbrother, stepsister, son, daughter, 
stepson, stepdaughter, grandparent, grandson, granddaughter, father-in-
law, mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-
in-law, the spouse of any of the foregoing, and the person's spouse.
    (c) Acquisitions requiring prior notice --(1) Acquisition of 
control. The acquisition of voting securities of a savings and loan 
holding company constitutes the acquisition of control under the Bank 
Control Act, requiring prior notice to the Board, if, immediately after 
the transaction, the acquiring person (or persons acting in concert) 
will own, control, or hold with power to vote 25 percent or more of any 
class of voting securities of the institution.
    (2) Rebuttable presumption of control. The Board presumes that an 
acquisition of voting securities of a savings and loan holding company 
constitutes the acquisition of control under the Bank Control Act, 
requiring prior notice to the Board, if, immediately after the 
transaction, the acquiring person (or persons acting in concert) will 
own,

[[Page 92]]

control, or hold with power to vote 10 percent or more of any class of 
voting securities of the institution, and if:
    (i) The institution has registered securities under section 12 of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l); or
    (ii) No other person will own, control, or hold the power to vote a 
greater percentage of that class of voting securities immediately after 
the transaction.\2\
---------------------------------------------------------------------------

    \2\ If two or more persons, not acting in concert, each propose to 
acquire simultaneously equal percentages of 10 percent or more of a 
class of voting securities of the savings and loan holding company, each 
person must file prior notice to the Board.
---------------------------------------------------------------------------

    (d) Rebuttable presumption of concerted action. The following 
persons shall be presumed to be acting in concert for purposes of this 
subpart:
    (1) A company and any principal shareholder, partner, trustee, or 
management official of the company, if both the company and the person 
own voting securities of the savings and loan holding company;
    (2) An individual and the individual's immediate family;
    (3) Companies under common control;
    (4) Persons that are parties to any agreement, contract, 
understanding, relationship, or other arrangement, whether written or 
otherwise, regarding the acquisition, voting, or transfer of control of 
voting securities of a savings and loan holding company, other than 
through a revocable proxy as described in Sec. 238.32(a)(5) of this 
subpart;
    (5) Persons that have made, or propose to make, a joint filing under 
sections 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78m 
or 78n), and the rules promulgated thereunder by the Securities and 
Exchange Commission; and
    (6) A person and any trust for which the person serves as trustee.
    (e) Acquisitions of loans in default. The Board presumes an 
acquisition of a loan in default that is secured by voting securities of 
a savings and loan holding company to be an acquisition of the 
underlying securities for purposes of this section.
    (f) Other transactions. Transactions other than those set forth in 
paragraph (c) of this section resulting in a person's control of less 
than 25 percent of a class of voting securities of a savings and loan 
holding company are not deemed by the Board to constitute control for 
purposes of the Bank Control Act.
    (g) Rebuttal of presumptions. Prior notice to the Board is not 
required for any acquisition of voting securities under the presumption 
of control set forth in this section, if the Board finds that the 
acquisition will not result in control. The Board shall afford any 
person seeking to rebut a presumption in this section an opportunity to 
present views in writing or, if appropriate, orally before its 
designated representatives at an informal conference.



Sec. 238.32  Transactions not requiring prior notice.

    (a) Exempt transactions. The following transactions do not require 
notice to the Board under this subpart:
    (1) Existing control relationships. The acquisition of additional 
voting securities of a savings and loan holding company by a person who:
    (i) Continuously since March 9, 1979 (or since the institution 
commenced business, if later), held power to vote 25 percent or more of 
any class of voting securities of the institution; or
    (ii) Is presumed, under Sec. 238.31(c)(2), to have controlled the 
institution continuously since March 9, 1979, if the aggregate amount of 
voting securities held does not exceed 25 percent or more of any class 
of voting securities of the institution or, in other cases, where the 
Board determines that the person has controlled the institution 
continuously since March 9, 1979;
    (2) Increase of previously authorized acquisitions. Unless the Board 
or the Reserve Bank otherwise provides in writing, the acquisition of 
additional shares of a class of voting securities of a savings and loan 
holding company by any person (or persons acting in concert) who has 
lawfully acquired and maintained control of the institution (for 
purposes of Sec. 238.31(c)), after complying with the procedures and 
receiving approval to acquire voting securities of the institution under 
this subpart, or in connection with an application approved under 
section 10(e) of HOLA (12 U.S.C. 1467a(e) and Sec. 238.11 or

[[Page 93]]

section 18(c) of the Federal Deposit Insurance Act (Bank Merger Act, 12 
U.S.C. 1828(c));
    (3) Acquisitions subject to approval under HOLA or Bank Merger Act. 
Any acquisition of voting securities subject to approval under section 
10(e) of HOLA (12 U.S.C. 1467a(e) and Sec. 238.11), or section 18(c) of 
the Federal Deposit Insurance Act (Bank Merger Act, 12 U.S.C. 1828(c));
    (4) Transactions exempt under HOLA. Any transaction described in 
sections 10(a)(3)(A) or 10(e)(1)(B)(ii) of HOLA by a person described in 
those provisions;
    (5) Proxy solicitation. The acquisition of the power to vote 
securities of a savings and loan holding company through receipt of a 
revocable proxy in connection with a proxy solicitation for the purposes 
of conducting business at a regular or special meeting of the 
institution, if the proxy terminates within a reasonable period after 
the meeting;
    (6) Stock dividends. The receipt of voting securities of a savings 
and loan holding company through a stock dividend or stock split if the 
proportional interest of the recipient in the institution remains 
substantially the same; and
    (7) Acquisition of foreign banking organization. The acquisition of 
voting securities of a qualifying foreign banking organization. (This 
exemption does not extend to the reports and information required under 
paragraphs 9, 10, and 12 of the Bank Control Act (12 U.S.C. 1817(j) (9), 
(10), and (12)) and Sec. 238.34.)
    (b) Prior notice exemption. (1) The following acquisitions of voting 
securities of a savings and loan holding company, which would otherwise 
require prior notice under this subpart, are not subject to the prior 
notice requirements if the acquiring person notifies the appropriate 
Reserve Bank within 90 calendar days after the acquisition and provides 
any relevant information requested by the Reserve Bank:
    (i) Acquisition of voting securities through inheritance;
    (ii) Acquisition of voting securities as a bona fide gift; and
    (iii) Acquisition of voting securities in satisfaction of a debt 
previously contracted (DPC) in good faith.
    (2) The following acquisitions of voting securities of a savings and 
loan holding company, which would otherwise require prior notice under 
this subpart, are not subject to the prior notice requirements if the 
acquiring person does not reasonably have advance knowledge of the 
transaction, and provides the written notice required under Sec. 238.33 
to the appropriate Reserve Bank within 90 calendar days after the 
transaction occurs:
    (i) Acquisition of voting securities resulting from a redemption of 
voting securities by the issuing savings and loan holding company; and
    (ii) Acquisition of voting securities as a result of actions 
(including the sale of securities) by any third party that is not within 
the control of the acquiror.
    (3) Nothing in paragraphs (b)(1) or (b)(2) of this section limits 
the authority of the Board to disapprove a notice pursuant to 
Sec. 238.33(h).



Sec. 238.33  Procedures for filing, processing, publishing, and 
acting on notices.

    (a) Filing notice. (1) A notice required under this subpart shall be 
filed with the appropriate Reserve Bank and shall contain all the 
information required by paragraph 6 of the Bank Control Act (12 U.S.C. 
1817(j)(6)), or prescribed in the designated Board form.
    (2) The Board may waive any of the informational requirements of the 
notice if the Board determines that it is in the public interest.
    (3) A notificant shall notify the appropriate Reserve Bank or the 
Board immediately of any material changes in a notice submitted to the 
Reserve Bank, including changes in financial or other conditions.
    (4) When the acquiring person is an individual, or group of 
individuals acting in concert, the requirement to provide personal 
financial data may be satisfied by a current statement of assets and 
liabilities and an income summary, as required in the designated Board 
form, together with a statement of any material changes since the date 
of the statement or summary. The Reserve Bank or the Board, 
nevertheless, may request additional information, if appropriate.
    (b) Acceptance of notice. The 60-day notice period specified in 
Sec. 238.31 of this

[[Page 94]]

subpart begins on the date of receipt of a complete notice. The Reserve 
Bank shall notify the person or persons submitting a notice under this 
subpart in writing of the date the notice is or was complete and thereby 
accepted for processing. The Reserve Bank or the Board may request 
additional relevant information at any time after the date of 
acceptance.
    (c) Publication--(1) Newspaper Announcement. Any person(s) filing a 
notice under this subpart shall publish, in a form prescribed by the 
Board, an announcement soliciting public comment on the proposed 
acquisition. The announcement shall be published in a newspaper of 
general circulation in the community in which the head office of the 
savings and loan holding company is located and in the community in 
which the head office of each of its subsidiary savings associations is 
located. The announcement shall be published no earlier than 15 calendar 
days before the filing of the notice with the appropriate Reserve Bank 
and no later than 10 calendar days after the filing date; and the 
publisher's affidavit of a publication shall be provided to the 
appropriate Reserve Bank.
    (2) Contents of newspaper announcement. The newspaper announcement 
shall state:
    (i) The name of each person identified in the notice as a proposed 
acquiror of the savings and loan holding company;
    (ii) The name of the savings and loan holding company to be 
acquired, including the name of each of the savings and loan holding 
company's subsidiary savings association; and
    (iii) A statement that interested persons may submit comments on the 
notice to the Board or the appropriate Reserve Bank for a period of 20 
days, or such shorter period as may be provided, pursuant to paragraph 
(c)(5) of this section.
    (3) Federal Register Announcement. The Board shall, upon filing of a 
notice under this subpart, publish announcement in the Federal Register 
of receipt of the notice. The Federal Register announcement shall 
contain the information required under paragraphs (c)(2)(i) and 
(c)(2)(ii) of this section and a statement that interested persons may 
submit comments on the proposed acquisition for a period of 15 calendar 
days, or such shorter period as may be provided, pursuant to paragraph 
(c)(5) of this section. The Board may waive publication in the Federal 
Register if the Board determines that such action is appropriate.
    (4) Delay of publication. The Board may permit delay in the 
publication required under paragraphs (c)(1) and (c)(3) of this section 
if the Board determines, for good cause shown, that it is in the public 
interest to grant such delay. Requests for delay of publication may be 
submitted to the appropriate Reserve Bank.
    (5) Shortening or waiving notice. The Board may shorten or waive the 
public comment or newspaper publication requirements of this paragraph, 
or act on a notice before the expiration of a public comment period, if 
it determines in writing that an emergency exists, or that disclosure of 
the notice, solicitation of public comment, or delay until expiration of 
the public comment period would seriously threaten the safety or 
soundness of the savings and loan holding company to be acquired.
    (6) Consideration of public comments. In acting upon a notice filed 
under this subpart, the Board shall consider all public comments 
received in writing within the period specified in the newspaper or 
Federal Register announcement, whichever is later. At the Board's 
option, comments received after this period may, but need not, be 
considered.
    (7) Standing. No person (other than the acquiring person) who 
submits comments or information on a notice filed under this subpart 
shall thereby become a party to the proceeding or acquire any standing 
or right to participate in the Board's consideration of the notice or to 
appeal or otherwise contest the notice or the Board's action regarding 
the notice.
    (d) Time period for Board action--(1) Consummation of acquisition--
(i) The notificant(s) may consummate the proposed acquisition 60 days 
after submission to the Reserve Bank of a complete notice under 
paragraph (a) of this section, unless within that period the Board 
disapproves the proposed acquisition or extends the 60-day period, as

[[Page 95]]

provided under paragraph (d)(2) of this section.
    (ii) The notificant(s) may consummate the proposed transaction 
before the expiration of the 60-day period if the Board notifies the 
notificant(s) in writing of the Board's intention not to disapprove the 
acquisition.
    (2) Extensions of time period. (i) The Board may extend the 60-day 
period in paragraph (d)(1) of this section for an additional 30 days by 
notifying the acquiring person(s).
    (ii) The Board may further extend the period during which it may 
disapprove a notice for two additional periods of not more than 45 days 
each, if the Board determines that:
    (A) Any acquiring person has not furnished all the information 
required under paragraph (a) of this section;
    (B) Any material information submitted is substantially inaccurate;
    (C) The Board is unable to complete the investigation of an 
acquiring person because of inadequate cooperation or delay by that 
person; or
    (D) Additional time is needed to investigate and determine that no 
acquiring person has a record of failing to comply with the requirements 
of the Bank Secrecy Act, subchapter II of Chapter 53 of title 31, United 
States Code.
    (iii) If the Board extends the time period under this paragraph, it 
shall notify the acquiring person(s) of the reasons therefor and shall 
include a statement of the information, if any, deemed incomplete or 
inaccurate.
    (e) Advice to bank supervisory agencies. The Reserve Bank shall send 
a copy of any notice to the Comptroller of the Currency and the Federal 
Deposit Insurance Corporation.
    (f) Investigation and report. (1) After receiving a notice under 
this subpart, the Board or the appropriate Reserve Bank shall conduct an 
investigation of the competence, experience, integrity, and financial 
ability of each person by and for whom an acquisition is to be made. The 
Board shall also make an independent determination of the accuracy and 
completeness of any information required to be contained in a notice 
under paragraph (a) of this section. In investigating any notice 
accepted under this subpart, the Board or Reserve Bank may solicit 
information or views from any person, including any savings and loan 
holding company involved in the notice, and any appropriate state, 
federal, or foreign governmental authority.
    (2) The Board or the appropriate Reserve Bank shall prepare a 
written report of its investigation, which shall contain, at a minimum, 
a summary of the results of the investigation.
    (g) Factors considered in acting on notices. In reviewing a notice 
filed under this subpart, the Board shall consider the information in 
the record, the views and recommendations of the appropriate bank 
supervisor, and any other relevant information obtained during any 
investigation of the notice.
    (h) Disapproval and hearing--(1) Disapproval of notice. The Board 
may disapprove an acquisition if it finds adverse effects with respect 
to any of the factors set forth in paragraph 7 of the Bank Control Act 
(12 U.S.C. 1817(j)(7)) (i.e., competitive, financial, managerial, 
banking, or incompleteness of information).
    (2) Disapproval notification. Within three days after its decision 
to issue a notice of intent to disapprove any proposed acquisition, the 
Board shall notify the acquiring person in writing of the reasons for 
the action.
    (3) Hearing. Within 10 calendar days of receipt of the notice of the 
Board's intent to disapprove, the acquiring person may submit a written 
request for a hearing. Any hearing conducted under this paragraph shall 
be in accordance with the Rules of Practice for Formal Hearings (12 CFR 
part 263). At the conclusion of the hearing, the Board shall, by order, 
approve or disapprove the proposed acquisition on the basis of the 
record of the hearing. If the acquiring person does not request a 
hearing, the notice of intent to disapprove becomes final and 
unappealable.



                   Subpart E_Qualified Stock Issuances



Sec. 238.41  Qualified stock issuances by undercapitalized savings 
associations or holding companies.

    (a) Acquisitions by savings and loan holding companies. No savings 
and loan holding company shall be deemed to

[[Page 96]]

control a savings association solely by reason of the purchase by such 
savings and loan holding company of shares issued by such savings 
association, or issued by any savings and loan holding company (other 
than a bank holding company) which controls such savings association, in 
connection with a qualified stock issuance if prior approval of such 
acquisition is granted by the Board under this subpart, unless the 
acquiring savings and loan holding company, directly or indirectly, or 
acting in concert with 1 or more other persons, or through one or more 
subsidiaries, owns, controls, or holds with power to vote, or holds 
proxies representing, more than 15 percent of the voting shares of such 
savings association or holding company.
    (b) Qualification. For purposes of this section, any issuance of 
shares of stock shall be treated as a qualified stock issuance if the 
following conditions are met:
    (1) The shares of stock are issued by--
    (i) An undercapitalized savings association, which for purposes of 
this paragraph (b)(1)(i) shall mean any savings association--
    (A) The assets of which exceed the liabilities of such association; 
and
    (B) Which does not comply with one or more of the capital standards 
in effect under section 5(t) of HOLA; or
    (ii) A savings and loan holding company which is not a bank holding 
company but which controls an undercapitalized savings association if, 
at the time of issuance, the savings and loan holding company is legally 
obligated to contribute the net proceeds from the issuance of such stock 
to the capital of an undercapitalized savings association subsidiary of 
such holding company.
    (2) All shares of stock issued consist of previously unissued stock 
or treasury shares.
    (3) All shares of stock issued are purchased by a savings and loan 
holding company that is registered, as of the date of purchase, with the 
Board in accordance with the provisions of section 10(b) of the HOLA and 
the Board's regulations promulgated thereunder.
    (4) Subject to paragraph (c) of this section, the Board approves the 
purchase of the shares of stock by the acquiring savings and loan 
holding company.
    (5) The entire consideration for the stock issued is paid in cash by 
the acquiring savings and loan holding company.
    (6) At the time of the stock issuance, each savings association 
subsidiary of the acquiring savings and loan holding company (other than 
an association acquired in a transaction pursuant to section 13(c) or 
13(k) of the Federal Deposit Insurance Act, or section 408(m) of the 
National Housing Act, as in effect immediately prior to enactment of the 
Financial Institutions Reform, Recovery and Enforcement Act of 1989) has 
capital (after deducting any subordinated debt, intangible assets, and 
deferred, unamortized gains or losses) of not less than 6\1/2\ percent 
of the total assets of such savings association.
    (7) Immediately after the stock issuance, the acquiring savings and 
loan holding company holds not more than 15 percent of the outstanding 
voting stock of the issuing undercapitalized savings association or 
savings and loan holding company.
    (8) Not more than one of the directors of the issuing association or 
company is an officer, director, employee, or other representative of 
the acquiring company or any of its affiliates.
    (9) Transactions between the savings association or savings and loan 
holding company that issues the shares pursuant to this section and the 
acquiring company and any of its affiliates shall be subject to the 
provisions of section 11 of HOLA and the Board's regulations promulgated 
thereunder.
    (c) Approval of acquisitions--(1) Criteria. The Board, in deciding 
whether to approve or deny an application filed on the basis that it is 
a qualified stock issuance, shall apply the application criteria set 
forth in Sec. 238.15(a), (b), and (c).
    (2) Additional capital commitments not required. The Board shall not 
disapprove any application for the purchase of stock in connection with 
a qualified stock issuance on the grounds that the acquiring savings and 
loan holding company has failed to undertake to make subsequent 
additional capital contributions to maintain the

[[Page 97]]

capital of the undercapitalized savings association at or above the 
minimum level required by the Board or any other Federal agency having 
jurisdiction.
    (3) Other conditions. The Board shall impose such conditions on any 
approval of an application for the purchase of stock in connection with 
a qualified stock issuance as the Board determines to be appropriate, 
including--
    (i) A requirement that any savings association subsidiary of the 
acquiring savings and loan holding company limit dividends paid to such 
holding company for such period of time as the Board may require; and
    (ii) Such other conditions as the Board deems necessary or 
appropriate to prevent evasions of this section.
    (4) Application deemed approved if not disapproved within 90 days. 
(i) An application for approval of a purchase of stock in connection 
with a qualified stock issuance shall be deemed to have been approved by 
the Board if such application has not been disapproved by the Board 
before the end of the 90-day period beginning on the date of submission 
to the Board of the complete record on the application as defined in 
Sec. 238.14(g)(3)(ii).
    (d) No limitation on class of stock issued. The shares of stock 
issued in connection with a qualified stock issuance may be shares of 
any class.
    (e) Application form. A savings and loan holding company making 
application to acquire a qualified stock issuance pursuant to this 
subpart shall submit the appropriate form to the appropriate Reserve 
Bank.



 Subpart F_Savings and Loan Holding Company Activities and Acquisitions



Sec. 238.51  Prohibited activities.

    (a) Evasion of law or regulation. No savings and loan holding 
company or subsidiary thereof which is not a savings association shall, 
for or on behalf of a subsidiary savings association, engage in any 
activity or render any services for the purpose or with the effect of 
evading any law or regulation applicable to such savings association.
    (b) Unrelated business activity. No savings and loan holding company 
or subsidiary thereof that is not a savings association shall commence 
any business activity at any time, or continue any business activity 
after the end of the two-year period beginning on the date on which such 
company received approval to become a savings and loan holding company 
that is subject to the limitations of this paragraph (b), except (in 
either case) the following:
    (1) Furnishing or performing management services for a savings 
association subsidiary of such company;
    (2) Conducting an insurance agency or an escrow business;
    (3) Holding, managing, or liquidating assets owned by or acquired 
from a subsidiary savings association of such company;
    (4) Holding or managing properties used or occupied by a subsidiary 
savings association of such company;
    (5) Acting as trustee under deed of trust;
    (6) Any other activity:
    (i) That the Board of Governors of the Federal Reserve System has 
permitted for bank holding companies pursuant to regulations promulgated 
under section 4(c) of the Bank Holding Company Act; or
    (ii) Is set forth in Sec. 238.53, subject to the limitations 
therein; or
    (7) (i) In the case of a savings and loan holding company, 
purchasing, holding, or disposing of stock acquired in connection with a 
qualified stock issuance if prior approval for the acquisition of such 
stock by such savings and loan holding company is granted by the Board 
pursuant to Sec. 238.41.
    (ii) Notwithstanding the provisions of this paragraph (b), any 
savings and loan holding company that, between March 5, 1987 and August 
10, 1987, received approval pursuant to 12 U.S.C. 1730a(e), as then in 
effect, to acquire control of a savings association shall not continue 
any business activity other than those activities set forth in this 
paragraph (b) after August 10, 1987.
    (c) Treatment of certain holding companies. If a director or officer 
of a savings and loan holding company, or an individual who owns, 
controls, or holds with the power to vote (or proxies representing) more 
than 25 percent of the

[[Page 98]]

voting shares of a savings and loan holding company, directly or 
indirectly controls more than one savings association, any savings and 
loan holding company controlled by such individual shall be subject to 
the activities limitations contained in paragraph (b) of this section, 
to the same extent such limitations apply to multiple savings and loan 
holding companies pursuant to Secs. 238.51, 238.52, 238.53, and 238.54.



Sec. 238.52  Exempt savings and loan holding companies and grandfathered 
activities.

    (a) Exempt savings and loan holding companies. (1) The following 
savings and loan holding companies are exempt from the limitations of 
Sec. 238.51(b):
    (i) Any savings and loan holding company (or subsidiary of such 
company) that controls only one savings association, if the savings 
association subsidiary of such company is a qualified thrift lender as 
defined in Sec. 238.2(k).
    (ii) Any savings and loan holding company (or subsidiary thereof) 
that controls more than one savings association if all, or all but one 
of the savings association subsidiaries of such company were acquired 
pursuant to an acquisition under section 13(c) or 13(k) of the Federal 
Deposit Insurance Act, or section 408(m) of the National Housing Act, as 
in effect immediately prior to the date of enactment of the Financial 
Institutions Reform, Recovery and Enforcement Act of 1989, and all of 
the savings association subsidiaries of such company are qualified 
thrift lenders as defined in Sec. 238.2(k).
    (2) Any savings and loan holding company whose subsidiary savings 
association(s) fails to qualify as a qualified thrift lender pursuant to 
12 U.S.C. 1467a(m) may not commence, or continue, any service or 
activity other than those permitted under Sec. 238.51(b) of this part, 
except that, the Board may allow, for good cause shown, such company (or 
subsidiary of such company which is not a savings association) up to 3 
years to comply with the limitations set forth in Sec. 238.51(b) of this 
part: Provided, That effective August 9, 1990, any company that controls 
a savings association that should have become or ceases to be a 
qualified thrift lender, except a savings association that requalified 
as a qualified thrift lender pursuant to section 10(m)(3)(D) of the Home 
Owners' Loan Act, shall within one year after the date on which the 
savings association fails to qualify as a qualified thrift lender, 
register as and be deemed to be a bank holding company, subject to all 
of the provisions of the Bank Holding Company Act, section 8 of the 
Federal Deposit Insurance Act, and other statutes applicable to bank 
holding companies in the same manner and to the same extent as if the 
company were a bank holding company and the savings association were a 
bank, as those terms are defined in the Bank Holding Company Act.
    (b) Grandfathered activities for certain savings and loan holding 
companies. Notwithstanding Sec. 238.51(b) and subject to paragraph (c) 
of this section, any savings and loan holding company that received 
approval prior to March 5, 1987 to acquire control of a savings 
association may engage, directly or indirectly or through any subsidiary 
(other than a subsidiary savings association of such company) in any 
activity in which it was lawfully engaged on March 5, 1987, provided, 
that:
    (1) The holding company does not, after August 10, 1987, acquire 
control of a bank or an additional savings association, other than a 
savings association acquired pursuant to section 13(c) or 13(k) of the 
Federal Deposit Insurance Act, or section 406(f) or 408(m) of the 
National Housing Act, as in effect immediately prior to the date of 
enactment of the Financial Institutions Reform, Recovery and Enforcement 
Act of 1989;
    (2) Any savings association subsidiary of the holding company 
continues to qualify as a domestic building and loan association under 
section 7701(a)(19) of the Internal Revenue Code of 1986 after August 
10, 1987;
    (3) The holding company does not engage in any business activity 
other than those permitted under Sec. 238.51(b) or in which it was 
engaged on March 5, 1987;
    (4) Any savings association subsidiary of the holding company does 
not increase the number of locations from which such savings association 
conducts business after March 5, 1987,

[[Page 99]]

other than an increase due to a transaction under section 13(c) or 13(k) 
of the Federal Deposit Insurance Act, or under section 408(m) of the 
National Housing Act, as in effect immediately prior to the date of 
enactment of the Financial Institutions Reform, Recovery and Enforcement 
Act of 1989; and
    (5) Any savings association subsidiary of the holding company does 
not permit any overdraft (including an intra-day overdraft) or incur any 
such overdraft in its account at a Federal Reserve bank, on behalf of an 
affiliate, unless such overdraft results from an inadvertent computer or 
accounting error that is beyond the control of both the savings 
association subsidiary and the affiliate.
    (c) Termination by the Board of grandfathered activities. 
Notwithstanding the provisions of paragraph (b) of this section, the 
Board may, after opportunity for hearing, terminate any activity engaged 
in under paragraph (b) of this section upon determination that such 
action is necessary:
    (1) To prevent conflicts of interest;
    (2) To prevent unsafe or unsound practices; or
    (3) To protect the public interest.
    (d) Foreign holding company. Any savings and loan holding company 
organized under the laws of a foreign country as of June 1, 1984 
(including any subsidiary thereof that is not a savings association) 
that controlled a single savings association on August 10, 1987, shall 
not be subject to the restrictions set forth in Sec. 238.51(b) with 
respect to any activities of such holding company that are conducted 
exclusively in a foreign country.



Sec. 238.53  Prescribed services and activities of savings and loan 
holding companies.

    (a) General. For the purpose of Sec. 238.51(b)(6)(ii), the 
activities set forth in paragraph (b) of this section are, and were as 
of March 5, 1987, permissible services and activities for savings and 
loan holding companies or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations. Services and activities of service corporation 
subsidiaries of savings and loan holding company subsidiary savings 
associations are prescribed by paragraph (d) of this section.
    (b) Prescribed services and activities. Subject to the provisions of 
paragraph (c) of this section, a savings and loan holding company 
subject to restrictions on its activities pursuant to Sec. 238.51(b), or 
a subsidiary thereof which is neither a savings association nor a 
service corporation of a subsidiary savings association, may furnish or 
perform the following services and engage in the following activities to 
the extent that it has legal power to do so:
    (1) Originating, purchasing, selling and servicing any of the 
following:
    (i) Loans, and participation interests in loans, on a prudent basis 
and secured by real estate, including brokerage and warehousing of such 
real estate loans, except that such a company or subsidiary shall not 
invest in a loan secured by real estate as to which a subsidiary savings 
association of such company has a security interest;
    (ii) Manufactured home chattel paper (written evidence of both a 
monetary obligation and a security interest of first priority in one or 
more manufactured homes, and any equipment installed or to be installed 
therein), including brokerage and warehousing of such chattel paper;
    (iii) Loans, with or without security, for the altering, repairing, 
improving, equipping or furnishing of any residential real estate;
    (iv) Educational loans; and
    (v) Consumer loans, as defined in Sec. 160.3 of this title, 
Provided, That, no subsidiary savings association of such holding 
company or service corporation of such savings association shall engage 
directly or indirectly, in any transaction with any affiliate involving 
the purchase or sale, in whole or in part, of any consumer loan.
    (2) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing clerical accounting and internal audit services primarily for 
its affiliates;
    (3) Subject to the provisions of 12 U.S.C. 1468, furnishing or 
performing the following services primarily for its affiliates, and for 
any savings association and service corporation subsidiary thereof, and 
for other multiple holding companies and affiliates thereof:
    (i) Data processing;

[[Page 100]]

    (ii) Credit information, appraisals, construction loan inspections, 
and abstracting;
    (iii) Development and administration of personnel benefit programs, 
including life insurance, health insurance, and pension or retirement 
plans;
    (iv) Research, studies, and surveys;
    (v) Purchase of office supplies, furniture and equipment;
    (vi) Development and operation of storage facilities for microfilm 
or other duplicate records; and
    (vii) Advertising and other services to procure and retain both 
savings accounts and loans;
    (4) Acquisition of unimproved real estate lots, and acquisition of 
other unimproved real estate for the purpose of prompt development and 
subdivision, for:
    (i) Construction of improvements,
    (ii) Resale to others for such construction, or
    (iii) Use as mobile home sites;
    (5) Development, subdivision and construction of improvements on 
real estate acquired pursuant to paragraph (b)(4) of this section, for 
sale or rental;
    (6) Acquisition of improved real estate and mobile homes to be held 
for rental;
    (7) Acquisition of improved real estate for remodeling, 
rehabilitation, modernization, renovation, or demolition and rebuilding 
for sale or for rental;
    (8) Maintenance and management of improved real estate;
    (9) Underwriting or reinsuring contract of credit life or credit 
health and accident insurance in connection with extensions of credit by 
the savings and loan holding company or any of its subsidiaries, or 
extensions of credit by any savings association or service corporation 
subsidiary thereof, or any other savings and loan holding company or 
subsidiary thereof;
    (10) Preparation of State and Federal tax returns for accountholders 
of or borrowers from (including immediate family members of such 
accountholders or borrowers but not including an accountholder or 
borrower which is a corporation operated for profit) an affiliated 
savings association;
    (11) Purchase and sale of gold coins minted and issued by the United 
States Treasury pursuant to Public Law 99-185, 99 Stat. 1177 (1985), and 
activities reasonably incident thereto; and
    (12) Any services or activities approved by order of the former 
Federal Savings and Loan Insurance Corporation prior to March 5, 1987, 
pursuant to its authority under section 408(c)(2)(F) of the National 
Housing Act, as in effect at the time.
    (c) Procedures for commencing services or activities. A notice to 
engage in or acquire a company engaged in a service or activity 
prescribed by paragraph (b) of this section (other than purchase or sale 
of a government debt security) shall be filed by a savings and loan 
holding company (including a company seeking to become a savings and 
loan holding company) with the appropriate Reserve Bank in accordance 
with this paragraph and the Board's Rules of Procedure (12 CFR 262.3).
    (1) Engaging de novo in services or activities. A savings and loan 
holding company seeking to commence or to engage de novo in a service or 
activity pursuant to this section, either directly or through a 
subsidiary, shall file a notice containing a description of the 
activities to be conducted and the identity of the company that will 
conduct the activity.
    (2) Acquiring company engaged in services or activities. A savings 
and loan holding company seeking to acquire or control voting securities 
or assets of a company engaged in a service or activity pursuant to this 
section, shall file a notice containing the following:
    (i) A description of the proposal, including a description of each 
proposed service or activity;
    (ii) The identity of any entity involved in the proposal, and, if 
the notificant proposes to conduct the service or activity through an 
existing subsidiary, a description of the existing activities of the 
subsidiary;
    (iii) If the savings and loan holding company has consolidated 
assets of $150 million or more:
    (A) Parent company and consolidated pro forma balance sheets for the 
acquiring savings and loan holding company as of the most recent quarter

[[Page 101]]

showing credit and debit adjustments that reflect the proposed 
transaction;
    (B) Consolidated pro forma risk-based capital and leverage ratio 
calculations for the acquiring savings and loan holding company as of 
the most recent quarter; and
    (C) A description of the purchase price and the terms and sources of 
funding for the transaction;
    (iv) If the savings and loan holding company has consolidated assets 
of less than $150 million:
    (A) A pro forma parent-only balance sheet as of the most recent 
quarter showing credit and debit adjustments that reflect the proposed 
transaction; and
    (B) A description of the purchase price and the terms and sources of 
funding for the transaction and, if the transaction is debt funded, one-
year income statement and cash flow projections for the parent company, 
and the sources and schedule for retiring any debt incurred in the 
transaction;
    (v) For each insured depository institution whose Tier 1 capital, 
total capital, total assets or risk-weighted assets change as a result 
of the transaction, the total risk-weighted assets, total assets, Tier 1 
capital and total capital of the institution on a pro forma basis; and
    (vi) A description of the management expertise, internal controls 
and risk management systems that will be utilized in the conduct of the 
proposed service or activity; and
    (vii) A copy of the purchase agreements, and balance sheet and 
income statements for the most recent quarter and year-end for any 
company to be acquired.
    (d) Notice provided to Board. The Reserve Bank shall immediately 
send to the Board a copy of any notice received under paragraphs (c)(1) 
or (c)(2) of this section.
    (e) Notice to public--(1) the Reserve Bank shall notify the Board 
for publication in the Federal Register immediately upon receipt by the 
Reserve Bank of:
    (i) A notice under paragraph (c) of this section or
    (ii) A written request that notice of a proposal under paragraph (c) 
of this section be published in the Federal Register. Such a request may 
request that Federal Register publication occur up to 15 calendar days 
prior to submission of a notice under this subpart.
    (2) The Federal Register notice published under this paragraph (e) 
shall invite public comment on the proposal, generally for a period of 
15 days.
    (f) Action on notices--(1) Reserve Bank action--(i) In general. 
Within 30 calendar days after receipt by the Reserve Bank of a notice 
filed pursuant to paragraphs (c)(1) or (c)(2) of this section, the 
Reserve Banks shall:
    (A) Approve the notice; or
    (B) Refer the notice to the Board for decision because action under 
delegated authority is not appropriate.
    (ii) Return of incomplete notice. Within 7 calendar days of receipt, 
the Reserve Bank may return any notice as informationally incomplete 
that does not contain all of the information required by this section. 
The return of such a notice shall be deemed action on the notice.
    (iii) Notice of action. The Reserve Bank shall promptly notify the 
savings and loan holding company of any action or referral under this 
paragraph.
    (iv) Close of public comment period. The Reserve Bank shall not 
approve any notice under this paragraph (e)(1) of this section prior to 
the third business day after the close of the public comment period, 
unless an emergency exists that requires expedited or immediate action.
    (2) Board action; internal schedule. The Board seeks to act on every 
notice referred to it for decision within 60 days of the date that the 
notice is filed with the Reserve Bank. If the Board is unable to act 
within this period, the Board shall notify the notificant and explain 
the reasons and the date by which the Board expects to act.
    (3)(i) Required time limit for System action. The Board or the 
Reserve Bank shall act on any notice under this section within 60 days 
after the submission of a complete notice.
    (ii) Extension of required period for action. The Board may extend 
the 60-day period required for Board action under paragraph (e)(3)(i) of 
this section for an additional 30 days upon notice to the notificant.

[[Page 102]]

    (4) Requests for additional information. The Board or the Reserve 
Bank may modify the information requirements under this section or at 
any time request any additional information that either believes is 
needed for a decision on any notice under this section.
    (5) Tolling of period. The Board or the Reserve Bank may at any time 
extend or toll the time period for action on a notice for any period 
with the consent of the notificant.
    (g) Modification or termination of service or activity. The Board 
may require a savings and loan holding company or subsidiary thereof 
which has commenced a service or activity pursuant to this section to 
modify or terminate, in whole or in part, such service or activity as 
the Board finds necessary in order to ensure compliance with the 
provisions and purposes of this part and of section 10 of the Home 
Owners' Loan Act, as amended, or to prevent evasions thereof.
    (h) Alterations. Except as may be otherwise provided in a resolution 
by or on behalf of the Board in a particular case, a service or activity 
commenced pursuant to this section shall not be altered in any material 
respect from that described in the notice filed under paragraph (c)(1) 
of this section, unless before making such alteration notice of intent 
to do so is filed in compliance with the appropriate procedures of said 
paragraph (c)(1) of this section.
    (i) Service corporation subsidiaries of savings associations. The 
Board hereby approves without application the furnishing or performing 
of such services or engaging in such activities as permitted by the OTS 
pursuant to Sec. 545.74 of this title, as in effect on March 5, 1987, if 
such service or activity is conducted by a service corporation 
subsidiary of a subsidiary savings association of a savings and loan 
holding company and if such service corporation has legal power to do 
so.



Sec. 238.54  Permissible bank holding company activities of savings and 
loan holding companies.

    (a) General. For purposes of Sec. 238.51(b)(6)(i), the services and 
activities permissible for bank holding companies pursuant to 
regulations that the Board has promulgated pursuant to section 4(c) of 
the Bank Holding Company Act are permissible for savings and loan 
holding companies, or subsidiaries thereof that are neither savings 
associations nor service corporation subsidiaries of subsidiary savings 
associations: Provided, That no savings and loan holding company shall 
commence any activity described in this paragraph (a) without the prior 
approval of this Board pursuant to paragraph (b) of this section, 
unless--
    (1) The holding company received a rating of satisfactory or above 
prior to January 1, 2008, or a composite rating of ``1'' or ``2'' 
thereafter, in its most recent examination, and is not in a troubled 
condition as defined in Sec. 238.72, and the holding company does not 
propose to commence the activity by an acquisition (in whole or in part) 
of a going concern; or
    (2) The activity is permissible under authority other than section 
10(c)(2)(F)(i) of the HOLA without prior notice or approval. Where an 
activity is within the scope of both Sec. 238.53 and this section, the 
procedures of Sec. 238.53 shall govern.
    (b) Procedures for applications. Applications to commence any 
activity prescribed under paragraph (a) of this section shall be filed 
with the appropriate Reserve Bank on the designated form. The Board must 
act upon such application according to the procedures of Sec. 238.53(d), 
(e), and (f).
    (c) Factors considered in acting on applications. In evaluating an 
application filed under paragraph (b) of this section, the Board shall 
consider whether the performance by the applicant of the activity can 
reasonably be expected to produce benefits to the public (such as 
greater convenience, increased competition, or gains in efficiency) that 
outweigh possible adverse effects (such as undue concentration of 
resources, decreased or unfair competition, conflicts of interest, or 
unsound financial practices). This consideration includes an evaluation 
of the financial and managerial resources of the applicant, including 
its subsidiaries, and of any company to be acquired, and the effect of 
the proposed transaction on those resources.

[[Page 103]]



             Subpart G_Financial Holding Company Activities



Sec. 238.61  Scope.

    Section 10(c)(2)(H) of the HOLA (12 U.S.C. 1467a(c)(2)(H)) permits a 
savings and loan holding company to engage in activities that are 
permissible for a financial holding company if the savings and holding 
company meets the criteria to qualify as a financial holding company and 
complies with all of the requirements applicable to a financial holding 
company under sections 4(l) and 4(m) of the BHC Act as if the savings 
and loan holding company was a bank holding company. This subpart 
provides the requirements and restrictions for a savings and holding 
company to be treated as a financial holding company for the purpose of 
engaging in financial holding company activities. This subpart does not 
apply to savings and loan holding companies described in section 
10(c)(9)(C) of the HOLA (12 U.S.C. 1467a(c)(9)(C)).



Sec. 238.62  Definitions.

    For the purposes of this subpart:
    (a) Financial holding company activities refers to activities 
permissible under section 4(k) of the Bank Holding Company Act of 1956 
(12 U.S.C. 1843(k)) and Sec. 225.86 of this chapter.
    (b) [Reserved]



Sec. 238.63  Requirements to engage in financial holding company activities.

    (a) In general. In order for a savings and loan holding company to 
engage in financial holding company activities:
    (1) The savings and loan holding company and all depository 
institutions controlled by the savings and loan holding company must be 
and remain well capitalized;
    (2) The savings and loan holding company and all depository 
institutions controlled by the savings and loan company must be and 
remain well managed; and
    (3) The savings and loan holding company must have made an effective 
election to be treated as a financial holding company.



Sec. 238.64  Election required.

    (a) In general. Except as provided below, a savings and loan holding 
company that wishes to engage in financial holding company activities 
must have an effective election to be treated as a financial holding 
company.
    (b) Activities performed under separate HOLA authority. A savings 
and loan holding company that conducts only the following activities is 
not required to elect to be treated as a financial holding company:
    (1) BHC Act section 4(c)(8) activities. Activities permissible under 
section 10(c)(2)(F)(i) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(i)).
    (2) Insurance agency or escrow business activities. Activities 
permissible under section 10(c)(2)(B) of the HOLA (12 U.S.C. 
1467a(c)(2)(B)).
    (3) ``1987 List'' activities. Activities permissible under section 
10(c)(2)(F)(ii) of the HOLA (12 U.S.C. 1467a(c)(2)(F)(ii)).
    (c) Existing requirements apply. A savings and loan holding company 
that has not made an effective election to be treated as a financial 
holding company and that conducts the activities described in paragraphs 
(b)(1) through (3) of this section remains subject to any rules and 
requirements applicable to the conduct of such activities.



Sec. 238.65  Election procedures.

    (a) Filing requirement. A savings and loan holding company may elect 
to be treated as a financial holding company by filing a written 
declaration with the appropriate Reserve Bank. A declaration by a 
savings and loan holding company is considered to be filed on the date 
that all information required by paragraph (b) of this section is 
received by the appropriate Reserve Bank.
    (b) Contents of declaration. To be deemed complete, a declaration 
must:
    (1) State that the savings and loan holding company elects to be 
treated as a financial holding company in order to engage in financial 
holding company activities;
    (2) Provide the name and head office address of the savings and loan 
holding company and of each depository institution controlled by the 
savings and loan holding company;
    (3) Certify that the savings and loan holding company and each 
depository institution controlled by the savings

[[Page 104]]

and loan holding company is well capitalized as of the date the savings 
and loan holding company submits its declaration;
    (4) Certify that the savings and loan holding company and each 
savings association controlled by the savings and loan holding company 
is well managed as of the date the savings and loan holding company 
submits its declaration;
    (c) Effectiveness of election. An election by a savings and loan 
holding company to be treated as a financial holding company shall not 
be effective if, during the period provided in paragraph (d) of this 
section, the Board finds that, as of the date the declaration was filed 
with the appropriate Reserve Bank:
    (1) Any insured depository institution controlled by the savings and 
loan holding company (except an institution excluded under paragraph (d) 
of this section) has not achieved at least a rating of ``satisfactory 
record of meeting community credit needs'' under the Community 
Reinvestment Act at the savings association's most recent examination; 
or
    (2) Any depository institution controlled by the bank holding 
company is not both well capitalized and well managed.
    (d) Consideration of the CRA performance of a recently acquired 
savings association. Except as provided in paragraph (f) of this 
section, a savings association will be excluded for purposes of the 
review of the Community Reinvestment Act rating provisions of paragraph 
(c)(1) of this section if:
    (1) The savings and loan holding company acquired the savings 
association during the 12-month period preceding the filing of an 
election under paragraph (a) of this section;
    (2) The savings and loan holding company has submitted an 
affirmative plan to the appropriate Federal banking agency for the 
savings association to take actions necessary for the institution to 
achieve at least a rating of ``satisfactory record of meeting community 
credit needs'' under the Community Reinvestment Act at the next 
examination of the savings association; and
    (3) The appropriate Federal banking agency for the savings 
association has accepted the plan described in paragraph (d)(2) of this 
section.
    (e) Effective date of election--(1) In general. An election filed by 
a savings and loan holding company under paragraph (a) of this section 
is effective on the 31st calendar day after the date that a complete 
declaration was filed with the appropriate Reserve Bank, unless the 
Board notifies the savings and loan holding company prior to that time 
that the election is ineffective.
    (2) Earlier notification that an election is effective. The Board or 
the appropriate Reserve Bank may notify a savings and loan holding 
company that its election to be treated as a financial holding company 
is effective prior to the 31st day after the date that a complete 
declaration was filed with the appropriate Reserve Bank. Such a 
notification must be in writing.
    (3) Special effective date rules for the OTS transfer date--(i) 
Deadline for filing declaration. For savings and loan holding companies 
that meet the requirements of Sec. 238.63 and that are engaged in 
financial holding company activities pursuant to existing authority as 
of July 21, 2011, an election under paragraph (a) must be filed with the 
appropriate Reserve Bank by December 31, 2011. The election must be 
accompanied by a description of the financial holding company activities 
conducted by the savings and loan holding company.
    (ii) Effective date of election. An election filed under paragraph 
(e)(3)(i) of this section is effective on the 61st calendar day after 
the date that a complete declaration was filed with the appropriate 
Reserve Bank, unless the Board notifies the savings and loan holding 
company prior to that time that the election is ineffective.
    (iii) Earlier notification that an election is effective. The Board 
or the appropriate Reserve Bank may notify a savings and loan holding 
company that its election under paragraph (e)(3)(i) of this section to 
be treated as a financial holding company is effective prior to the 61st 
day after the date that a complete declaration was filed with the 
appropriate Reserve Bank. Such notification must be in writing.

[[Page 105]]

    (iv) Filings by savings and loan holding companies that do not meet 
requirements. (A) For savings and loan holding companies that are 
engaged in financial holding company activities as of July 21, 2011 but 
do not meet the requirements of Sec. 238.63, a declaration must be filed 
with the appropriate Reserve Bank by December 31, 2011, specifying:
    (1) The name and head office address of the savings and loan holding 
company and of each despoitory institution controlled by the savings and 
loan holding company;
    (2) The financial holding company activities that the savings and 
loan holding company is engaged in;
    (3) The requirements of Sec. 238.63 that the savings and loan 
holding company does not meet; and
    (4) A description of how the savings and loan holding company will 
achieve compliance with Sec. 238.63 prior to June 30, 2012.
    (B) A savings and loan holding company covered by this subparagraph 
will be subject to:
    (1) The notice, remediation agreement, divestiture, and any other 
requirements described in Sec. 225.83 of this chapter; or
    (2) The activities limitations and any other requirements described 
in Sec. 225.84 of this chapter, depending on which requirements of 
Sec. 238.63 the savings and loan holding company does not meet.
    (f) Requests to be treated as a financial holding company submitted 
as part of an application to become a savings and loan holding company. 
A company that is not a savings and loan holding company and has applied 
for the Board's approval to become a savings and loan holding company 
under section 10(e) of the HOLA (12 U.S.C. 1467a(e)) may as part of that 
application submit a request to be treated as a financial holding 
company. Such requests shall be made and reviewed by the Board as 
described in Sec. 225.82(f) of this chapter.
    (g) Board's authority to exercise supervisory authority over a 
savings and loan holding company treated as a financial holding company. 
An effective election to be treated as a financial holding company does 
not in any way limit the Board's statutory authority under the HOLA, the 
Federal Deposit Insurance Act, or any other relevant Federal statute to 
take appropriate action, including imposing supervisory limitations, 
restrictions, or prohibitions on the activities and acquisitions of a 
savings and loan holding company that has elected to be treated as a 
financial holding company, or enforcing compliance with applicable law.



Sec. 238.66  Ongoing requirements.

    (a) In general. A savings and loan holding company with an effective 
election to be treated as a financial holding company is subject to the 
same requirements applicable to a financial holding company, under 
sections 4(l) and 4(m) of the Bank Holding Company Act and section 
804(c) of the Community Reinvestment Act of 1977 (12 U.S.C. 2903(c)) as 
if the savings and loan holding company was a bank holding company.
    (b) Consequences of failing to continue to meet applicable capital 
and management requirements. A savings and loan holding company with an 
effective election to be treated as a financial holding company that 
fails to meet applicable capital and management requirements at 
Sec. 238.63 is subject to the notice, remediation agreement, 
divestiture, and any other requirements described in Sec. 225.83 of this 
chapter.
    (c) Consequences of failing to continue to maintain a satisfactory 
or better rating under the Community Reinvestment Act at all insured 
depository institution subsidiaries. A savings and loan holding company 
with an effective election to be treated as a financial holding company 
that fails to maintain a satisfactory or better rating under the 
Community Reinvestment Act at all insured deposit institution 
subsidiaries is subject to the activities limitations and any other 
requirements described in Sec. 225.84 of this chapter.
    (d) Notice and approval requirements for conducting financial 
holding company activities; permissible activities. A savings and loan 
holding company with an effective election to be treated as a financial 
holding company may conduct the activities listed in Sec. 225.86 of this 
chapter subject to the notice, approval, and any other requirements 
described in Secs. 225.85 through 225.89 of this chapter.

[[Page 106]]



   Subpart H_Notice of Change of Director or Senior Executive Officer



Sec. 238.71  Purpose.

    This subpart implements 12 U.S.C. 1831i, which requires certain 
savings and loan holding companies to notify the Board before appointing 
or employing directors and senior executive officers.



Sec. 238.72  Definitions.

    The following definitions apply to this subpart:
    (a) Director means an individual who serves on the board of 
directors of a savings and loan holding company. This term does not 
include an advisory director who:
    (1) Is not elected by the shareholders;
    (2) Is not authorized to vote on any matters before the board of 
directors or any committee of the board of directors;
    (3) Provides only general policy advice to the board of directors or 
any committee of the board of directors; and
    (4) Has not been identified by the Board or Reserve Bank in writing 
as an individual who performs the functions of a director, or who 
exercises significant influence over, or participates in, major 
policymaking decisions of the board of directors.
    (b) Senior executive officer means an individual who holds the title 
or performs the function of one or more of the following positions 
(without regard to title, salary, or compensation): president, chief 
executive officer, chief operating officer, chief financial officer, 
chief lending officer, or chief investment officer. Senior executive 
officer also includes any other person identified by the Board or 
Reserve Bank in writing as an individual who exercises significant 
influence over, or participates in, major policymaking decisions, 
whether or not hired as an employee.
    (c) Troubled condition means:
    (1) A savings and loan holding company that has an unsatisfactory 
rating under the applicable holding company rating system, or that is 
informed in writing by the Board or Reserve Bank that it has an adverse 
effect on its subsidiary savings association.
    (2) A savings and loan holding company that is subject to a capital 
directive, a cease-and-desist order, a consent order, a formal written 
agreement, or a prompt corrective action directive relating to the 
safety and soundness or financial viability of the savings association, 
unless otherwise informed in writing by the Board or Reserve Bank; or
    (3) A savings and loan holding company that is informed in writing 
by the Board or Reserve Bank that it is in troubled condition based on 
information available to the Board or Reserve Bank.



Sec. 238.73  Prior notice requirements.

    (a) Savings and loan holding company. Except as provided under 
Sec. 238.78, a savings and loan holding company must give the Board 30 
days' written notice, as specified in Sec. 238.74, before adding or 
replacing any member of its board of directors, employing any person as 
a senior executive officer, or changing the responsibilities of any 
senior executive officer so that the person would assume a different 
senior executive position if the savings and loan holding company is in 
troubled condition.
    (b) Notice by individual. An individual seeking election to the 
board of directors of a savings and loan holding company described in 
paragraph (a) of this section that has not been nominated by management, 
must either provide the prior notice required under paragraph (a) of 
this section or follow the process under Sec. 238.78(b).



Sec. 238.74  Filing and processing procedures.

    (a) Filing notice--(1) Content. The notice required in Sec. 238.73 
shall be filed with the appropriate Reserve Bank and shall contain:
    (i) The information required by paragraph 6(A) of the Change in Bank 
Control Act (12 U.S.C. 1817(j)(6)(A)) as may be prescribed in the 
designated Board form;
    (ii) Additional information consistent with the Federal Financial 
Institutions Examination Council's Joint Statement of Guidelines on 
Conducting

[[Page 107]]

Background Checks and Change in Control Investigations, as set forth in 
the designated Board form; and
    (iii) Such other information as may be required by the Board or 
Reserve Bank.
    (2) Modification. The Reserve Bank may modify or accept other 
information in place of the requirements of this section for a notice 
filed under this subpart.
    (3) Acceptance and processing of notice. The 30-day notice period 
specified in section 238.73 shall begin on the date all information 
required to be submitted by the notificant pursuant to this section is 
received by the appropriate Reserve Bank. The Reserve Bank shall notify 
the savings and loan holding company or individual submitting the notice 
of the date on which all required information is received and the notice 
is accepted for processing, and of the date on which the 30-day notice 
period will expire. The Board or Reserve Bank may extend the 30-day 
notice period for an additional period of not more than 60 days by 
notifying the savings and loan holding company or individual filing the 
notice that the period has been extended and stating the reason for not 
processing the notice within the 30-day notice period.
    (b) [Reserved]



Sec. 238.75  Standards for review.

    (a) Notice of disapproval. The Board or Reserve Bank will disapprove 
a notice if, pursuant to the standard set forth in 12 U.S.C. 1831i(e), 
the Board or Reserve Bank finds that the competence, experience, 
character, or integrity of the proposed individual indicates that it 
would not be in the best interests of the depositors of the savings and 
loan holding company or of the public to permit the individual to be 
employed by, or associated with, the savings and loan holding company. 
If the Board or Reserve Bank disapproves a notice, it will issue a 
written notice that explains why the Board or Reserve Bank disapproved 
the notice. The Board or Reserve Bank will send the notice to the 
savings and loan holding company and the individual.
    (b) Appeal of a notice of disapproval. (1) A disapproved individual 
or a regulated institution that has submitted a notice that is 
disapproved under this section may appeal the disapproval to the Board 
within 15 days of the effective date of the notice of disapproval. An 
appeal shall be in writing and explain the reasons for the appeal and 
include all facts, documents, and arguments that the appealing party 
wishes to be considered in the appeal, and state whether the appealing 
party is requesting an informal hearing.
    (2) Written notice of the final decision of the Board shall be sent 
to the appealing party within 60 days of the receipt of an appeal, 
unless the appealing party's request for an informal hearing is granted.
    (3) The disapproved individual may not serve as a director or senior 
executive officer of the state member bank or bank holding company while 
the appeal is pending.
    (c) Informal hearing. (1) An individual or regulated institution 
whose notice under this section has been disapproved may request an 
informal hearing on the notice. A request for an informal hearing shall 
be in writing and shall be submitted within 15 days of a notice of 
disapproval. The Board may, in its sole discretion, order an informal 
hearing if the Board finds that oral argument is appropriate or 
necessary to resolve disputes regarding material issues of fact.
    (2) An informal hearing shall be held within 30 days of a request, 
if granted, unless the requesting party agrees to a later date.
    (3) Written notice of the final decision of the Board shall be given 
to the individual and the regulated institution within 60 days of the 
conclusion of any informal hearing ordered by the Board, unless the 
requesting party agrees to a later date.



Sec. 238.76  Waiting period.

    (a) At expiration of period. A proposed director or senior executive 
officer may begin service at the end of the 30-day period and any 
extension as provided under Sec. 238.74 unless the Board or Reserve Bank 
notifies you that it has disapproved the notice before the end of the 
period.
    (b) Prior to expiration of period. A proposed director or senior 
executive officer may begin service before the end of the 30-day period 
and any extension as

[[Page 108]]

provided under section 238.74 of this section, if the Board or the 
Reserve Bank notifies in writing the savings and loan holding company or 
individual submitting the notice of the Board's or Reserve Bank's 
intention not to disapprove the notice.



Sec. 238.77  Waiver of prior notice requirement.

    (a) Waiver request. An individual may serve as a director or senior 
executive officer before filing a notice under this subpart if the Board 
or Reserve Bank finds that:
    (1) Delay would threaten the safety or soundness of the savings and 
loan holding company;
    (2) Delay would not be in the public interest; or
    (3) Other extraordinary circumstances exist that justify waiver of 
prior notice.
    (b) Automatic waiver. An individual may serve as a director upon 
election to the board of directors before filing a notice under this 
subpart, if the individual:
    (1) Is not proposed by the management of the savings and loan 
holding company;
    (2) Is elected as a new member of the board of directors at a 
meeting of the savings and loan holding company; and
    (3) Provides to the appropriate Reserve Bank all the information 
required in Sec. 238.74 within two (2) business days after the 
individual's election.
    (c) Subsequent Board or Reserve Bank action. The Board or Reserve 
Bank may disapprove a notice within 30 days after the Board or Reserve 
Bank issues a waiver under paragraph (a) of this section or within 30 
days after the election of an individual who has filed a notice and is 
serving pursuant to an automatic waiver under paragraph (b) of this 
section.



   Subpart I_Prohibited Service at Savings and Loan Holding Companies



Sec. 238.81  Purpose.

    This subpart implements section 19(e)(1) of the Federal Deposit 
Insurance Act (FDIA), which prohibits persons who have been convicted of 
certain criminal offenses or who have agreed to enter into a pre-trial 
diversion or similar program in connection with a prosecution for such 
criminal offenses from occupying various positions with a savings and 
loan holding company. This part also implements section 19(e)(2) of the 
FDIA, which permits the Board to provide exemptions, by regulation or 
order, from the application of the prohibition. This subpart provides an 
exemption for savings and loan holding company employees whose 
activities and responsibilities are limited solely to agriculture, 
forestry, retail merchandising, manufacturing, or public utilities 
operations, and a temporary exemption for certain persons who held 
positions with respect to a savings and loan holding company as of 
October 13, 2006. The subpart also describes procedures for applying to 
the Board for an exemption.



Sec. 238.82  Definitions.

    The following definitions apply to this subpart:
    (a) Institution-affiliated party is defined at 12 U.S.C. 1813(u), 
except that the phrase ``savings and loan holding company'' is 
substituted for ``insured depository institution'' each place that it 
appears in that definition.
    (b) Enforcement Counsel means any individual who files a notice of 
appearance to serve as counsel on behalf of the Board in the proceeding.
    (c) Person means an individual and does not include a corporation, 
firm or other business entity.
    (d) Savings and loan holding company is defined at Sec. 238.2(m), 
but excludes a subsidiary of a savings and loan holding company that is 
not itself a savings and loan holding company.



Sec. 238.83  Prohibited actions.

    (a) Person. If a person was convicted of a criminal offense 
described in Sec. 238.84, or agreed to enter into a pretrial diversion 
or similar program in connection with a prosecution for such a criminal 
offense, he or she may not:
    (1) Become, or continue as, an institution-affiliated party with 
respect to any savings and loan holding company.
    (2) Own or control, directly or indirectly, any savings and loan 
holding company. A person will own or control a savings and loan holding 
company if

[[Page 109]]

he or she owns or controls that company under subpart D of this part.
    (3) Otherwise participate, directly or indirectly, in the conduct of 
the affairs of any savings and loan holding company.
    (b) Savings and loan holding company. A savings and loan holding 
company may not permit any person described in paragraph (a) of this 
section to engage in any conduct or to continue any relationship 
prohibited under that paragraph.



Sec. 238.84  Covered convictions or agreements to enter into pre-trial
diversions or similar programs.

    (a) Covered convictions and agreements. Except as described in 
Sec. 238.85, this subpart covers:
    (1) Any conviction of a criminal offense involving dishonesty, 
breach of trust, or money laundering. Convictions do not cover arrests, 
pending cases not brought to trial, acquittals, convictions reversed on 
appeal, pardoned convictions, or expunged convictions.
    (2) Any agreement to enter into a pretrial diversion or similar 
program in connection with a prosecution for a criminal offense 
involving dishonesty, breach of trust or money laundering. A pretrial 
diversion or similar program is a program involving a suspension or 
eventual dismissal of charges or of a criminal prosecution based upon an 
agreement for treatment, rehabilitation, restitution, or other non-
criminal or non-punitive alternative.
    (b) Dishonesty or breach of trust. A determination whether a 
criminal offense involves dishonesty or breach of trust is based on the 
statutory elements of the crime.
    (1) ``Dishonesty'' means directly or indirectly to cheat or defraud, 
to cheat or defraud for monetary gain or its equivalent, or to 
wrongfully take property belonging to another in violation of any 
criminal statute. Dishonesty includes acts involving a want of 
integrity, lack of probity, or a disposition to distort, cheat, or act 
deceitfully or fraudulently, and may include crimes which federal, state 
or local laws define as dishonest.
    (2) ``Breach of trust'' means a wrongful act, use, misappropriation, 
or omission with respect to any property or fund which has been 
committed to a person in a fiduciary or official capacity, or the misuse 
of one's official or fiduciary position to engage in a wrongful act, 
use, misappropriation, or omission.



Sec. 238.85  Adjudications and offenses not covered.

    (a) Youthful offender or juvenile delinquent. This subpart does not 
cover any adjudication by a court against a person as:
    (1) A youthful offender under any youthful offender law; or
    (2) A juvenile delinquent by a court with jurisdiction over minors 
as defined by state law.
    (b) De minimis criminal offense. This subpart does not cover de 
minimis criminal offenses. A criminal offense is de minimis if:
    (1) The person has only one conviction or pretrial diversion or 
similar program of record;
    (2) The offense was punishable by imprisonment for a term of less 
than one year, a fine of less than $1,000, or both, and the person did 
not serve time in jail.
    (3) The conviction or program was entered at least five years before 
the date the person first held a position described in Sec. 238.83(a); 
and
    (4) The offense did not involve an insured depository institution, 
insured credit union, or other banking organization (including a savings 
and loan holding company, bank holding company, or financial holding 
company).
    (5) The person must disclose the conviction or pretrial diversion or 
similar program to all insured depository institutions and other banking 
organizations the affairs of which he or she participates.
    (6) The person must be covered by a fidelity bond to the same extent 
as others in similar positions with the savings and loan holding 
company.



Sec. 238.86  Exemptions.

    (a) Employees. An employee of a savings and loan holding company is 
exempt from the prohibition in Sec. 238.83, if all of the following 
conditions are met:

[[Page 110]]

    (1) The employee's responsibilities and activities are limited 
solely to agriculture, forestry, retail merchandising, manufacturing, or 
public utilities operations.
    (2) The savings and loan holding company maintains a list of all 
policymaking positions and reviews this list annually.
    (3) The employee's position does not appear on the savings and loan 
holding company's list of policymaking positions, and the employee does 
not, in fact, exercise any policymaking function with the savings and 
loan holding company.
    (4) The employee:
    (i) Is not an institution-affiliated party of the savings and loan 
holding company other than by virtue of the employment described in 
paragraph (a) of this section.
    (ii) Does not own or control, directly or indirectly, the savings 
and loan holding company; and
    (iii) Does not participate, directly or indirectly, in the conduct 
of the affairs of the savings and loan holding company.
    (b) Temporary exemption. (1) Any prohibited person who was an 
institution affiliated party with respect to a savings and loan holding 
company, who owned or controlled, directly or indirectly a savings and 
loan holding company, or who otherwise participated directly or 
indirectly in the conduct of the affairs of a savings and loan holding 
company on October 13, 2006, may continue to hold the position with the 
savings and loan holding company.
    (2) This exemption expires on December 31, 2012, unless the savings 
and loan holding company or the person files an application seeking a 
case-by-case exemption for the person under Sec. 238.87 by that date. If 
the savings and loan holding company or the person files such an 
application, the temporary exemption expires on:
    (i) The date of issuance of a Board approval of the application 
under Sec. 238.89(a);
    (ii) The expiration of the 20-day period for filing a request for 
hearing under Sec. 238.90(a) provided there is no timely request for 
hearing following the issuance by the Board of a denial of the 
application under that section;
    (iii) The date that the Board denies a timely request for hearing 
under Sec. 238.90(b) following the issuance of a Board denial of the 
application under Sec. 238.89(b);
    (iv) The date that the Board issues a decision under Sec. 238.90(d); 
or
    (v) The date an applicant withdraws the application.



Sec. 238.87  Filing procedures.

    (a) Who may file. (1) A savings and loan holding company or a person 
who was convicted of a criminal offense described in Sec. 238.84 or who 
has agreed to enter into a pre-trial diversion or similar program in 
connection with a prosecution for such a criminal offense may file an 
application with the Board seeking an exemption from the prohibitions in 
this subpart.
    (2) A savings and loan holding company or a person may seek an 
exemption only for a designated position (or positions) with respect to 
a named savings and loan holding company.
    (3) A savings and loan holding company or a person may not file an 
application less than one year after the latter of the date of a denial 
of the same exemption under Sec. 238.89(b), Sec. 238.90(a) or 
Sec. 238.90(d).
    (b) Prohibition pending Board action. Unless a savings and loan 
holding company or a person is exempt under Sec. 238.86(b), the 
prohibitions in Sec. 238.83 continue to apply pending Board action on 
the application.



Sec. 238.88  Factors for review.

    (a) Board review. (1) In determining whether to approve an exemption 
application filed under Sec. 238.87, the Board will consider the extent 
to which the position that is the subject of the application enables a 
person to:
    (i) Participate in the major policymaking functions of the savings 
and loan holding company; or
    (ii) Threaten the safety and soundness of any insured depository 
institution that is controlled by the savings and loan holding company, 
the interests of its depositors, or the public confidence in the insured 
depository institution.
    (2) The Board will also consider whether the applicant has 
demonstrated the person's fitness to hold

[[Page 111]]

the described position. Some positions may be approved without an 
extensive review of a person's fitness because the position does not 
enable a person to take the actions described in paragraph (a)(1) of 
this section.
    (b) Factors. In making the determinations under paragraph (a) of 
this section, the Board will consider the following factors:
    (1) The position;
    (2) The amount of influence and control a person holding the 
position will be able to exercise over the affairs and operations of the 
savings and loan holding company and the insured depository institution;
    (3) The ability of the management of the savings and loan holding 
company to supervise and control the activities of a person holding the 
position;
    (4) The level of ownership that the person will have at the savings 
and loan holding company;
    (5) The specific nature and circumstances of the criminal offense. 
The question whether a person who was convicted of a crime or who agreed 
to enter into a pretrial diversion or similar program for a crime was 
guilty of that crime is not relevant;
    (6) Evidence of rehabilitation; and
    (7) Any other relevant factor.



Sec. 238.89  Board action.

    (a) Approval. The Board will notify an applicant if an application 
under this subpart is approved. An approval by the Board may include 
such conditions as the Board determines to be appropriate.
    (b) Denial. If Board denies an application, the Board will notify an 
applicant promptly.



Sec. 238.90  Hearings.

    (a) Hearing requests. Within 20 days of the date of issuance of a 
denial of an application filed under this subpart, a savings and loan 
holding company or a person whose application the Board has denied may 
file a written request demonstrating good cause for a hearing on the 
denial.
    (b) Board review of hearing request. The Board will review the 
hearing request to determine if the savings and loan holding company or 
person has demonstrated good cause for a hearing on the application. 
Within 30 days after the filing of a timely request for a hearing, the 
Board will notify the savings and loan holding company or person in 
writing of its decision to grant or deny the hearing request. If the 
Board grants the request for a hearing, it will order a hearing to be 
commenced within 60 days of the issuance of the notification. Upon the 
request of a party, the Board may at its discretion order a later 
hearing date.
    (c) Hearing procedures. The following procedures apply to hearings 
under this subpart.
    (1) The hearing shall be held in Washington, DC, or at another 
designated place, before a presiding officer designated by the Board.
    (2) An applicant may elect in writing to have the matter determined 
on the basis of written submissions, rather than an oral hearing.
    (3) The parties to the hearing are Enforcement Counsel and the 
applicant.
    (4) The provisions of Secs. 263.2, 263.4, 263.6 through 263.12, and 
263.16 of this chapter apply to the hearing.
    (5) Discovery is not permitted.
    (6) A party may introduce relevant and material documents and make 
oral argument at the hearing.
    (7) At the discretion of the presiding officer, witnesses may be 
presented within specified time limits, provided that a list of 
witnesses is furnished to the presiding officer and to all other parties 
prior to the hearing. Witnesses must be sworn, unless otherwise directed 
by the presiding officer. The presiding officer may ask questions of any 
witness. Each party may cross-examine any witness presented by the 
opposing party. The Board will furnish a transcript of the proceedings 
upon an applicant's request and upon the payment of the costs of the 
transcript.
    (8) The presiding officer has the power to administer oaths and 
affirmations, to take or cause to be taken depositions of unavailable 
witnesses, and to issue, revoke, quash, or modify subpoenas and 
subpoenas duces tecum. If the presentation of witnesses is permitted, 
the presiding officer may require the attendance of witnesses from any 
state, territory, or other place subject to the jurisdiction of the 
United

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States at any location where the proceeding is being conducted. Witness 
fees are paid in accordance with section 263.14 of this chapter.
    (9) Upon the request of a party, the record will remain open for 
five business days following the hearing for additional submissions to 
the record.
    (10) Enforcement Counsel has the burden of proving a prima facie 
case that a person is prohibited from a position under section 19(e) of 
the FDIA. The applicant has the burden of proof on all other matters.
    (11) The presiding officer must make recommendations to the Board, 
where possible, within 20 days after the last day for the parties to 
submit additions to the record.
    (12) The presiding officer must forward his or her recommendation to 
the Board who shall promptly certify the entire record, including the 
presiding officer's recommendations. The Board's certification will 
close the record.
    (d) Decision. After the certification of the record, the Board will 
notify the parties of its decision by issuing an order approving or 
denying the application.
    (1) An approval order will require fidelity bond coverage for the 
position to the same extent as similar positions with the savings and 
loan holding company. The approval order may include such other 
conditions as may be appropriate.
    (2) A denial order will include a summary of the relevant factors 
under Sec. 238.88(b).



                Subpart J_Management Official Interlocks



Sec. 238.91  Authority, purpose, and scope.

    (a) Authority. This subpart is issued under the provisions of the 
Depository Institution Management Interlocks Act (Interlocks Act) (12 
U.S.C. 3201 et seq.), as amended.
    (b) Purpose. The purpose of the Interlocks Act and this subpart is 
to foster competition by generally prohibiting a management official 
from serving two nonaffiliated depository organizations in situations 
where the management interlock likely would have an anticompetitive 
effect.
    (c) Scope. This subpart applies to management officials of savings 
and loan holding companies, and their affiliates.



Sec. 238.92  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Affiliate. (1) The term affiliate has the meaning given in 
section 202 of the Interlocks Act (12 U.S.C. 3201). For purposes of that 
section 202, shares held by an individual include shares held by members 
of his or her immediate family. ``Immediate family'' means spouse, 
mother, father, child, grandchild, sister, brother, or any of their 
spouses, whether or not any of their shares are held in trust.
    (2) For purposes of section 202(3)(B) of the Interlocks Act (12 
U.S.C. 3201(3)(B)), an affiliate relationship involving a savings and 
loan holding company based on common ownership does not exist if the 
Board determines, after giving the affected persons the opportunity to 
respond, that the asserted affiliation was established in order to avoid 
the prohibitions of the Interlocks Act and does not represent a true 
commonality of interest between the depository organizations. In making 
this determination, the Board considers, among other things, whether a 
person, including members of his or her immediate family, whose shares 
are necessary to constitute the group owns a nominal percentage of the 
shares of one of the organizations and the percentage is substantially 
disproportionate to that person's ownership of shares in the other 
organization.
    (b) Area median income means:
    (1) The median family income for the metropolitan statistical area 
(MSA), if a depository organization is located in an MSA; or
    (2) The statewide nonmetropolitan median family income, if a 
depository organization is located outside an MSA.
    (c) Community means a city, town, or village, and contiguous or 
adjacent cities, towns, or villages.
    (d) Contiguous or adjacent cities, towns, or villages means cities, 
towns, or villages whose borders touch each other or whose borders are 
within 10 road miles of each other at their closest

[[Page 113]]

points. The property line of an office located in an unincorporated 
city, town, or village is the boundary line of that city, town, or 
village for the purpose of this definition.
    (e) Depository holding company means a bank holding company or a 
savings and loan holding company (as more fully defined in section 202 
of the Interlocks Act (12 U.S.C. 3201)) having its principal office 
located in the United States.
    (f) Depository institution means a commercial bank (including a 
private bank), a savings bank, a trust company, a savings and loan 
association, a building and loan association, a homestead association, a 
cooperative bank, an industrial bank, or a credit union, chartered under 
the laws of the United States and having a principal office located in 
the United States. Additionally, a United States office, including a 
branch or agency, of a foreign commercial bank is a depository 
institution.
    (g) Depository institution affiliate means a depository institution 
that is an affiliate of a depository organization.
    (h) Depository organization means a depository institution or a 
depository holding company.
    (i) Low- and moderate-income areas means census tracts (or, if an 
area is not in a census tract, block numbering areas delineated by the 
United States Bureau of the Census) where the median family income is 
less than 100 percent of the area median income.
    (j) Management official. (1) The term management official means:
    (i) A director;
    (ii) An advisory or honorary director of a depository institution 
with total assets of $100 million or more;
    (iii) A senior executive officer as that term is defined in 
Sec. 225.71(c) of this chapter;
    (iv) A branch manager;
    (v) A trustee of a depository organization under the control of 
trustees; and
    (vi) Any person who has a representative or nominee serving in any 
of the capacities in this paragraph (j)(1).
    (2) The term management official does not include:
    (i) A person whose management functions relate exclusively to the 
business of retail merchandising or manufacturing;
    (ii) A person whose management functions relate principally to the 
business outside the United States of a foreign commercial bank; or
    (iii) A person described in the provisos of section 202(4) of the 
Interlocks Act (12 U.S.C. 3201(4)) (referring to an officer of a State-
chartered savings bank, cooperative bank, or trust company that neither 
makes real estate mortgage loans nor accepts savings).
    (k) Office means a principal or branch office of a depository 
institution located in the United States. Office does not include a 
representative office of a foreign commercial bank, an electronic 
terminal, or a loan production office.
    (l) Person means a natural person, corporation, or other business 
entity.
    (m) Relevant metropolitan statistical area (RMSA) means an MSA, a 
primary MSA, or a consolidated MSA that is not comprised of designated 
Primary MSAs to the extent that these terms are defined and applied by 
the Office of Management and Budget.
    (n) Representative or nominee means a natural person who serves as a 
management official and has an obligation to act on behalf of another 
person with respect to management responsibilities. The Board will find 
that a person has an obligation to act on behalf of another person only 
if the first person has an agreement, express or implied, to act on 
behalf of the second person with respect to management responsibilities. 
The Board will determine, after giving the affected persons an 
opportunity to respond, whether a person is a representative or nominee.
    (o) Savings association means:
    (1) Any Federal savings association (as defined in section 3(b)(2) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(2)));
    (2) Any state savings association (as defined in section 3(b)(3) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(3))) the deposits 
of which are insured by the Federal Deposit Insurance Corporation; and
    (3) Any corporation (other than a bank as defined in section 3(a)(1) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)(1))) the 
deposits of which

[[Page 114]]

are insured by the Federal Deposit Insurance Corporation, that the Board 
of Directors of the Federal Deposit Insurance Corporation and the 
Comptroller of the Currency jointly determine to be operating in 
substantially the same manner as a savings association.
    (p) Total assets. (1) The term total assets means assets measured on 
a consolidated basis and reported in the most recent fiscal year-end 
Consolidated Report of Condition and Income.
    (2) The term total assets does not include:
    (i) Assets of a diversified savings and loan holding company as 
defined by section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) other than the assets of its depository institution 
affiliate;
    (ii) Assets of a bank holding company that is exempt from the 
prohibitions of section 4 of the Bank Holding Company Act of 1956 
pursuant to an order issued under section 4(d) of that Act (12 U.S.C. 
1843(d)) other than the assets of its depository institution affiliate; 
or
    (iii) Assets of offices of a foreign commercial bank other than the 
assets of its United States branch or agency.
    (q) United States means the United States of America, any State or 
territory of the United States of America, the District of Columbia, 
Puerto Rico, Guam, American Samoa, and the Virgin Islands.



Sec. 238.93  Prohibitions.

    (a) Community. A management official of a depository organization 
may not serve at the same time as a management official of an 
unaffiliated depository organization if the depository organizations in 
question (or a depository institution affiliate thereof) have offices in 
the same community.
    (b) RMSA. A management official of a depository organization may not 
serve at the same time as a management official of an unaffiliated 
depository organization if the depository organizations in question (or 
a depository institution affiliate thereof) have offices in the same 
RMSA and each depository organization has total assets of $50 million or 
more.
    (c) Major assets. A management official of a depository organization 
with total assets exceeding $2.5 billion (or any affiliate of such an 
organization) may not serve at the same time as a management official of 
an unaffiliated depository organization with total assets exceeding $1.5 
billion (or any affiliate of such an organization), regardless of the 
location of the two depository organizations. The Board will adjust 
these thresholds, as necessary, based on the year-to-year change in the 
average of the Consumer Price Index for the Urban Wage Earners and 
Clerical Workers, not seasonally adjusted, with rounding to the nearest 
$100 million. The Board will announce the revised thresholds by 
publishing a final rule without notice and comment in the Federal 
Register.



Sec. 238.94  Interlocking relationships permitted by statute.

    The prohibitions of Sec. 238.93 do not apply in the case of any one 
or more of the following organizations or to a subsidiary thereof:
    (a) A depository organization that has been placed formally in 
liquidation, or which is in the hands of a receiver, conservator, or 
other official exercising a similar function;
    (b) A corporation operating under section 25 or section 25A of the 
Federal Reserve Act (12 U.S.C. 601 et seq. and 12 U.S.C. 611 et seq., 
respectively) (Edge Corporations and Agreement Corporations);
    (c) A credit union being served by a management official of another 
credit union;
    (d) A depository organization that does not do business within the 
United States except as an incident to its activities outside the United 
States;
    (e) A State-chartered savings and loan guaranty corporation;
    (f) A Federal Home Loan Bank or any other bank organized solely to 
serve depository institutions (a bankers' bank) or solely for the 
purpose of providing securities clearing services and services related 
thereto for depository institutions and securities companies;
    (g) A depository organization that is closed or is in danger of 
closing as determined by the appropriate Federal depository institutions 
regulatory agency and is acquired by another depository organization. 
This exemption lasts for five years, beginning on the

[[Page 115]]

date the depository organization is acquired;
    (h)(1) A diversified savings and loan holding company (as defined in 
section 10(a)(1)(F) of the Home Owners' Loan Act (12 U.S.C. 
1467a(a)(1)(F)) with respect to the service of a director of such 
company who also is a director of an unaffiliated depository 
organization if:
    (i) Both the diversified savings and loan holding company and the 
unaffiliated depository organization notify their appropriate Federal 
depository institutions regulatory agency at least 60 days before the 
dual service is proposed to begin; and
    (ii) The appropriate regulatory agency does not disapprove the dual 
service before the end of the 60-day period.
    (2) The Board may disapprove a notice of proposed service if it 
finds that:
    (i) The service cannot be structured or limited so as to preclude an 
anticompetitive effect in financial services in any part of the United 
States;
    (ii) The service would lead to substantial conflicts of interest or 
unsafe or unsound practices; or
    (iii) The notificant failed to furnish all the information required 
by the Board.
    (3) The Board may require that any interlock permitted under this 
paragraph (h) be terminated if a change in circumstances occurs with 
respect to one of the interlocked depository organizations that would 
have provided a basis for disapproval of the interlock during the notice 
period; and
    (i) Any savings association or any savings and loan holding company 
(as defined in section 10(a)(1)(D) of the Home Owners' Loan Act) which 
has issued stock in connection with a qualified stock issuance pursuant 
to section 10(q) of such Act, except that this paragraph (i) shall apply 
only with regard to service by a single management official of such 
savings association or holding company, or any subsidiary of such 
savings association or holding company, by a single management official 
of the savings and loan holding company which purchased the stock issued 
in connection with such qualified stock issuance, and shall apply only 
when the Board has determined that such service is consistent with the 
purposes of the Interlocks Act and the Home Owners' Loan Act.



Sec. 238.95  Small market share exemption.

    (a) Exemption. A management interlock that is prohibited by 
Sec. 238.93 is permissible, if:
    (1) The interlock is not prohibited by Sec. 238.93(c); and
    (2) The depository organizations (and their depository institution 
affiliates) hold, in the aggregate, no more than 20 percent of the 
deposits in each RMSA or community in which both depository 
organizations (or their depository institution affiliates) have offices. 
The amount of deposits shall be determined by reference to the most 
recent annual Summary of Deposits published by the FDIC for the RMSA or 
community.
    (b) Confirmation and records. Each depository organization must 
maintain records sufficient to support its determination of eligibility 
for the exemption under paragraph (a) of this section, and must 
reconfirm that determination on an annual basis.



Sec. 238.96  General exemption.

    (a) Exemption. The Board may by agency order exempt an interlock 
from the prohibitions in Sec. 238.93 if the Board finds that the 
interlock would not result in a monopoly or substantial lessening of 
competition and would not present safety and soundness concerns. A 
depository organization may apply to the Board for an exemption.
    (b) Presumptions. In reviewing an application for an exemption under 
this section, the Board will apply a rebuttable presumption that an 
interlock will not result in a monopoly or substantial lessening of 
competition if the depository organization seeking to add a management 
official:
    (1) Primarily serves low- and moderate-income areas;
    (2) Is controlled or managed by persons who are members of a 
minority group, or women;
    (3) Is a depository institution that has been chartered for less 
than two years; or
    (4) Is deemed to be in ``troubled condition'' as defined in 
Sec. 238.72.

[[Page 116]]

    (c) Duration. Unless a shorter expiration period is provided in the 
Board approval, an exemption permitted by paragraph (a) of this section 
may continue so long as it does not result in a monopoly or substantial 
lessening of competition, or is unsafe or unsound. If the Board grants 
an interlock exemption in reliance upon a presumption under paragraph 
(b) of this section, the interlock may continue for three years, unless 
otherwise provided by the Board in writing.



Sec. 238.97  Change in circumstances.

    (a) Termination. A management official shall terminate his or her 
service or apply for an exemption if a change in circumstances causes 
the service to become prohibited. A change in circumstances may include 
an increase in asset size of an organization, a change in the 
delineation of the RMSA or community, the establishment of an office, an 
increase in the aggregate deposits of the depository organization, or an 
acquisition, merger, consolidation, or reorganization of the ownership 
structure of a depository organization that causes a previously 
permissible interlock to become prohibited.
    (b) Transition period. A management official described in paragraph 
(a) of this section may continue to serve the depository organization 
involved in the interlock for 15 months following the date of the change 
in circumstances. The Board may shorten this period under appropriate 
circumstances.



Sec. 238.98  Enforcement.

    Except as provided in this section, the Board administers and 
enforces the Interlocks Act with respect to savings and loan holding 
companies and its affiliates, and may refer any case of a prohibited 
interlocking relationship involving these entities to the Attorney 
General of the United States to enforce compliance with the Interlocks 
Act and this part. If an affiliate of a savings and loan holding company 
is subject to the primary regulation of another Federal depository 
organization supervisory agency, then the Board does not administer and 
enforce the Interlocks Act with respect to that affiliate.



Sec. 238.99  Interlocking relationships permitted pursuant to Federal Deposit 
Insurance Act.

    A management official or prospective management official of a 
depository organization may enter into an otherwise prohibited 
interlocking relationship with another depository organization for a 
period of up to 10 years if such relationship is approved by the Federal 
Deposit Insurance Corporation pursuant to section 13(k)(1)(A)(v) of the 
Federal Deposit Insurance Act, as amended (12 U.S.C. 1823(k)(1)(A)(v)).



         Subpart K_Dividends by Subsidiary Savings Associations



Sec. 238.101  Authority and purpose.

    This subpart implements section 10(f) of HOLA which requires savings 
associations with holding companies to provide the Board not less than 
30 days' notice of a proposed declaration of a dividend. This subpart 
applies to all declarations of dividends by a subsidiary savings 
association of a savings and loan holding company.



Sec. 238.102  Definitions.

    The following definitions apply to this subpart:
    (a) Appropriate Federal banking agency has the same meaning as in 12 
U.S.C. 1813(q) and includes, with respect to agreements entered into and 
conditions imposed prior to July 21, 2011, the Office of Thrift 
Supervision.
    (b) Dividend means:
    (1) A distribution of cash or other property to owners of a savings 
association made on account of their ownership, but not any dividend 
consisting only of shares or rights to purchase shares; or
    (2) Any transaction that the Board determines, by order or 
regulation, to be in substance a dividend.
    (c) Shares means common and preferred stock, and any options, 
warrants, or other rights for the acquisition of such stock. The term 
``share'' also includes convertible securities upon their conversion 
into common or preferred stock. The term does not include convertible 
debt securities prior to their conversion into common or preferred stock 
or other securities that

[[Page 117]]

are not equity securities at the time of a dividend.



Sec. 238.103  Filing requirement.

    (a) Filing. A subsidiary savings association of a savings and loan 
holding company must file a notice with the appropriate Reserve Bank on 
the designated form at least 30 days before the proposed declaration of 
a dividend by its board of directors.
    (b) Schedules. A notice may include a schedule proposing dividends 
over a specified period, not to exceed 12 months.



Sec. 238.104  Board action and criteria for review.

    (a) Board action. (1) A subsidiary savings association of a savings 
and loan holding company may declare a proposed dividend after the end 
of a 30-day review period commencing on the date of submission to the 
Federal Reserve System of the complete record on the notice, unless the 
Board or Reserve Bank disapproves the notice before the end of the 
period.
    (2) A subsidiary savings association of a savings and loan holding 
company may declare a proposed dividend before the end of the 30-day 
period if the Board or Reserve Bank notifies the applicant in writing of 
the Board's or Reserve Bank's intention not to disapprove the notice.
    (b) Criteria. The Board or Reserve Bank may disapprove a notice, in 
whole or in part, if the Board or Reserve Bank makes any of the 
following determinations.
    (1) Following the dividend the subsidiary savings association will 
be undercapitalized, significantly undercapitalized, or critically 
undercapitalized as set forth in applicable regulations under 12 U.S.C. 
1831o.
    (2) The proposed dividend raises safety or soundness concerns.
    (3) The proposed dividend violates a prohibition contained in any 
statute, regulation, enforcement action, or agreement between the 
subsidiary savings association or any savings and loan holding company 
of which it is a subsidiary and an appropriate Federal banking agency, a 
condition imposed on the subsidiary savings association or any savings 
and loan holding company of which it is a subsidiary in an application 
or notice approved by an appropriate Federal banking agency, or any 
formal or informal enforcement action involving the subsidiary savings 
association or any savings and loan holding company of which it is a 
subsidiary. If so, the Board will determine whether it may permit the 
dividend notwithstanding the prohibition, condition, or enforcement 
action.



 Subpart L_Investigative Proceedings and Formal Examination Proceedings



Sec. 238.111  Scope.

    This part prescribes rules of practice and procedure applicable to 
the conduct of investigative proceedings under section 10(g)(2) of the 
Home Owners' Loan Act, as amended, 12 U.S.C. 1467a(g)(2) (``HOLA'') and 
to the conduct of formal examination proceedings with respect to savings 
and loan holding companies and their affiliates under section 5(d)(1)(B) 
of the HOLA, as amended, 12 U.S.C. 1464(d)(1)(B) or section 7(j)(15) of 
the Federal Deposit Insurance Act, as amended, 12 U.S.C. 1817(j)(15) 
(``FDIA''), section 8(n) of the FDIA, 12 U.S.C. 1818(n), or section 
10(c) of the FDIA, 12 U.S.C. 1820(c). This part does not apply to 
adjudicatory proceedings as to which hearings are required by statute, 
the rules for which are contained in part 262 of this chapter.



Sec. 238.112  Definitions.

    As used in this part:
    (a) Investigative proceeding means an investigation conducted under 
section 10(g)(2) of the HOLA;
    (b) Formal examination proceeding means the administration of oaths 
and affirmations, taking and preserving of testimony, requiring the 
production of books, papers, correspondence, memoranda, and all other 
records, the issuance of subpoenas, and all related activities in 
connection with examination of savings and loan holding companies and 
their affiliates conducted pursuant to section 5(d)(1)(B) of the HOLA, 
section 7(j)(15) of the FDIA, section 8(n) of the FDIA or section 10(c) 
of the FDIA; and

[[Page 118]]

    (c) Designated representative means the person or persons empowered 
by the Board to conduct an investigative proceeding or a formal 
examination proceeding.



Sec. 238.113  Confidentiality of proceedings.

    All formal examination proceedings shall be private and, unless 
otherwise ordered by the Board, all investigative proceedings shall also 
be private. Unless otherwise ordered or permitted by the Board, or 
required by law, and except as provided in Secs. 238.114 and 238.115, 
the entire record of any investigative proceeding or formal examination 
proceeding, including the resolution of the Board or its delegate(s) 
authorizing the proceeding, the transcript of such proceeding, and all 
documents and information obtained by the designated representative(s) 
during the course of said proceedings shall be confidential.



Sec. 238.114  Transcripts.

    Transcripts or other recordings, if any, of investigative 
proceedings or formal examination proceedings shall be prepared solely 
by an official reporter or by any other person or means authorized by 
the designated representative. A person who has submitted documentary 
evidence or given testimony in an investigative proceeding or formal 
examination proceeding may procure a copy of his own documentary 
evidence or transcript of his own testimony upon payment of the cost 
thereof; provided, that a person seeking a transcript of his own 
testimony must file a written request with the Board stating the reason 
he desires to procure such transcript, and the Board may for good cause 
deny such request. In any event, any witness (or his counsel) shall have 
the right to inspect the transcript of the witness' own testimony.



Sec. 238.115  Rights of witnesses.

    (a) Any person who is compelled or requested to furnish documentary 
evidence or give testimony at an investigative proceeding or formal 
examination proceeding shall have the right to examine, upon request, 
the Board resolution authorizing such proceeding. Copies of such 
resolution shall be furnished, for their retention, to such persons only 
with the written approval of the Board.
    (b) Any witness at an investigative proceeding or formal examination 
proceeding may be accompanied and advised by an attorney personally 
representing that witness.
    (1) Such attorney shall be a member in good standing of the bar of 
the highest court of any state, Commonwealth, possession, territory, or 
the District of Columbia, who has not been suspended or debarred from 
practice by the bar of any such political entity or before the Board in 
accordance with the provisions of part 263 of this chapter and has not 
been excluded from the particular investigative proceeding or formal 
examination proceeding in accordance with paragraph (b)(3) of this 
section.
    (2) Such attorney may advise the witness before, during, and after 
the taking of his testimony and may briefly question the witness, on the 
record, at the conclusion of his testimony, for the sole purpose of 
clarifying any of the answers the witness has given. During the taking 
of the testimony of a witness, such attorney may make summary notes 
solely for his use in representing his client. All witnesses shall be 
sequestered, and, unless permitted in the discretion of the designated 
representative, no witness or accompanying attorney may be permitted to 
be present during the taking of testimony of any other witness called in 
such proceeding. Neither attorney(s) for the association(s) that are the 
subjects of the investigative proceedings or formal examination 
proceedings, nor attorneys for any other interested persons, shall have 
any right to be present during the testimony of any witness not 
personally being represented by such attorney.
    (3) The Board, for good cause, may exclude a particular attorney 
from further participation in any investigation in which the Board has 
found the attorney to have engaged in dilatory, obstructionist, 
egregious, contemptuous or contumacious conduct. The person conducting 
an investigation may report to the Board instances of apparently 
dilatory, obstructionist, egregious, contemptuous or contumacious 
conduct on the part of an attorney.

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After due notice to the attorney, the Board may take such action as the 
circumstances warrant based upon a written record evidencing the conduct 
of the attorney in that investigation or such other or additional 
written or oral presentation as the Board may permit or direct.



Sec. 238.116  Obstruction of proceedings.

    The designated representative shall report to the Board any 
instances where any witness or counsel has engaged in dilatory, 
obstructionist, or contumacious conduct or has otherwise violated any 
provision of this part during the course of an investigative proceeding 
or formal examination proceeding; and the Board may take such action as 
the circumstances warrant, including the exclusion of counsel from 
further participation in such proceeding.



Sec. 238.117  Subpoenas.

    (a) Service. Service of a subpoena in connection with any 
investigative proceeding or formal examination proceeding shall be 
effected in the following manner:
    (1) Service upon a natural person. Service of a subpoena upon a 
natural person may be effected by handing it to such person; by leaving 
it at his office with the person in charge thereof, or, if there is no 
one in charge, by leaving it in a conspicuous place therein; by leaving 
it at his dwelling place or usual place of abode with some person of 
suitable age and discretion then residing therein; by mailing it to him 
by registered or certified mail or by an express delivery service at his 
last known address; or by any method whereby actual notice is given to 
him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, service of the subpoena may be effected by handing the 
subpoena to a registered agent for service, or to any officer, director, 
or agent in charge of any office of such person; by mailing it to any 
such representative by registered or certified mail or by an express 
delivery service at his last known address; or by any method whereby 
actual notice is given to such person.
    (b) Motions to quash. Any person to whom a subpoena is directed may, 
prior to the time specified therein for compliance, but in no event more 
than 10 days after the date of service of such subpoena, apply to the 
Board or its designee to quash or modify such subpoena, accompanying 
such application with a statement of the reasons therefore. The Board or 
its designee, as appropriate, may:
    (1) Deny the application;
    (2) Quash or revoke the subpoena;
    (3) Modify the subpoena; or
    (4) Condition the granting of the application on such terms as the 
Board or its designee determines to be just, reasonable, and proper.
    (c) Attendance of witnesses. Subpoenas issued in connection with an 
investigative proceeding or formal examination proceeding may require 
the attendance and/or testimony of witnesses from any State or territory 
of the United States and the production by such witnesses of documentary 
or other tangible evidence at any designated place where the proceeding 
is being (or is to be) conducted. Foreign nationals are subject to such 
subpoenas if such service is made upon a duly authorized agent located 
in the United States.
    (d) Witness fees and mileage. Witnesses summoned in any proceeding 
under this part shall be paid the same fees and mileage that are paid 
witnesses in the district courts of the United States. Such fees and 
mileage need not be tendered when the subpoena is issued on behalf of 
the Board by any of its designated representatives.



PART 239_MUTUAL HOLDING COMPANIES (REGULATION MM)--Table of Contents



                      Subpart A_General Provisions

Sec.
239.1  Authority, purpose, and scope.
239.2  Definitions.

                   Subpart B_Mutual Holding Companies

239.3  Mutual holding company reorganizations.
239.4  Grounds for disapproval of reorganizations.
239.5  Membership rights.
239.6  Contents of Reorganization Plans.
239.7  Acquisition and disposition of savings associations, savings and 
          loan holding companies, and other corporations by mutual 
          holding companies.

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239.8  Operating restrictions.
239.9  Conversion or liquidation of mutual holding companies.
239.10  Procedural requirements.
239.11  Subsidiary holding companies.
239.12  Communication between members of a mutual holding company.
239.13  Charters.
239.14  Charter amendments.
239.15  Bylaws.
239.16  Voluntary dissolution.

                 Subpart C_Subsidiary Holding Companies

239.20  Scope.
239.21  Charters.
239.22  Charter amendments.
239.23  Bylaws.
239.24  Issuances of stock by subsidiary holding companies of mutual 
          holding companies.
239.25  Contents of Stock Issuance Plans.
239.26  Shareholders.
239.27  Board of directors.
239.28  Officers.
239.29  Certificates for shares and their transfer.
239.30  Annual reports; books and records.
239.31  Indemnification; employment contracts.

             Subpart D_Indemnification; Employment Contracts

239.40  Indemnification of directors, officers and employees.
239.41  Employment contracts.

             Subpart E_Conversions from Mutual to Stock Form

239.50  Purpose and scope.
239.51  Acquiring another insured stock depository institution as part 
          of a conversion.
239.52  Definitions.
239.53  Prior to conversion.
239.54  Plan of conversion.
239.55  Filing requirements.
239.56  Vote by members.
239.57  Proxy solicitation.
239.58  Offering circular.
239.59  Offers and sales of stock.
239.60  Completion of the offering.
239.61  Completion of the conversion.
239.62  Liquidation account.
239.63  Post-conversion.
239.64  Contributions to charitable organizations.
239.65  Voluntary supervisory conversions.
239.66  Board review of the voluntary supervisory conversion 
          application.

Appendix A to Part 239--Mutual Holding Company Model Charter
Appendix B to Part 239--Subsidiary Holding Company of a Mutual Holding 
          Company Model Charter
Appendix C to Part 239--Mutual Holding Company Model Bylaws
Appendix D to Part 239--Subsidiary Holding Company of a Mutual Holding 
          Company Model Bylaws

    Authority: 12 U.S.C. 1462, 1462a, 1464, 1467a, 1828, and 2901.

    Source: Reg. MM, 76 FR 56357, Sept. 13, 2011, unless otherwise 
noted.



                      Subpart A_General Provisions



Sec. 239.1  Authority, purpose, and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (``Board'') under section 10(g) and (o) of the 
Home Owners' Loan Act (``HOLA'').
    (b) Purpose. The principal purposes of this part are to:
    (1) Regulate the reorganization of mutual savings associations to 
mutual holding companies and the creation of subsidiary holding 
companies of mutual holding companies;
    (2) Define and regulate the operations of mutual holding companies 
and subsidiary holding companies of mutual holding companies; and
    (3) Set forth the procedures for securing approval for these 
transactions.
    (c) Scope. Except as the Board may otherwise determine, the 
reorganization of mutual savings associations into mutual holding 
companies, any related stock issuances by subsidiary holding companies, 
and the conversion of mutual holding companies into stock form are 
exclusively governed by the provisions of this part, and no mutual 
savings association shall reorganize to a mutual holding company, no 
subsidiary holding company of a mutual holding company shall issue 
minority stock, and no mutual holding company shall convert into stock 
form without the prior written approval of the Board. The Board may 
grant a waiver in writing from any requirement of this part for good 
cause shown.



Sec. 239.2  Definitions.

    As used in this part and in the forms under this part, the following 
definitions apply, unless the context otherwise requires:
    (a) Acquiree association means any savings association, other than a 
resulting association, that:

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    (1) Is acquired by a mutual holding company as part of, and 
concurrently with, a mutual holding company reorganization; and
    (2) Is in the mutual form immediately prior to such acquisition.
    (b) Acting in concert has the same meaning as in Sec. 238.31(b) of 
this chapter.
    (c) Affiliate has the same meaning as in Sec. 238.2(a) of this 
chapter.
    (d) Associate of a person is:
    (1) A corporation or organization (other than the mutual holding 
company, subsidiary holding company, or any majority-owned subsidiaries 
of such holding companies), if the person is a senior officer or 
partner, or beneficially owns, directly or indirectly, 10 percent or 
more of any class of equity securities of the corporation or 
organization.
    (2) A trust or other estate, if the person has a substantial 
beneficial interest in the trust or estate or is a trustee or fiduciary 
of the trust or estate. For purposes of Secs. 239.59(k), 239.59(m), 
239.59(n), 239.59(o), 239.59(p), 239.63(b), a person who has a 
substantial beneficial interest in the mutual holding company or 
subsidiary holding company's tax-qualified or non-tax-qualified employee 
stock benefit plan, or who is a trustee or a fiduciary of the plan, is 
not an associate of the plan. For the purposes of Sec. 239.59(k), the 
mutual holding company or subsidiary holding company's tax-qualified 
employee stock benefit plan is not an associate of a person.
    (3) Any natural person who is related by blood or marriage to such 
person and:
    (i) Who lives in the same home as the person; or
    (ii) Who is a director or senior officer of the mutual holding 
company, subsidiary holding company, or other subsidiary.
    (e) Company means any corporation, partnership, trust, association, 
joint venture, pool, syndicate, unincorporated organization, joint-stock 
company or similar organization, as defined in paragraph (u) of this 
section; but a company does not include:
    (1) The Federal Deposit Insurance Corporation, the Resolution Trust 
Corporation, or any Federal Home Loan Bank, or
    (2) Any company the majority of shares of which is owned by:
    (i) The United States or any State,
    (ii) An officer of the United States or any State in his or her 
official capacity, or
    (iii) An instrumentality of the United States or any State.
    (f) Control has the same meaning as in Sec. 238.2(e) of this 
chapter.
    (g) Default means any adjudication or other official determination 
of a court of competent jurisdiction or other public authority pursuant 
to which a conservator, receiver, or other legal custodian is appointed 
for a mutual holding company or subsidiary savings association of a 
mutual holding company.
    (h) Demand accounts mean non-interest-bearing demand deposits that 
are subject to check or to withdrawal or transfer on negotiable or 
transferable order to the savings association and that are permitted to 
be issued by statute, regulation, or otherwise and are payable on 
demand.
    (i) Insider means any officer or director of a company or of any 
affiliate of such company, and any person acting in concert with any 
such officer or director.
    (j) Member means any depositor or borrower of a mutual savings 
association that is entitled, under the charter of the savings 
association, to vote on matters affecting the association, and any 
depositor or borrower of a subsidiary savings association of a mutual 
holding company that is entitled, under the charter of the mutual 
holding company, to vote on matters affecting the mutual holding 
company.
    (k) Mutual holding company means a holding company organized in 
mutual form under this part, and unless otherwise indicated, a 
subsidiary holding company controlled by a mutual holding company, 
organized under this part.
    (l) Parent means any company which directly or indirectly controls 
any other company or companies.
    (m) Person includes an individual, bank, corporation, partnership, 
trust, association, joint venture, pool, syndicate, sole proprietorship, 
unincorporated organization, or any other form of entity.

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    (n) Reorganization Notice means a notice of a proposed mutual 
holding company reorganization that is in the form and contains the 
information required by the Board.
    (o) Reorganization Plan means a plan to reorganize into the mutual 
holding company format containing the information required by 
Sec. 239.6.
    (p) Reorganizing association means a mutual savings association that 
proposes to reorganize to become a mutual holding company pursuant to 
this part.
    (q) Resulting association means a savings association in the stock 
form that is organized as a subsidiary of a reorganizing association to 
receive the substantial part of the assets and liabilities (including 
all deposit accounts) of the reorganizing association upon consummation 
of the reorganization.
    (r) Savings account means any withdrawable account, except a demand 
account, a tax and loan account, a note account, a United States 
Treasury general account, or a United States Treasury time deposit-open 
account.
    (s) Savings Association has the same meaning as in Sec. 238.2(l) of 
this chapter.
    (t) Savings and loan holding company has the same meaning as 
specified in section 10(a)(1) of the HOLA and Sec. 238.2(m) of this 
chapter.
    (u) Similar organization for purposes of paragraph (e) of this 
section means a combination of parties with the potential for or 
practical likelihood of continuing rather than temporary existence, 
where the parties thereto have knowingly and voluntarily associated for 
a common purpose pursuant to identifiable and binding relationships 
which govern the parties with respect to either:
    (1) The transferability and voting of any stock or other indicia of 
participation in another entity, or
    (2) Achievement of a common or shared objective, such as to 
collectively manage or control another entity.
    (v) Stock means common or preferred stock, or any other type of 
equity security, including (without limitation) warrants or options to 
acquire common or preferred stock, or other securities that are 
convertible into common or preferred stock.
    (w) Stock Issuance Plan means a plan, submitted pursuant to 
Sec. 239.24 and containing the information required by Sec. 239.25, 
providing for the issuance of stock by a subsidiary holding company.
    (x) Subsidiary means any company which is owned or controlled 
directly or indirectly by a person, and includes any service corporation 
owned in whole or in part by a savings association, or a subsidiary of 
such service corporation.
    (y) Subsidiary holding company means a federally chartered stock 
holding company controlled by a mutual holding company that owns the 
stock of a savings association whose depositors have membership rights 
in the parent mutual holding company.
    (z) Tax and loan account means an account, the balance of which is 
subject to the right of immediate withdrawal, established for receipt of 
payments of Federal taxes and certain United States obligations. Such 
accounts are not savings accounts or savings deposits.
    (aa) Tax-qualified employee stock benefit plan means any defined 
benefit plan or defined contribution plan, such as an employee stock 
ownership plan, stock bonus plan, profit-sharing plan, or other plan, 
and a related trust, that is qualified under sec. 401 of the Internal 
Revenue Code (26 U.S.C. 401).
    (bb) United States Treasury General Account means an account 
maintained in the name of the United States Treasury the balance of 
which is subject to the right of immediate withdrawal, except in the 
case of the closure of the member, and in which a zero balance may be 
maintained. Such accounts are not savings accounts or savings deposits.
    (cc) United States Treasury Time Deposit Open Account means a non-
interest-bearing account maintained in the name of the United States 
Treasury which may not be withdrawn prior to the expiration of 30 days' 
written notice from the United States Treasury, or such other period of 
notice as the Treasury may require. Such accounts are not savings 
accounts or savings deposits.

[[Page 123]]



                   Subpart B_Mutual Holding Companies



Sec. 239.3  Mutual holding company reorganizations.

    (a) A mutual savings association may not reorganize to become a 
mutual holding company, or join in a mutual holding company 
reorganization as an acquiree association, unless it satisfies the 
following conditions:
    (1) A Reorganization Plan is approved by a majority of the board of 
directors of the reorganizing association and any acquiree association;
    (2) A Reorganization Notice is filed with the Board pursuant to 
Sec. 238.14 of this chapter;
    (3) The Reorganization Plan is submitted to the members of the 
reorganizing association and any acquiree association pursuant and is 
approved by a majority of the total votes of the members of each 
association eligible to be cast at a meeting held at the call of each 
association's directors in accordance with the procedures prescribed by 
each association's charter and bylaws; and
    (4) All necessary regulatory approvals have been obtained and all 
conditions imposed by the Board have been satisfied.
    (b) Upon receipt of an application under this section, the Reserve 
Bank will promptly furnish notice and a copy of the Reorganization Plan 
to the primary federal supervisor of any savings association involved in 
the transaction. The primary supervisor will have 30 calendar days from 
the date of the letter giving notice in which to submit its views and 
recommendations to the Board.



Sec. 239.4  Grounds for disapproval of reorganizations.

    (a) Basic standards. The Board may disapprove a proposed mutual 
holding company reorganization filed pursuant to Sec. 239.3(a) if:
    (1) Disapproval is necessary to prevent unsafe or unsound practices;
    (2) The financial or managerial resources of the reorganizing 
association or any acquiree association warrant disapproval;
    (3) The proposed capitalization of the mutual holding company fails 
to meet the requirements of paragraph (b) of this section;
    (4) A stock issuance is proposed in connection with the 
reorganization pursuant to Sec. 239.24 that fails to meet the standards 
established by that section;
    (5) The reorganizing association or any acquiree association fails 
to furnish the information required to be included in the Reorganization 
Notice or any other information requested by the Board in connection 
with the proposed reorganization; or
    (6) The proposed reorganization would violate any provision of law, 
including (without limitation) Sec. 239.3(a) and (c) (regarding board of 
directors and membership approval) or Sec. 239.5(a) (regarding 
continuity of membership rights).
    (b) Capitalization. (1) The Board shall disapprove a proposal by a 
reorganizing association or any acquiree association to capitalize a 
mutual holding company in an amount in excess of a nominal amount if 
immediately following the reorganization, the resulting association or 
the acquiree association would fail to be ``adequately capitalized'' 
under the regulatory capital requirements applicable to the savings 
association.
    (2) Proposals by reorganizing associations and acquiree associations 
to capitalize mutual holding companies shall also comply with any 
applicable statutes, and with regulations or written policies of the 
Comptroller of the Currency or the Federal Deposit Insurance 
Corporation, as applicable, governing capital distributions by savings 
associations in effect at the time of the reorganization.
    (c) Presumptive disqualifiers--(1) Managerial resources. The factors 
specified in Sec. 238.15(d)(1)(i) through (vi) of this chapter shall 
give rise to a rebuttable presumption that the managerial resources test 
of paragraph (a)(2) of this section is not met. For this purpose, each 
place the term acquiror appears in Sec. 238.15(d)(1)(i) through (vi) of 
this chapter, it shall be read to mean the reorganizing association or 
any acquiree association, and the reference in Sec. 238.15(d)(1)(v) of 
this chapter to filings

[[Page 124]]

under this part shall be deemed to include filings under either part 238 
of this chapter or this part.
    (2) Safety and soundness and financial resources. Failure by a 
reorganizing association and any acquiree association to submit a 
business plan in connection with a Reorganization Notice, or submission 
of a business plan that projects activities that are inconsistent with 
the credit and lending needs of the reorganizing association or acquiree 
association's proposed market area or that fails to demonstrate that the 
capital of the mutual holding company will be deployed in a safe and 
sound manner, shall give rise to a rebuttable presumption that the 
safety and soundness and financial resources tests of paragraphs (a)(1) 
and (a)(2) of this section are not met.
    (d) Failure of the Board to act on a Reorganization Notice within 
the prescribed time period. A proposed reorganization that obtains 
regulatory clearance from the Board due to the operation of Sec. 238.14 
of this chapter may take place in the manner proposed, subject to the 
following conditions:
    (1) The reorganization shall be consummated within one year of the 
date of the expiration of the Board's review period under Sec. 238.14 of 
this chapter;
    (2) The mutual holding company shall not be capitalized in an amount 
in excess of what is permissible under Sec. 239.4(b);
    (3) No request for regulatory waivers or forbearances shall be 
deemed granted;
    (4) The following information shall be submitted within the 
specified time frames:
    (i) On the business day prior to the date of the reorganization, the 
chief financial officers of the reorganizing association and any 
acquiree association shall certify to the Board in writing that no 
material adverse events or material adverse changes have occurred with 
respect to the financial condition or operations of their respective 
associations since the date of the financial statements submitted with 
the Reorganization Notice;
    (ii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board a certification by legal 
counsel stating the effective date of the reorganization, the exact 
number of shares of stock of the resulting association and any acquiree 
association acquired by the mutual holding company and by any other 
persons, and that the reorganization has been consummated in accordance 
with Sec. 239.3 and all other applicable laws and regulations and the 
Reorganization Notice;
    (iii) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board an opinion from its 
independent auditors certifying that the reorganization was consummated 
in accordance with generally accepted accounting principles; and
    (iv) No later than thirty days after the reorganization, the mutual 
holding company shall file with the Board a certification stating that 
the mutual holding company will not deviate materially, or cause its 
subsidiary savings associations to deviate materially, from the business 
plan submitted in connection with the Reorganization Notice, unless 
prior written approval from the Board is obtained.



Sec. 239.5  Membership rights.

    (a) Depositors and borrowers of resulting associations, acquiree 
associations, and associations in mutual form when acquired. The charter 
of a mutual holding company must:
    (1) Confer upon existing and future depositors of the resulting 
association the same membership rights in the mutual holding company as 
were conferred upon depositors by the charter of the reorganizing 
association as in effect immediately prior to the reorganization;
    (2) Confer upon existing and future depositors of any acquiree 
association or any association that is in the mutual form when acquired 
by the mutual holding company the same membership rights in the mutual 
holding company as were conferred upon depositors by the charter of the 
acquired association immediately prior to acquisition, provided that if 
the acquired association is merged into another association from which 
the mutual holding company draws members, the depositors of the acquired 
association shall receive the

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same membership rights as the depositors of the association into which 
the acquired association is merged;
    (3) Confer upon the borrowers of the resulting association who are 
borrowers at the time of reorganization the same membership rights in 
the mutual holding company as were conferred upon them by the charter of 
the reorganizing association immediately prior to reorganization, but 
shall not confer any membership rights in connection with any borrowings 
made after the reorganization; and
    (4) Confer upon the borrowers of any acquiree association or any 
association that is in the mutual form when acquired by the mutual 
holding company who are borrowers at the time of the acquisition the 
same membership rights in the mutual holding company as were conferred 
upon them by the charter of the acquired association immediately prior 
to acquisition, but shall not confer any membership rights in connection 
with any borrowings made after the acquisition, provided that if the 
acquired association is merged into another association from which the 
mutual holding company draws members, the borrowers of the acquired 
association shall instead receive the same grandfathered membership 
rights as the borrowers of the association into which the acquired 
association is merged received at the time that association became a 
subsidiary of the mutual holding company.
    (b) Depositors and borrowers of associations in the stock form when 
acquired. A mutual holding company that acquires a savings association 
in the stock form, other than a resulting association or an acquiree 
association, shall not confer any membership rights upon the depositors 
and borrowers of such association, unless such association is merged 
into an association from which the mutual holding company draws members, 
in which case the depositors of the stock association shall receive the 
same membership rights as other depositors of the association into which 
the stock association is merged.



Sec. 239.6  Contents of Reorganization Plans.

    Each Reorganization Plan shall contain a complete description of all 
significant terms of the proposed reorganization, shall attach and 
incorporate any Stock Issuance Plan proposed in connection with the 
Reorganization Plan, and shall:
    (a) Provide for amendment of the charter and bylaws of the 
reorganizing association to read in the form of the charter and bylaws 
of a mutual holding company, and attach and incorporate such charter and 
bylaws;
    (b) Provide for the organization of the resulting association, which 
shall be an interim federal or state subsidiary savings association of 
the reorganizing association, and attach and incorporate the proposed 
charter and bylaws of such association;
    (c) If the reorganizing association proposes to form a subsidiary 
holding company, provide for the organization of a subsidiary holding 
company and attach and incorporate the proposed charter and bylaws of 
such subsidiary holding company.
    (d) Provide for amendment of the charter and bylaws of any acquiree 
association to read in the form of the charter and bylaws of a state or 
federal savings association in the stock form, and attach and 
incorporate such charter and bylaws;
    (e) Provide that, upon consummation of the reorganization, 
substantially all of the assets and liabilities (including all savings 
accounts, demand accounts, tax and loan accounts, United States Treasury 
General Accounts, or United States Treasury Time Deposit Open Accounts, 
as those terms are defined in this part) of the reorganizing association 
shall be transferred to the resulting association, which shall thereupon 
become an operating subsidiary savings association of the mutual holding 
company;
    (f) Provide that all assets, rights, obligations, and liabilities of 
whatever nature of the reorganizing association that are not expressly 
retained by the mutual holding company shall be deemed transferred to 
the resulting association;
    (g) Provide that each depositor in the reorganizing association or 
any acquiree association immediately prior to the reorganization shall 
upon consummation of the reorganization receive, without payment, an 
identical

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account in the resulting association or the acquiree association, as the 
case may be (Appropriate modifications should be made to this provision 
if savings associations are being merged as a part of the 
reorganization);
    (h) Provide that the Reorganization Plan as adopted by the boards of 
directors of the reorganizing association and any acquiree association 
may be substantively amended by those boards of directors as a result of 
comments from regulatory authorities or otherwise prior to the 
solicitation of proxies from the members of the reorganizing association 
and any acquiree association to vote on the Reorganization Plan and at 
any time thereafter with the concurrence of the Board; and that the 
reorganization may be terminated by the board of directors of the 
reorganizing association or any acquiree association at any time prior 
to the meeting of the members of the association called to consider the 
Reorganization Plan and at any time thereafter with the concurrence of 
the Board;
    (i) Provide that the Reorganization Plan shall be terminated if not 
completed within a specified period of time (The time period shall not 
be more than 24 months from the date upon which the members of the 
reorganizing association or the date upon which the members of any 
acquiree association, whichever is earlier, approve the Reorganization 
Plan and may not be extended by the reorganizing or acquiree 
association); and
    (j) Provide that the expenses incurred in connection with the 
reorganization shall be reasonable.



Sec. 239.7  Acquisition and disposition of savings associations, savings 
and loan holding companies, and other corporations by mutual holding 
companies.

    (a) Acquisitions--(1) Stock savings associations. A mutual holding 
company may not acquire control of a savings association that is in the 
stock form unless the necessary approvals are obtained from the Board, 
including approval pursuant to Sec. 238.11 of this chapter.
    (2) Mutual savings associations. A mutual holding company may not 
acquire a savings association in the mutual form by merger of such 
association into any subsidiary savings association of such holding 
company from which the parent mutual holding company draws members or 
into an interim subsidiary savings association of the mutual holding 
company, unless:
    (i) The proposed acquisition is approved by a majority of the board 
of directors of the mutual association;
    (ii) The proposed acquisition is submitted to the mutual 
association's members and is approved by a majority of the total votes 
of the association's members eligible to be cast at a meeting held at 
the call of the association's directors in accordance with the 
procedures prescribed by the association's charter and bylaws;
    (iii) The necessary approvals are obtained from the Board, including 
approval pursuant to Sec. 238.11 of this chapter, and any other 
approvals required to form an interim association, to amend the charter 
and bylaws of the association being acquired, and/or to amend the 
charter and bylaws of the mutual holding company consistent with 
Sec. 239.6(a); and
    (iv) The approval of the members of the mutual holding company is 
obtained, if the Board advises the mutual holding company in writing 
that such approval will be required.
    (3) Mutual holding companies. A mutual holding company that is not a 
subsidiary holding company may not acquire control of another mutual 
holding company, including a subsidiary holding company, by merging with 
or into such company, unless the necessary approvals are obtained from 
the Board, including approval pursuant to Sec. 238.11 of this chapter. 
The approval of the members of the mutual holding companies shall also 
be obtained if the Board advises the mutual holding companies in writing 
that such approval will be required.
    (4) Stock holding companies. A mutual holding company may not 
acquire control of a savings and loan holding company in the stock form 
that is not a subsidiary holding company, unless the necessary approvals 
are obtained from the Board, including approval pursuant to Sec. 238.11 
of this chapter. The acquired holding company may be held as a 
subsidiary of the mutual holding company

[[Page 127]]

or merged into the mutual holding company.
    (5) Non-controlling acquisitions of savings association stock. A 
mutual holding company may acquire non-controlling amounts of the stock 
of savings associations and savings and loan holding companies subject 
to the restrictions imposed by 12 U.S.C. 1467a(e) and (q) and 
Secs. 238.41 and 238.11 of this chapter.
    (6) Other corporations. A mutual holding company may not acquire 
control of, or make non-controlling investments in the stock of, any 
corporation other than a savings association or savings and loan holding 
company unless:
    (i)(A) Such corporation is engaged exclusively in activities that 
are permissible for mutual holding companies pursuant to Sec. 239.8(a); 
or
    (B) It is lawful for the stock of such corporation to be purchased 
by a federal savings association under the applicable regulations of the 
Comptroller of the Currency or by a state savings association under the 
applicable regulations of the Federal Deposit Insurance Corporation and 
the laws of any state where any subsidiary savings association of the 
mutual holding company has its home office; and
    (ii) Such corporation is not controlled, directly or indirectly, by 
a subsidiary savings association of the mutual holding company.
    (b) Dispositions. (1) A mutual holding company shall provide written 
notice to the appropriate Reserve Bank at least 30 days prior to the 
effective date of any direct or indirect transfer of any of the stock 
that it holds in a subsidiary holding company, a resulting association, 
an acquiree association, or any subsidiary savings association that was 
in the mutual form when acquired by the mutual holding company, 
including stock transferred in connection with a pledge pursuant to 
Sec. 239.8(b) or any transfer of all or a substantial portion of the 
assets or liabilities of any such subsidiary holding company or 
association. Any such disposition shall comply with the requirements of 
this part, as appropriate, and with any other applicable statute or 
regulation.
    (2) A mutual holding company may, subject to applicable laws and 
regulations, transfer any or all of the stock or cause or permit the 
transfer of any or all of the assets and liabilities of:
    (i) Any subsidiary savings association that was in the stock form 
when acquired, provided such association is not a resulting association 
or an acquiree association;
    (ii) Any subsidiary holding company acquired pursuant to paragraph 
(a)(4) of this section; or
    (iii) Any corporation other than a savings association or savings 
and loan holding company.
    (3) A mutual holding company may, subject to applicable laws and 
regulations, transfer any stock acquired pursuant to paragraph (a)(5) of 
this section.
    (4) No transfer authorized by this section may be made to any 
insider of the mutual holding company, any associate of an insider of 
the mutual holding company, or any tax-qualified or non-tax-qualified 
employee stock benefit plan of the mutual holding company unless the 
mutual holding company provides notice to the appropriate Reserve Bank 
at least 30 days prior to the effective date of the proposed transfer. 
This notice shall be in addition to any other application or notice 
required under applicable laws or regulations, including those imposed 
by this part or Regulation LL.



Sec. 239.8  Operating restrictions.

    (a) Activities restrictions. A mutual holding company may engage in 
any business activity specified in 12 U.S.C. 1467a(c)(2) or 
(c)(9)(A)(ii). In addition, the business activities of subsidiaries of 
mutual holding companies may include the activities specified in 
Sec. 239.7(a)(6). A mutual holding company or its subsidiaries may 
engage in the foregoing activities only upon compliance with the 
procedures specified in Secs. 238.53(c) or 238.54(b) of this chapter.
    (b) Pledging stock. (1) No mutual holding company may pledge the 
stock of its resulting association, an acquiree association, or any 
subsidiary savings association that was in the mutual form when acquired 
by the mutual holding company (or its parent mutual holding company), 
unless the proceeds of the loan secured by the pledge are infused into 
the association whose stock is pledged. No mutual holding

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company may pledge the stock of its subsidiary holding company unless 
the proceeds of the loan secured by the pledge are infused into any 
subsidiary savings association of the subsidiary holding company that is 
a resulting association, an acquiree association, or a subsidiary 
savings association that was in the mutual form when acquired by the 
subsidiary holding company (or its parent mutual holding company). In 
the event the subsidiary holding company has more than one subsidiary 
savings association, the loan proceeds shall, unless otherwise approved 
by the Board, be infused in equal amounts to each subsidiary savings 
association. Any amount of the stock of such association or subsidiary 
holding company may be pledged for these purposes. Nothing in this 
paragraph shall be deemed to prohibit:
    (i) The payment of dividends from a subsidiary savings association 
to its mutual holding company parent to the extent otherwise 
permissible; or
    (ii) The payment of dividends from a subsidiary holding company to 
its mutual holding company parent to the extent otherwise permissible; 
or
    (iii) A mutual holding company from pledging the stock of more than 
one subsidiary savings association provided that the stock pledged of 
each such subsidiary association is proportionate to the proceeds of the 
loan infused into each subsidiary association.
    (2) Any mutual holding company that fails to make any payment on a 
loan secured by the pledge of stock pursuant to paragraph (b)(1) of this 
section on or before the date on which such payment is due shall, on the 
first day after such payment is due, provide written notice of 
nonpayment to the appropriate Reserve Bank.
    (c) Restrictions on stock repurchases. (1) No subsidiary holding 
company that has any stockholders other than its parent mutual holding 
company may repurchase any share of stock within one year of its date of 
issuance (which may include the time period the shares issued by the 
savings association were outstanding if the subsidiary holding company 
was formed after the initial issuance by the savings association), 
unless the repurchase:
    (i) Is in compliance with the requirements set forth in Sec. 239.63;
    (ii) Is part of a general repurchase made on a pro rata basis 
pursuant to an offer approved by the Board and made to all stockholders 
of the association or subsidiary holding company (except that the parent 
mutual holding company may be excluded from the repurchase with the 
Board's approval);
    (iii) Is limited to the repurchase of qualifying shares of a 
director; or
    (iv) Is purchased in the open market by a tax-qualified or non-tax-
qualified employee stock benefit plan of the savings association (or of 
a subsidiary holding company) in an amount reasonable and appropriate to 
fund such plan.
    (2) No mutual holding company may purchase shares of its subsidiary 
savings association or subsidiary holding company within one year after 
a stock issuance, except if the purchase complies with Sec. 239.63. For 
purposes of this section, the reference in Sec. 239.63 to five percent 
refers to minority shareholders.
    (d) Restrictions on waiver of dividends. (1) A mutual holding 
company may waive the right to receive any dividend declared by a 
subsidiary of the mutual holding company, if--
    (i) No insider of the mutual holding company, associate of an 
insider, or tax-qualified or non-tax-qualified employee stock benefit 
plan of the mutual holding company holds any share of the stock in the 
class of stock to which the waiver would apply; or
    (ii) The mutual holding company gives written notice to the Board of 
the intent of the mutual holding company to waive the right to receive 
dividends, not later than 30 days before the date of the proposed date 
of payment of the dividend, and the Board does not object to the waiver.
    (2) A notice of a waiver under paragraph (d)(1)(ii) of this section 
shall include a copy of the resolution of the board of directors of the 
mutual holding company together with any supporting materials relied 
upon by the board of directors of the mutual holding company, concluding 
that the proposed dividend waiver is consistent with the fiduciary 
duties of the board

[[Page 129]]

of directors to the mutual members of the mutual holding company.
    The resolution shall include:
    (i) A description of the conflict of interest that exists because of 
a mutual holding company director's ownership of stock in the subsidiary 
declaring dividends and any actions the mutual holding company and board 
of directors have taken to eliminate the conflict of interest, such as 
waiver by the directors of their right to receive dividends;
    (ii) A finding by the mutual holding company's board of directors 
that the waiver of dividends is consistent with the board of directors' 
fiduciary duties despite any conflict of interest;
    (iii) If the mutual holding company has pledged the stock of a 
subsidiary holding company or subsidiary savings association as 
collateral for a loan made to the mutual holding company, or is subject 
to any other loan agreement, an affirmation that the mutual holding 
company is able to meet the terms of the loan agreement; and
    (iv) An affirmation that a majority of the mutual members of the 
mutual holding company eligible to vote have, within the 12 months prior 
to the declaration date of the dividend by the subsidiary of the mutual 
holding company, approved a waiver of dividends by the mutual holding 
company, and any proxy statement used in connection with the member vote 
contained--
    (A) A detailed description of the proposed waiver of dividends by 
the mutual holding company and the reasons the board of directors 
requested the waiver of dividends;
    (B) The disclosure of any mutual holding company director's 
ownership of stock in the subsidiary declaring dividends and any actions 
the mutual holding company and board of directors have taken to 
eliminate the conflict of interest, such as the directors waiving their 
right to receive dividends; and
    (C) A provision providing that the proxy concerning the waiver of 
dividends given by the mutual members may be used for no more than 12 
months from the date it is given.
    (3) The Board may not object to a waiver of dividends under 
paragraph (d)(1)(ii) of this section if:
    (i) The waiver would not be detrimental to the safe and sound 
operation of the savings association;
    (ii) The board of directors of the mutual holding company expressly 
determines that a waiver of the dividend by the mutual holding company 
is consistent with the fiduciary duties of the board of directors to the 
mutual members of the mutual holding company; and
    (iii) The mutual holding company has, prior to December 1, 2009--
    (A) Reorganized into a mutual holding company under section 10(o) of 
HOLA;
    (B) Issued minority stock either from its mid-tier stock holding 
company or its subsidiary stock savings association; and
    (C) Waived dividends it had a right to receive from the subsidiary 
stock savings association.
    (4) For a mutual holding company that does not meet each of the 
conditions in paragraph (d)(3) of this section, the Board will not 
object to a waiver of dividends under paragraph (d)(1)(ii) of this 
section if--:
    (i) The savings association currently operates in a manner 
consistent with the safe and sound operation of a savings association, 
and the waiver is not detrimental to the safe and sound operation of the 
savings association;
    (ii) If the mutual holding company has pledged the stock of a 
subsidiary holding company or subsidiary savings association as 
collateral for a loan made to the mutual holding company, or is subject 
to any other loan agreement, an affirmation that the mutual holding 
company is able to meet the terms of the loan agreement;
    (iii) Within the 12 months prior to the declaration date of the 
dividend by the subsidiary of the mutual holding company, a majority of 
the mutual members of the mutual holding company has approved the waiver 
of dividends by the mutual holding company. Any proxy statement used in 
connection with the member vote must contain--
    (A) A detailed description of the proposed waiver of dividends by 
the mutual holding company and the reasons the board of directors 
requested the waiver of dividends;

[[Page 130]]

    (B) The disclosure of any mutual holding company director's 
ownership of stock in the subsidiary declaring dividends and any actions 
the mutual holding company and board of directors have taken to 
eliminate the conflict of interest, such as the directors waiving their 
right to receive dividends; and
    (C) A provision providing that the proxy concerning the waiver of 
dividends given by the mutual members may be used for no more than 12 
months from the date it is given;
    (iv) The board of directors of the mutual holding company expressly 
determines that the waiver of dividends is consistent with the board of 
directors' fiduciary duties despite any conflict of interest;
    (v)(A) A majority of the entire board of directors of the mutual 
holding company approves the waiver of dividends and any director with 
direct or indirect ownership, control, or the power to vote shares of 
the subsidiary declaring the dividend, or who otherwise directly or 
indirectly benefits through an associate from the waiver of dividends, 
has abstained from the board vote; or
    (B) Each officer or director of the mutual holding company or its 
affiliates, associate of such officer or director, and any tax-qualified 
or non-tax-qualified employee stock benefit plan in which such officer 
or director participates that holds any share of the stock in the class 
of stock to which the waiver would apply waives the right to receive any 
dividend declared by a subsidiary of the mutual holding company;
    (vi) The Board does not object to the amount of dividends declared 
by a subsidiary of the mutual holding company. In reviewing whether a 
declaration by a subsidiary of the mutual holding company is 
appropriate, the Board may consider, among other factors, the 
reasonableness of the entire dividend distribution declared if the 
waiver is not approved;
    (vii) The waived dividends are excluded from the capital accounts of 
the subsidiary holding company or savings association, as applicable, 
for purposes of calculating any future dividend payments;
    (viii) The mutual holding company appropriately accounts for all 
waived dividends in a manner that permits the Board to consider the 
waived dividends in evaluating the proposed exchange ratio in the event 
of a full conversion of the mutual holding company to stock form; and
    (ix) The mutual holding company complies with such other conditions 
as the Board may require to prevent conflicts of interest or actions 
detrimental to the safe and sound operation of the savings association.
    (5) Valuation. (i) The Board will consider waived dividends in 
determining an appropriate exchange ratio in the event of a full 
conversion to stock form.
    (ii) In the case of a savings association that has reorganized into 
a mutual holding company, has issued minority stock from a mid-tier 
stock holding company or a subsidiary stock savings association of the 
mutual holding company, and has waived dividends it had a right to 
receive from a subsidiary savings association before December 1, 2009, 
the Board shall not consider waived dividends in determining an 
appropriate exchange ratio in the event of a full conversion to stock 
form.
    (e) Restrictions on issuance of stock to insiders. A subsidiary of a 
mutual holding company that is not a savings association or subsidiary 
holding company may issue stock to any insider, associate of an insider 
or tax-qualified or non-tax-qualified employee stock benefit plan of the 
mutual holding company or any subsidiary of the mutual holding company, 
provided that such persons or plans provide written notice to the 
appropriate Reserve Bank at least 30 days prior to the stock issuance, 
and the Reserve Bank or the Board does not object to the subsequent 
stock issuance. Subsidiary holding companies may issue stock to such 
persons only in accordance with Sec. 239.24.
    (f) Applicability of rules governing savings and loan holding 
companies. Except as expressly provided in this part, mutual holding 
companies shall be subject to the provisions of 12 U.S.C. 1467a and 3201 
et seq. and the provisions of parts 207, 228, and 238 of this chapter.
    (g) Separate vote for charitable organization contribution. In a 
mutual holding company stock issuance, a separate

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vote of a majority of the outstanding shares of common stock held by 
stockholders other than the mutual holding company or subsidiary holding 
company must approve any charitable organization contribution.



Sec. 239.9  Conversion or liquidation of mutual holding companies.

    (a) Conversion--(1) Generally. A mutual holding company may convert 
to the stock form in accordance with the rules and regulations set forth 
in subpart E of this part.
    (2) Exchange of subsidiary savings association or subsidiary holding 
company stock. Any stock issued by a subsidiary savings association, or 
by a subsidiary holding company pursuant to Sec. 239.24, of a mutual 
holding company to persons other than the parent mutual holding company 
may be exchanged for the stock issued by the successor to parent mutual 
holding company in connection with the conversion of the parent mutual 
holding company to stock form. The parent mutual holding company and the 
subsidiary holding company must demonstrate to the satisfaction of the 
Board that the basis for the exchange is fair and reasonable.
    (3) If a subsidiary holding company or subsidiary savings 
association has issued shares to an entity other than the mutual holding 
company, the conversion of the mutual holding company to stock form may 
not be consummated unless a majority of the shares issued to entities 
other than the mutual holding company vote in favor of the conversion. 
This requirement applies in addition to any otherwise required account 
holder or shareholder votes.
    (b) Involuntary liquidation. (1) The Board may file a petition with 
the federal bankruptcy courts requesting the liquidation of a mutual 
holding company pursuant to 12 U.S.C. 1467a(o)(9) and title 11, United 
States Code, upon the occurrence of any of the following events:
    (i) The default of the resulting association, any acquiree 
association, or any subsidiary savings association of the mutual holding 
company that was in the mutual form when acquired by the mutual holding 
company;
    (ii) The default of the parent mutual holding company or its 
subsidiary holding company; or
    (iii) Foreclosure on any pledge by the mutual holding company of 
subsidiary savings association stock or subsidiary holding company 
stock.
    (2) Except as provided in paragraph (b)(3) of this section, the net 
proceeds of any liquidation of any mutual holding company shall be 
transferred to the members of the mutual holding company and, if 
applicable, the stock holders of the subsidiary holding company in 
accordance with the charter of the mutual holding company and, if 
applicable, the charter of the subsidiary holding company.
    (3) If the FDIC incurs a loss as a result of the default of any 
subsidiary savings association of a mutual holding company and that 
mutual holding company is liquidated pursuant to paragraph (b)(1) of 
this section, the FDIC shall succeed to the membership interests of the 
depositors of such savings association in the mutual holding company to 
the extent of the FDIC's loss.
    (c) Voluntary liquidation. The provisions of Sec. 239.16 shall apply 
to mutual holding companies.



Sec. 239.10  Procedural requirements.

    (a) Proxies and proxy statements--(1) Solicitation of proxies. The 
provisions of Secs. 239.56 and 239.57(a) through (d) and (f) through (h) 
shall apply to all solicitations of proxies by any person in connection 
with any membership vote required by this part. Proxy materials must be 
in the form specified by the Board and contain the information specified 
in Secs. 239.57(b) and 239.57(d), to the extent such information is 
relevant to the action that members are being asked to approve, with 
such additions, deletions, and other modifications as are required under 
this part, or as are necessary or appropriate under the disclosure 
standard set forth in Sec. 239.57(f). File proxies and proxy statements 
in accordance with Sec. 239.55(c) and address them to the appropriate 
Reserve Bank. For purposes of this paragraph, the term conversion, as it 
appears in the provisions of part subpart E of this part, refers to the 
reorganization, the stock issuance, or other corporate action, as 
appropriate.

[[Page 132]]

    (2) Additional proxy disclosure requirements. In addition to the 
requirements in paragraph (a) of this section, all proxies requesting 
accountholder approval of a mutual holding company reorganization shall 
address in detail:
    (i) The reasons for the reorganization, including the relative 
advantages and disadvantages of undertaking the transaction proposed 
instead of a standard conversion;
    (ii) Whether management believes the reorganization is in the best 
interests of the association and its accountholders and the basis of 
that belief;
    (iii) The fiduciary duties owed to accountholders by the 
association's officers and directors and why the reorganization is in 
accord with those duties and is otherwise equitable to the 
accountholders and the association;
    (iv) Any compensation agreements that will be entered into by 
management in connection with the reorganization; and
    (v) Whether the mutual holding company intends to waive dividends, 
the implications to accountholders, and the reasons such waivers are 
consistent with the fiduciary duties of the directors of the mutual 
holding company.
    (3) Nonconforming minority stock issuances. Subsidiary holding 
companies proposing non-conforming minority stock issuances pursuant to 
Sec. 239.24(c)(6)(ii) must include in the proxy materials to 
accountholders seeking approval of a proposed reorganization an 
additional disclosure statement that serves as a cover sheet that 
clearly addresses:
    (i) The consequences to accountholders of voting to approve a 
reorganization in which their subscription rights are prioritized 
differently and potentially eliminated; and
    (ii) Any intent by the mutual holding company to waive dividends, 
and the implications to accountholders.
    (4) Use of ``running'' proxies. Unless otherwise prohibited, a 
mutual holding company may make use of any proxy conferring general 
authority to vote on any and all matters at any meeting of members, 
provided that the member granting such proxy has been furnished a proxy 
statement regarding the matters and the member does not grant a later-
dated proxy to vote at the meeting at which the matter will be 
considered or attend such meeting and vote in person, and further 
provided that ``running'' proxies or similar proxies may not be used to 
vote for a mutual holding company reorganization, mutual-to-stock 
conversion undertaken by a mutual holding company, dividend waiver, or 
any other material transaction. Subject to the limitations set forth in 
this paragraph, any proxy conferring on the board of directors or 
officers of a mutual savings association general authority to cast a 
member's votes on any and all matters presented to the members shall be 
deemed to cover the member's votes as a member of the mutual holding 
company and such authority shall be conferred on the board of directors 
or officers of a mutual holding company.
    (b) Applications under this part. Except as provided in paragraph 
(c) of this section, any application, notice or certification required 
to be filed with the Board under this part must be filed in accordance 
with Sec. 238.14 of this chapter. The Board will review any filing made 
under this part in accordance with Sec. 238.14 of this chapter.
    (c) Reorganization Notices and stock issuance applications--(1) 
Contents. Each Reorganization Notice submitted to the appropriate 
Reserve Bank pursuant to Sec. 239.3(a) and each application for approval 
of the issuance of stock submitted to the appropriate Reserve Bank 
pursuant to Sec. 239.24(a) shall be in the form and contain the 
information specified by the Board.
    (2) Filing instructions. Any Reorganization Notice submitted under 
Sec. 239.3(a) must be filed in accordance with Sec. 238.14 of this 
chapter. Any stock issuance application submitted pursuant to 
Sec. 239.24(a) shall be filed in accordance with Sec. 239.55.
    (3) Public notice, public comment, and meetings. Mutual holding 
company reorganizations are subject to applicable public notice, public 
comment, and meeting requirements under the Bank Merger Act regulations 
at Sec. 238.11(e) of this chapter and the Savings and Loan Holding 
Company Act regulations at Sec. 238.14 of this chapter.

[[Page 133]]

    (d) Amendments. Any mutual holding company may amend any notice or 
application submitted pursuant to this part or file additional 
information with respect thereto upon request of the Board or upon the 
mutual holding company's own initiative.
    (e) Time-frames. All Reorganization Notices and applications filed 
pursuant to this part must be processed in accordance with the 
processing procedures at Sec. 238.14 of this chapter. Any related 
approvals requested in connection with Reorganization Notices or 
applications for approval of stock issuances (including, without 
limitation, requests for approval to transfer assets to resulting 
associations, to acquire acquiree associations, and to organize 
resulting associations or interim associations, and requests for 
approval of charters, bylaws, and stock forms) shall be processed 
pursuant to the procedures specified in this section in conjunction with 
the Reorganization Notice or stock issuance application to which they 
pertain, rather than pursuant to any inconsistent procedures specified 
elsewhere in this chapter. The approval standards for all such related 
applications, however, shall remain unchanged. The review by the Board 
of any materials used in connection with the issuance of stock under 
Sec. 239.24 must not be subject to the applications processing time-
frames set forth in Secs. 238.14(f) and (g) of this chapter.
    (f) Disclosure. The rules governing disclosure of any notice or 
application submitted pursuant to this part, or any public comment 
submitted pursuant to paragraph (c) of this section, shall be the same 
as set forth in Sec. 238.14(b) of this chapter for notices, 
applications, and public comments filed under Sec. 238.14 of this 
chapter.
    (g) Appeals. Any party aggrieved by a final action by the Board 
which approves or disapproves any application or notice pursuant to this 
part may obtain review of such action in accordance with 12 U.S.C. 
1467a(j).
    (h) Federal preemption. This part preempts state law with regard to 
the creation and regulation of mutual holding companies.



Sec. 239.11  Subsidiary holding companies.

    (a) Subsidiary holding companies. A mutual holding company may 
establish a subsidiary holding company as a direct subsidiary to hold 
100 percent of the stock of its subsidiary savings association. The 
formation and operation of the subsidiary holding company may not be 
utilized as a means to evade or frustrate the purposes of this part. The 
subsidiary holding company may be established either at the time of the 
initial mutual holding company reorganization or at a subsequent date, 
subject to the approval of the Board.
    (b) Stock issuances. Secs. 239.24 and 239.25 apply to issuance of 
stock by a subsidiary holding company. In the case of a stock issuance 
by a subsidiary holding company, the aggregate amount of outstanding 
common stock of the association owned or controlled by persons other 
than the subsidiary holding company's mutual holding company parent at 
the close of the proposed issuance shall be less than 50 percent of the 
subsidiary holding company's total outstanding common stock.
    (c) Charters and bylaws for subsidiary holding companies. The 
charter and bylaws of a subsidiary holding company shall be in the form 
set forth in Appendices B and D, respectively.



Sec. 239.12  Communication between members of a mutual holding company.

    (a) Right of communication with other members. A member of a mutual 
holding company has the right to communicate, as prescribed in paragraph 
(b) of this section, with other members of the mutual holding company 
regarding any matter related to the mutual holding company's affairs, 
except for ``improper'' communications, as defined in paragraph (c) of 
this section. The mutual holding company may not defeat that right by 
redeeming a savings member's savings account in the subsidiary savings 
association.
    (b) Member communication procedures. If a member of a mutual holding 
company desires to communicate with other members, the following 
procedures shall be followed:
    (1) The member shall give the mutual holding company a written 
request to communicate;

[[Page 134]]

    (2) If the proposed communication is in connection with a meeting of 
the mutual holding company's members, the request shall be given at 
least thirty days before the annual meeting or 10 days before a special 
meeting;
    (3) The request shall contain--
    (i) The member's full name and address;
    (ii) The nature and extent of the member's interest in the mutual 
holding company at the time the information is given;
    (iii) A copy of the proposed communication; and
    (iv) If the communication is in connection with a meeting of the 
members, the date of the meeting;
    (4) The mutual holding company shall reply to the request within 
either--
    (i) Fourteen days;
    (ii) Ten days, if the communication is in connection with the annual 
meeting; or
    (iii) Three days, if the communication is in connection with a 
special meeting;
    (5) The reply shall provide either--
    (i) The number of the mutual holding company's members and the 
estimated reasonable cost to the mutual holding company of mailing to 
them the proposed communication; or
    (ii) Notification that the mutual holding company has determined not 
to mail the communication because it is ``improper'', as defined in 
paragraph (c) of this section;
    (6) After receiving the amount of the estimated costs of mailing and 
sufficient copies of the communication, the mutual holding company shall 
mail the communication to all members, by a class of mail specified by 
the requesting member, either--
    (i) Within fourteen days;
    (ii) Within seven days, if the communication is in connection with 
the annual meeting;
    (iii) As soon as practicable before the meeting, if the 
communication is in connection with a special meeting; or
    (iv) On a later date specified by the member;
    (7) If the mutual holding company refuses to mail the proposed 
communication, it shall return the requesting member's materials 
together with a written statement of the specific reasons for refusal, 
and shall simultaneously send to the appropriate Reserve Bank a copy of 
each of the requesting member's materials, the mutual holding company's 
written statement, and any other relevant material. The materials shall 
be sent within:
    (i) Fourteen days,
    (ii) Ten days if the communication is in connection with the annual 
meeting, or
    (iii) Three days, if the communication is in connection with a 
special meeting, after the mutual holding company receives the request 
for communication.
    (c) Improper communication. A communication is an ``improper 
communication'' if it contains material which:
    (1) At the time and in the light of the circumstances under which it 
is made:
    (i) Is false or misleading with respect to any material fact; or
    (ii) Omits a material fact necessary to make the statements therein 
not false or misleading, or necessary to correct a statement in an 
earlier communication on the same subject which has become false or 
misleading;
    (2) Relates to a personal claim or a personal grievance, or is 
solicitous of personal gain or business advantage by or on behalf of any 
party;
    (3) Relates to any matter, including a general economic, political, 
racial, religious, social, or similar cause, that is not significantly 
related to the business of the mutual holding company or is not within 
the control of the mutual holding company; or
    (4) Directly or indirectly and without expressed factual foundation:
    (i) Impugns character, integrity, or personal reputation,
    (ii) Makes charges concerning improper, illegal, or immoral conduct, 
or
    (iii) Makes statements impugning the stability and soundness of the 
mutual holding company.



Sec. 239.13  Charters.

    (a) Charters. The charter of a mutual holding company shall be in 
the form set forth in appendix A of this part and may be amended 
pursuant to this paragraph. The Board may amend the form of charter set 
forth in appendix A to this part.

[[Page 135]]

    (b) Corporate title. The corporate title of each mutual holding 
company shall include the term ``mutual'' or the abbreviation ``M.H.C.''
    (c) Availability of charter. A mutual holding company shall make 
available to its members at all times in the offices of each subsidiary 
savings association from which the mutual holding company draws members 
a true copy of its charter, including any amendments, and shall deliver 
such a copy to any member upon request.



Sec. 239.14  Charter amendments.

    (a) General. In order to adopt a charter amendment, a mutual holding 
company must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
mutual holding company must adopt a resolution proposing the charter 
amendment that states the text of such amendment;
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
proxy contest, the assumption of control by a mutual account holder of 
the mutual holding company, or the removal of incumbent management; or 
involve a significant issue of law or policy; then, the mutual holding 
shall submit the charter amendment to the appropriate Reserve Bank for 
approval. Applications submitted under this paragraph are subject to the 
processing procedures at Sec. 238.14 of this chapter.
    (ii) Notice requirement. If the proposed charter amendment does not 
implicate paragraph (a)(2)(i) of this section and is permissible under 
all applicable laws, rules and regulations, the mutual holding company 
shall submit the proposed amendment to the appropriate Reserve Bank at 
least 30 days prior to the effective date of the proposed charter 
amendment.
    (b) Approval--Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment with the appropriate Reserve Bank, 
provided that the mutual holding company follows the requirements of its 
charter in adopting such amendment, unless the Reserve Bank or the Board 
notifies the mutual holding company prior to the expiration of such 30-
day period that such amendment is rejected or is deemed to be filed 
under the provisions of paragraph (a)(2)(i) of this section. 
Notwithstanding anything in paragraph (a) of this section to the 
contrary, the following charter amendments, including the adoption of 
the Federal mutual holding company charter as set forth in appendix A, 
shall be effective and deemed approved at the time of adoption, if 
adopted without change and filed with Board, within 30 days after 
adoption, provided the mutual holding company follows the requirements 
of its charter in adopting such amendments.
    (1) Title change. (i) Subject to Sec. 239.13 and this paragraph (b), 
a mutual holding company may amend its charter by substituting a new 
corporate title in section 1 of its charter.
    (ii) Prior to changing its corporate title, a mutual holding company 
must file with the Board a written notice indicating the intended 
change. The Board shall provide to the mutual holding company a timely 
written acknowledgment stating when the notice was received. If, within 
30 days of receipt of notice, the Board does not notify the mutual 
holding company of its objection to the corporate title change on the 
grounds that the title misrepresents the nature of the institution or 
the services it offers, the mutual holding company may change its title 
by amending its charter in accordance with Sec. 239.14(b) or Sec. 239.22 
and the amendment provisions of its charter.
    (2) Maximum number of votes. A mutual holding company may amend 
section 5 of its charter by substituting the maximum number of votes per 
member to any number from 1 to 1000.
    (c) Reissuance of charter. A mutual holding company that has amended 
its charter may apply to have its charter, including the amendments, 
reissued by the Board. Such request for reissuance should be filed with 
the appropriate Reserve Bank.



Sec. 239.15  Bylaws.

    (a) General. A mutual holding company shall operate under bylaws 
that contain provisions that comply with all requirements specified by 
the

[[Page 136]]

Board, the provisions of this section, the mutual holding company's 
charter, and all other applicable laws, rules, and regulations provided 
that, a bylaw provision inconsistent with the provisions of this section 
may be adopted with the approval of the Board. Bylaws may be adopted, 
amended or repealed by a majority of the votes cast by the members at a 
legal meeting or a majority of the mutual holding company's board of 
directors. Throughout this section, the term ``trustee'' may be 
substituted for the term ``director'' as relevant.
    (b) The following requirements are applicable to mutual holding 
companies:
    (1) Annual meetings of members. A mutual holding company shall 
provide for and conduct an annual meeting of its members for the 
election of directors and at which any other business of the mutual 
holding company may be conducted. Such meeting shall be held, as 
designated by its board of directors, at a location within the state 
that constitutes the principal place of business of the subsidiary 
savings association, or at any other convenient place the board of 
directors may designate, and at a date and time within 150 days after 
the end of the mutual holding company's fiscal year. At each annual 
meeting, the officers shall make a full report of the financial 
condition of the mutual holding company and of its progress for the 
preceding year and shall outline a program for the succeeding year.
    (2) Special meetings of members. Procedures for calling any special 
meeting of the members and for conducting such a meeting shall be set 
forth in the bylaws. The subject matter of such special meeting must be 
established in the notice for such meeting. The board of directors of 
the mutual holding company or the holders of 10 percent or more of the 
voting capital shall be entitled to call a special meeting. For purposes 
of this section, ``voting capital'' means FDIC-insured deposits as of 
the voting record date.
    (3) Notice of meeting of members. Notice specifying the date, time, 
and place of the annual or any special meeting and adequately describing 
any business to be conducted shall be published for two successive weeks 
immediately prior to the week in which such meeting shall convene in a 
newspaper of general circulation in the city or county in which the 
principal place of business of the subsidiary savings association is 
located, or mailed postage prepaid at least 15 days and not more than 45 
days prior to the date on which such meeting shall convene to each of 
its members of record at the last address appearing on the books of the 
mutual holding company. A similar notice shall be posted in a 
conspicuous place in each of the offices of the subsidiary savings 
association during the 14 days immediately preceding the date on which 
such meeting shall convene. The bylaws may permit a member to waive in 
writing any right to receive personal delivery of the notice. When any 
meeting is adjourned for 30 days or more, notice of the adjournment and 
reconvening of the meeting shall be given as in the case of the original 
meeting.
    (4) Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the bylaws shall provide for the fixing of a 
record date and a method for determining from the books of the 
subsidiary savings association the members entitled to vote. Such date 
shall be not more than 60 days or fewer than 10 days prior to the date 
on which the action, requiring such determination of members, is to be 
taken. The same determination shall apply to any adjourned meeting.
    (5) Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. At any adjourned meeting, any business 
may be transacted that might have been transacted at the meeting as 
originally called. Members present at a duly constituted meeting may 
continue to transact business until adjournment.
    (6) Voting by proxy. Procedures shall be established for voting at 
any annual

[[Page 137]]

or special meeting of the members by proxy pursuant to the rules and 
regulations of the Board, including the placing of such proxies on file 
with the secretary of the mutual holding company, for verification, 
prior to the convening of such meeting. Proxies may be given 
telephonically or electronically as long as the holder uses a procedure 
for verifying the identity of the member. All proxies with a term 
greater than eleven months or solicited at the expense of the subsidiary 
savings association must run to the board of directors as a whole, or to 
a committee appointed by a majority of such board.
    (7) Communications between members. Provisions relating to 
communications between members shall be consistent with Sec. 239.12. No 
member, however, shall have the right to inspect or copy any portion of 
any books or records of a mutual holding company containing:
    (i) A list of depositors in or borrowers from the subsidiary savings 
association;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.
    (8) Number of directors, membership. The bylaws shall set forth a 
specific number of directors, not a range. The number of directors shall 
be not fewer than five nor more than fifteen, unless a higher or lower 
number has been authorized by the Board. Each director of the mutual 
holding company shall be a member of the mutual holding company. 
Directors may be elected for periods of one to three years and until 
their successors are elected and qualified, but if a staggered board is 
chosen, provision shall be made for the election of approximately one-
third or one-half of the board each year, as appropriate.
    (9) Meetings of the board. The board of directors shall determine 
the place, frequency, time, procedure for notice, which shall be at 
least 24 hours unless waived by the directors, and waiver of notice for 
all regular and special meetings. The meetings shall be under the 
direction of a chairman, appointed annually by the board; or in the 
absence of the chairman, the meetings shall be under the direction of 
the president. The board also may permit telephonic participation at 
meetings. The bylaws may provide for action to be taken without a 
meeting if unanimous written consent is obtained for such action. A 
majority of the authorized directors shall constitute a quorum for the 
transaction of business. The act of a majority of the directors present 
at any meeting at which there is a quorum shall be the act of the board.
    (10) Officers, employees, and agents. (i) The bylaws shall contain 
provisions regarding the officers of the mutual holding company, their 
functions, duties, and powers. The officers of the mutual holding 
company shall consist of a president, one or more vice presidents, a 
secretary, and a treasurer or comptroller, each of whom shall be elected 
annually by the board of directors. Such other officers and assistant 
officers and agents as may be deemed necessary may be elected or 
appointed by the board of directors or chosen in such other manner as 
may be prescribed in the bylaws. Any two or more offices may be held by 
the same person, except the offices of president and secretary.
    (ii) All officers and agents of the mutual holding company, as 
between themselves and the mutual holding company, shall have such 
authority and perform such duties in the management of the mutual 
holding company as may be provided in the bylaws, or as may be 
determined by resolution of the board of directors not inconsistent with 
the bylaws. In the absence of any such provision, officers shall have 
such powers and duties as generally pertain to their respective offices. 
Any officer may be removed by the board of directors with or without 
cause, but such removal, other than for cause, shall be without 
prejudice to the contractual rights, if any, of the officer so removed.
    (iii) Any indemnification provision must provide that any 
indemnification is subject to applicable Federal law, rules, and 
regulations.
    (11) Vacancies, resignation or removal of directors. Members of the 
mutual holding company shall elect directors by ballot: Provided, that 
in the event of a vacancy on the board, the board of directors may, by 
their affirmative vote, fill such vacancy, even if the remaining 
directors constitute less than

[[Page 138]]

a quorum. A director elected to fill a vacancy shall be elected to serve 
only until the next election of directors by the members. The bylaws 
shall set out the procedure for the resignation of a director, which 
shall be by written notice or by any other procedure established in the 
bylaws. Directors may be removed only for cause as defined in 
Sec. 239.41, by a vote of the holders of a majority of the shares then 
entitled to vote at an election of directors.
    (12) Powers of the board. The board of directors shall have the 
power:
    (i) By resolution, to appoint from among its members and remove an 
executive committee and one or more other committees, which committee[s] 
shall have and may exercise all the powers of the board between the 
meetings or the board; but no such committee shall have the authority of 
the board to amend the charter or bylaws, adopt a plan of merger, 
consolidation, dissolution, or provide for the disposition of all or 
substantially all the property and assets of the mutual holding company. 
Such committee shall not operate to relieve the board, or any member 
thereof, of any responsibility imposed by law;
    (ii) To fix the compensation of directors, officers, and employees; 
and to remove any officer or employee at any time with or without cause;
    (iii) To exercise any and all of the powers of the mutual holding 
company not expressly reserved by the charter to the members.
    (13) Nominations for directors. The bylaws shall provide that 
nominations for directors may be made at the annual meeting by any 
member and shall be voted upon, except, however, the bylaws may require 
that nominations by a member must be submitted to the secretary and then 
prominently posted in the principal place of business, at least 10 days 
prior to the date of the annual meeting. However, if such provision is 
made for prior submission of nominations by a member, then the bylaws 
must provide for a nominating committee, which, except in the case of a 
nominee substituted as a result of death or other incapacity, must 
submit nominations to the secretary and have such nominations similarly 
posted at least 15 days prior to the date of the annual meeting.
    (14) New business. The bylaws shall provide procedures for the 
introduction of new business at the annual meeting. Those provisions may 
require that such new business be stated in writing and filed with the 
secretary prior to the annual meeting at least 30 days prior to the date 
of the annual meeting.
    (15) Amendment. Bylaws may include any provision for their amendment 
that would be consistent with applicable law, rules, and regulations and 
adequately addresses its subject and purpose.
    (i) Amendments shall be effective:
    (A) After approval by a majority vote of the authorized board, or by 
a majority of the vote cast by the members of the mutual holding company 
at a legal meeting; and
    (B) After receipt of any applicable regulatory approval.
    (ii) When a mutual holding company fails to meet its quorum 
requirement, solely due to vacancies on the board, the bylaws may be 
amended by an affirmative vote of a majority of the sitting board.
    (16) Miscellaneous. The bylaws may also address the subject of age 
limitations for directors or officers as long as they are consistent 
with applicable Federal law, rules or regulations, and any other 
subjects necessary or appropriate for effective operation of the mutual 
holding company.
    (c) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate Reserve Bank for 
approval if it would:
    (A) Render more difficult or discourage a merger, proxy contest, the 
assumption of control by a mutual account holder of the mutual holding 
company, or the removal of incumbent management;
    (B) Involve a significant issue of law or policy, including 
indemnification, conflicts of interest, and limitations on director or 
officer liability; or
    (C) Be inconsistent with the requirements of this section or with 
applicable laws, rules, regulations, or the mutual holding company's 
charter.
    (ii) Applications submitted under paragraph (c)(1)(i) of this 
section are

[[Page 139]]

subject to the processing procedures at Sec. 238.14 of this chapter.
    (iii) For purposes of this paragraph (c), bylaw provisions that 
adopt the language of the model bylaws contained in appendix C to this 
part, if adopted without change, and filed with Board within 30 days 
after adoption, are effective upon adoption. The Board may amend the 
model bylaws provided in appendix C to this part.
    (2) Filing requirement. If the proposed bylaw amendment does not 
implicate paragraph (c)(1) or (c)(3) of this section, then the mutual 
holding company shall submit the amendment to the appropriate Reserve 
Bank at least 30 days prior to the date the bylaw amendment is to be 
adopted by the mutual holding company.
    (3) Corporate governance procedures. A mutual holding company may 
elect to follow the corporate governance procedures of the laws of the 
state where the main office of the institution is located, provided that 
such procedures may be elected only to the extent not inconsistent with 
applicable Federal statutes, regulations, and safety and soundness, and 
such procedures are not of the type described in paragraph (c)(1)(i) of 
this section. If this election is selected, a mutual holding company 
shall designate in its bylaws the provision or provisions from the body 
of law selected for its corporate governance procedures, and shall file 
a copy of such bylaws, which are effective upon adoption, within 30 days 
after adoption. The submission shall indicate, where not obvious, why 
the bylaw provisions do not require an application under paragraph 
(c)(1)(i) of this section.
    (d) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(c)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the mutual holding 
company follows the requirements of its charter and bylaws in adopting 
such amendment, unless the Board notifies the mutual holding company 
prior to the expiration of the 30-day period that such amendment is 
rejected or that such amendment requires an application to be filed 
pursuant to paragraph (c)(1) of this section.
    (e) Availability of bylaws. A mutual holding company shall make 
available to its members at all times in the offices of each subsidiary 
savings association from which the mutual holding company draws members 
a true copy of its bylaws, including any amendments, and shall deliver 
such a copy to any member upon request.



Sec. 239.16  Voluntary dissolution.

    (a) A mutual holding company's board of directors may propose a plan 
for dissolution of the mutual holding company. All references in this 
section to mutual holding company shall also apply to a subsidiary 
holding company organized under this part. The plan may provide for 
either:
    (1) Transfer of all the mutual holding company's assets to another 
mutual holding company or home-financing institutions under Federal 
charter either for cash sufficient to pay all obligations of the mutual 
holding company and retire all outstanding accounts or in exchange for 
that mutual holding company's payment of all the mutual holding 
company's outstanding obligations and issuance of share accounts or 
other evidence of interest to the mutual holding company's members on a 
pro rata basis; or
    (2) Dissolution in a manner proposed by the directors which they 
consider best for all concerned.
    (b) The plan, and a statement of reasons for proposing dissolution 
and for proposing the plan, shall be submitted to the appropriate 
Reserve Bank for approval. The Board will approve the plan if the Board 
believes dissolution is advisable and the plan is best for all 
concerned. If the Board considers the plan inadvisable, the Board may 
either make recommendations to the mutual holding company concerning the 
plan or disapprove it. When the plan is approved by the mutual holding 
company's board of directors and by the Board, it shall be submitted to 
the mutual holding company's members at a duly called meeting and, when 
approved by a majority of votes cast at that meeting, shall become 
effective. After dissolution in accordance with the plan, a certificate 
evidencing dissolution, supported by such evidence as

[[Page 140]]

the Board may require, shall immediately be filed with the Board. When 
the Board receives such evidence satisfactory to the Board, it will 
terminate the corporate existence of the dissolved mutual holding 
company and the mutual holding company's charter shall thereby be 
canceled.



                 Subpart C_Subsidiary Holding Companies



Sec. 239.20  Scope.

    This subpart applies only to a subsidiary holding company of a 
mutual holding company.



Sec. 239.21  Charters.

    (a) Charters. The charter of a subsidiary holding company of a 
mutual holding company shall be in the form set forth in appendix B of 
this part and may be amended pursuant to Sec. 239.22. The Board may 
amend the form of charter provided in appendix B.
    (b) Optional charter provision limiting minority stock ownership. 
(1) A subsidiary holding company that engages in its initial minority 
stock issuance after October 1, 2008 may, before it conducts its initial 
minority stock issuance, at the time it conducts its initial minority 
stock issuance, or, subject to the condition below, at any time during 
the five years following a minority stock issuance that such subsidiary 
holding company conducts in accordance with the purchase priorities set 
forth in subpart E of this part, include in its charter the provision 
set forth in paragraph (b)(2) of this section. For purposes of the 
charter provision set forth in paragraph (b)(2), the definitions set 
forth at Sec. 239.22(b)(8) apply. This charter provision expires a 
maximum of five years from the date of the minority stock issuance. The 
subsidiary holding company may adopt the charter provision set forth in 
paragraph (b)(2) of this section after a minority stock issuance only if 
it provided, in the offering materials related to its previous minority 
stock issuance or issuances, full disclosure of the possibility that the 
subsidiary holding company might adopt such a charter provision.
    (2) Beneficial ownership limitation. No person may directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of the outstanding stock of any class of voting stock of 
the subsidiary holding company held by persons other than the subsidiary 
holding company's mutual holding company parent. This limitation expires 
on [insert date within five years of minority stock issuance] and does 
not apply to a transaction in which an underwriter purchases stock in 
connection with a public offering, or the purchase of stock by an 
employee stock ownership plan or other tax-qualified employee stock 
benefit plan which is exempt from the approval requirements under 
Sec. 238.12(a)(7) of this chapter.
    (c) In the event a person acquires stock in violation of this 
section, all stock beneficially owned in excess of 10 percent shall be 
considered ``excess stock'' and shall not be counted as stock entitled 
to vote and shall not be voted by any person or counted as voting stock 
in connection with any matters submitted to the stockholders for a vote.



Sec. 239.22  Charter amendments.

    (a) General. In order to adopt a charter amendment, a subsidiary 
holding company must comply with the following requirements:
    (1) Board of directors approval. The board of directors of the 
subsidiary holding company must adopt a resolution proposing the charter 
amendment that states the text of such amendment.
    (2) Form of filing--(i) Application requirement. If the proposed 
charter amendment would render more difficult or discourage a merger, 
tender offer, or proxy contest, the assumption of control by a holder of 
a block of the subsidiary holding company's stock, the removal of 
incumbent management, or involve a significant issue of law or policy, 
the subsidiary holding company shall file the proposed amendment with 
and shall obtain the prior approval of the Board pursuant to Sec. 238.14 
of this chapter; and
    (ii) Notice requirement. If the proposed charter amendment does not 
implicate paragraph (a)(2)(i) of this section and such amendment is 
permissible under

[[Page 141]]

all applicable laws, rules or regulations, the subsidiary holding 
company shall submit the proposed amendments to the appropriate Reserve 
Bank, at least 30 days prior to the date the proposed charter amendment 
is to be mailed for consideration by the subsidiary holding company's 
shareholders.
    (b) Approval. Any charter amendment filed pursuant to paragraph 
(a)(2)(ii) of this section shall automatically be approved 30 days from 
the date of filing of such amendment, provided that the subsidiary 
holding company follows the requirements of its charter in adopting such 
amendment, unless the Board notifies the mutual holding company prior to 
the expiration of such 30-day period that such amendment is rejected or 
is deemed to be filed under the provisions of paragraph (a)(2)(i) of 
this section. In addition, the following charter amendments, including 
the adoption of the charter as set forth in appendix B of this part, 
shall be approved at the time of adoption, if adopted without change and 
filed with the Board within 30 days after adoption, provided the 
subsidiary holding company follows the requirements of its charter in 
adopting such amendments.
    (1) Title change. Prior to changing its corporate title, a 
subsidiary holding company must file with the appropriate Reserve Bank a 
written notice indicating the intended change. The Reserve Bank shall 
provide to the subsidiary holding company a timely written 
acknowledgment stating when the notice was received. If, within 30 days 
of receipt of notice, the Reserve Bank or the Board does not notify the 
subsidiary holding company of its objection on the grounds that the 
title misrepresents the nature of the institution or the services it 
offers, the subsidiary holding company may change its title by amending 
section 1 of its charter in accordance with this section and the 
amendment provisions of its charter.
    (2) Home office. A subsidiary holding company may amend its charter 
by substituting a new domicile in section 2 of its charter.
    (3) Number of shares of stock and par value. A subsidiary holding 
company may amend Section 5 of its charter to change the number of 
authorized shares of stock, the number of shares within each class of 
stock, and the par or stated value of such shares.
    (4) Capital stock. A subsidiary holding company may amend its 
charter by revising Section 5 to read as follows:

    Section 5. Capital stock. The total number of shares of all classes 
of capital stock that the subsidiary holding company has the authority 
to issue is ___, of which ___ shall be common stock of par [or if no par 
value is specified the stated] value of ___ per share and of which [list 
the number of each class of preferred and the par or if no par value is 
specified the stated value per share of each such class]. The shares may 
be issued from time to time as authorized by the board of directors 
without further approval of shareholders, except as otherwise provided 
in this Section 5 or to the extent that such approval is required by 
governing law, rule, or regulation. The consideration for the issuance 
of the shares shall be paid in full before their issuance and shall not 
be less than the par [or stated] value. Neither promissory notes nor 
future services shall constitute payment or part payment for the 
issuance of shares of the subsidiary holding company. The consideration 
for the shares shall be cash, tangible or intangible property (to the 
extent direct investment in such property would be permitted), labor, or 
services actually performed for the subsidiary holding company, or any 
combination of the foregoing. In the absence of actual fraud in the 
transaction, the value of such property, labor, or services, as 
determined by the board of directors of the subsidiary holding company, 
shall be conclusive. Upon payment of such consideration, such shares 
shall be deemed to be fully paid and nonassessable. In the case of a 
stock dividend, that part of the retained earnings of the subsidiary 
holding company that is transferred to common stock or paid-in capital 
accounts upon the issuance of shares as a stock dividend shall be deemed 
to be the consideration for their issuance.
    Except for shares issued in the initial organization of the 
subsidiary holding company, no shares of capital stock (including shares 
issuable upon conversion, exchange, or exercise of other securities) 
shall be issued, directly or indirectly, to officers, directors, or 
controlling persons of the association or subsidiary holding company 
other than as part of a general public offering or as qualifying shares 
to a director, unless their issuance or the plan under which they would 
be issued has been approved by a majority of the total votes eligible to 
be cast at a legal meeting.
    Nothing contained in this Section 5 (or in any supplementary 
sections hereto) shall entitle the holders of any class of a series of 
capital stock to vote as a separate class or

[[Page 142]]

series or to more than one vote per share, except as to the cumulation 
of votes for the election of directors, unless the charter otherwise 
provides that there shall be no such cumulative voting: Provided, That 
this restriction on voting separately by class or series shall not 
apply:
    (i) To any provision which would authorize the holders of preferred 
stock, voting as a class or series, to elect some members of the board 
of directors, less than a majority thereof, in the event of default in 
the payment of dividends on any class or series of preferred stock;
    (ii) To any provision that would require the holders of preferred 
stock, voting as a class or series, to approve the merger or 
consolidation of the subsidiary holding company with another corporation 
or the sale, lease, or conveyance (other than by mortgage or pledge) of 
properties or business in exchange for securities of a corporation other 
than the subsidiary holding company if the preferred stock is exchanged 
for securities of such other corporation: Provided, That no provision 
may require such approval for transactions undertaken with the 
assistance or pursuant to the direction of the Board or the Federal 
Deposit Insurance Corporation;
    (iii) To any amendment which would adversely change the specific 
terms of any class or series of capital stock as set forth in this 
Section 5 (or in any supplementary sections hereto), including any 
amendment which would create or enlarge any class or series ranking 
prior thereto in rights and preferences. An amendment which increases 
the number of authorized shares of any class or series of capital stock, 
or substitutes the surviving subsidiary holding company in a merger or 
consolidation for the subsidiary holding company, shall not be 
considered to be such an adverse change.
    A description of the different classes and series (if any) of the 
subsidiary holding company's capital stock and a statement of the 
designations, and the relative rights, preferences, and limitations of 
the shares of each class of and series (if any) of capital stock are as 
follows:
    A. Common stock. Except as provided in this Section 5 (or in any 
supplementary sections thereto) the holders of the common stock shall 
exclusively possess all voting power. Each holder of shares of the 
common stock shall be entitled to one vote for each share held by each 
holder, except as to the cumulation of votes for the election of 
directors, unless the charter otherwise provides that there shall be no 
such cumulative voting.
    Whenever there shall have been paid, or declared and set aside for 
payment, to the holders of the outstanding shares of any class of stock 
having preference over the common stock as to the payment of dividends, 
the full amount of dividends and of sinking fund, retirement fund, or 
other retirement payments, if any, to which such holders are 
respectively entitled in preference to the common stock, then dividends 
may be paid on the common stock and on any class or series of stock 
entitled to participate therewith as to dividends out of any assets 
legally available for the payment of dividends.
    In the event of any liquidation, dissolution, or winding up of the 
subsidiary holding company, the holders of the common stock (and the 
holders of any class or series of stock entitled to participate with the 
common stock in the distribution of assets) shall be entitled to 
receive, in cash or in kind, the assets of the subsidiary holding 
company available for distribution remaining after: (i) Payment or 
provision for payment of the subsidiary holding company's debts and 
liabilities; (ii) distributions or provision for distributions in 
settlement of its liquidation account; and (iii) distributions or 
provision for distributions to holders of any class or series of stock 
having preference over the common stock in the liquidation, dissolution, 
or winding up of the subsidiary holding company. Each share of common 
stock shall have the same relative rights as and be identical in all 
respects with all the other shares of common stock.
    B. Preferred stock. The subsidiary holding company may provide in 
supplementary sections to its charter for one or more classes of 
preferred stock, which shall be separately identified. The shares of any 
class may be divided into and issued in series, with each series 
separately designated so as to distinguish the shares thereof from the 
shares of all other series and classes. The terms of each series shall 
be set forth in a supplementary section to the charter. All shares of 
the same class shall be identical except as to the following relative 
rights and preferences, as to which there may be variations between 
different series:
    (a) The distinctive serial designation and the number of shares 
constituting such series;
    (b) The dividend rate or the amount of dividends to be paid on the 
shares of such series, whether dividends shall be cumulative and, if so, 
from which date(s), the payment date(s) for dividends, and the 
participating or other special rights, if any, with respect to 
dividends;
    (c) The voting powers, full or limited, if any, of shares of such 
series;
    (d) Whether the shares of such series shall be redeemable and, if 
so, the price(s) at which, and the terms and conditions on which, such 
shares may be redeemed;
    (e) The amount(s) payable upon the shares of such series in the 
event of voluntary or involuntary liquidation, dissolution, or winding 
up of the subsidiary holding company;

[[Page 143]]

    (f) Whether the shares of such series shall be entitled to the 
benefit of a sinking or retirement fund to be applied to the purchase or 
redemption of such shares, and if so entitled, the amount of such fund 
and the manner of its application, including the price(s) at which such 
shares may be redeemed or purchased through the application of such 
fund;
    (g) Whether the shares of such series shall be convertible into, or 
exchangeable for, shares of any other class or classes of stock of the 
subsidiary holding company and, if so, the conversion price(s) or the 
rate(s) of exchange, and the adjustments thereof, if any, at which such 
conversion or exchange may be made, and any other terms and conditions 
of such conversion or exchange.
    (h) The price or other consideration for which the shares of such 
series shall be issued; and
    (i) Whether the shares of such series which are redeemed or 
converted shall have the status of authorized but unissued shares of 
serial preferred stock and whether such shares may be reissued as shares 
of the same or any other series of serial preferred stock.
    Each share of each series of serial preferred stock shall have the 
same relative rights as and be identical in all respects with all the 
other shares of the same series.
    The board of directors shall have authority to divide, by the 
adoption of supplementary charter sections, any authorized class of 
preferred stock into series, and, within the limitations set forth in 
this section and the remainder of this charter, fix and determine the 
relative rights and preferences of the shares of any series so 
established.
    Prior to the issuance of any preferred shares of a series 
established by a supplementary charter section adopted by the board of 
directors, the subsidiary holding company shall file with the 
appropriate Reserve Bank a dated copy of that supplementary section of 
this charter established and designating the series and fixing and 
determining the relative rights and preferences thereof.
    (5) Limitations on subsequent issuances. A subsidiary holding 
company may amend its charter to require shareholder approval of the 
issuance or reservation of common stock or securities convertible into 
common stock under circumstances which would require shareholder 
approval under the rules of the New York or American Stock Exchange if 
the shares were then listed on the New York or American Stock Exchange.
    (6) Cumulative voting. A subsidiary holding company may amend its 
charter by substituting the following sentence for the second sentence 
in the third paragraph of Section 5: ``Each holder of shares of common 
stock shall be entitled to one vote for each share held by such holder 
and there shall be no right to cumulate votes in an election of 
directors.''
    (7) [Reserved]
    (8) Anti-takeover provisions following mutual to stock conversion. 
Notwithstanding the law of the state in which the subsidiary holding 
company is located, a subsidiary holding company may amend its charter 
by renumbering existing sections as appropriate and adding a new section 
8 as follows:

    Section 8. Certain Provisions Applicable for Five Years. 
Notwithstanding anything contained in the subsidiary holding company's 
charter or bylaws to the contrary, for a period of [specify number of 
years up to five] years from the date of completion of the conversion of 
the subsidiary holding company from mutual to stock form, the following 
provisions shall apply:
    A. Beneficial Ownership Limitation. No person shall directly or 
indirectly offer to acquire or acquire the beneficial ownership of more 
than 10 percent of any class of an equity security of the subsidiary 
holding company. This limitation shall not apply to a transaction in 
which the subsidiary holding company forms a holding company without 
change in the respective beneficial ownership interests of its 
stockholders other than pursuant to the exercise of any dissenter and 
appraisal rights, the purchase of shares by underwriters in connection 
with a public offering, or the purchase of shares by a tax-qualified 
employee stock benefit plan which is exempt from the approval 
requirements under Sec. 238.12(a) of this chapter.
    In the event shares are acquired in violation of this section 8, all 
shares beneficially owned by any person in excess of 10 percent shall be 
considered ``excess shares'' and shall not be counted as shares entitled 
to vote and shall not be voted by any person or counted as voting shares 
in connection with any matters submitted to the stockholders for a vote.
    For purposes of this section 8, the following definitions apply:
    (1) The term ``person'' includes an individual, a group acting in 
concert, a corporation, a partnership, an association, a joint stock 
company, a trust, an unincorporated organization or similar company, a 
syndicate or any other group formed for the purpose of acquiring, 
holding or disposing of the equity securities of the subsidiary holding 
company.
    (2) The term ``offer'' includes every offer to buy or otherwise 
acquire, solicitation of an offer to sell, tender offer for, or request 
or

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invitation for tenders of, a security or interest in a security for 
value.
    (3) The term ``acquire'' includes every type of acquisition, whether 
effected by purchase, exchange, operation of law or otherwise.
    (4) The term ``acting in concert'' means (a) knowing participation 
in a joint activity or conscious parallel action towards a common goal 
whether or not pursuant to an express agreement, or (b) a combination or 
pooling of voting or other interests in the securities of an issuer for 
a common purpose pursuant to any contract, understanding, relationship, 
agreement or other arrangements, whether written or otherwise.
    B. Cumulative Voting Limitation. Stockholders shall not be permitted 
to cumulate their votes for election of directors.
    C. Call for Special Meetings. Special meetings of stockholders 
relating to changes in control of the subsidiary holding company or 
amendments to its charter shall be called only upon direction of the 
board of directors.

    (c) Anti-takeover provisions. The Board may grant approval to a 
charter amendment not listed in paragraph (b) of this section regarding 
the acquisition by any person or persons of its equity securities 
provided that the subsidiary holding company shall file as part of its 
application for approval an opinion, acceptable to the Board, of counsel 
independent from the subsidiary holding company that the proposed 
charter provision would be permitted to be adopted by a corporation 
chartered by the state in which the principal office of the subsidiary 
holding company is located. Any such provision must be consistent with 
applicable statutes, regulations, and Board policies. Further, any such 
provision that would have the effect of rendering more difficult a 
change in control of the subsidiary holding company and would require 
for any corporate action (other than the removal of directors) the 
affirmative vote of a larger percentage of shareholders than is required 
by this part, shall not be effective unless adopted by a percentage of 
shareholder vote at least equal to the highest percentage that would be 
required to take any action under such provision.
    (d) Reissuance of charter. A subsidiary holding company that has 
amended its charter may apply to have its charter, including the 
amendments, reissued by the Board. Such requests for reissuance should 
be filed with the appropriate Reserve Bank, and contain signatures 
required by the charter in appendix B to this part, together with such 
supporting documents as needed to demonstrate that the amendments were 
properly adopted.



Sec. 239.23  Bylaws.

    (a) General. At its first organizational meeting, the board of 
directors of a subsidiary holding company shall adopt a set of bylaws 
for the administration and regulation of its affairs. Bylaws may be 
adopted, amended or repealed by either a majority of the votes cast by 
the shareholders at a legal meeting or a majority of the board of 
directors. The bylaws shall contain sufficient provisions to govern the 
subsidiary holding company in accordance with the requirements of 
Secs. 239.26, 239.27, 239.28, and 239.29 and shall not contain any 
provision that is inconsistent with those sections or with applicable 
laws, rules, regulations or the subsidiary holding company's charter, 
except that a bylaw provision inconsistent with Secs. 239.26, 239.27, 
239.28, and 239.29 may be adopted with the approval of the Board.
    (b) Form of filing--(1) Application requirement. (i) Any bylaw 
amendment shall be submitted to the appropriate Reserve Bank for 
approval if it would:
    (A) Render more difficult or discourage a merger, tender offer, or 
proxy contest, the assumption of control by a holder of a large block of 
the subsidiary holding company's stock, or the removal of incumbent 
management; or
    (B) Be inconsistent with Secs. 239.26, 239.27, 239.28, and 239.29, 
with applicable laws, rules, regulations or the subsidiary holding 
company's charter or involve a significant issue of law or policy, 
including indemnification, conflicts of interest, and limitations on 
director or officer liability.
    (ii) Applications submitted under paragraph (b)(1)(i) of this 
section are subject to the processing procedures under Sec. 238.14 of 
this chapter;
    (iii) For purposes of this paragraph (b), bylaw provisions that 
adopt the language of the model bylaws contained in appendix D to this 
part, if adopted without change and filed with Board within 30 days 
after adoption, are effective upon adoption. The Board

[[Page 145]]

may amend the model bylaws provided in appendix D.
    (2) Filing requirement. If the proposed bylaw amendment does not 
implicate paragraph (b)(1) or (b)(3) of this section and is permissible 
under all applicable laws, rules, or regulations, the subsidiary holding 
company shall submit the amendment to the appropriate Reserve Bank at 
least 30 days prior to the date the bylaw amendment is to be adopted by 
the subsidiary holding company.
    (3) Corporate governance procedures. A subsidiary holding company 
may elect to follow the corporate governance procedures of: The laws of 
the state where the main office of the subsidiary holding company is 
located; Delaware General Corporation law; or The Model Business 
Corporation Act, provided that such procedures may be elected to the 
extent not inconsistent with applicable Federal statutes and regulations 
and safety and soundness, and such procedures are not of the type 
described in paragraph (b)(1)(i) of this section. If this election is 
selected, a subsidiary holding company shall designate in its bylaws the 
provision or provisions from the body or bodies of law selected for its 
corporate governance procedures, and shall file a copy of such bylaws, 
which are effective upon adoption, within 30 days after adoption. The 
submission shall indicate, where not obvious, why the bylaw provisions 
do not require an application under paragraph (b)(1)(i) of this section.
    (c) Effectiveness. Any bylaw amendment filed pursuant to paragraph 
(b)(2) of this section shall automatically be effective 30 days from the 
date of filing of such amendment, provided that the subsidiary holding 
company follows the requirements of its charter and bylaws in adopting 
such amendment, unless the Board notifies the subsidiary holding company 
prior to the expiration of such 30-day period that such amendment is 
rejected or requires an application to be filed pursuant to paragraph 
(b)(1) of this section.
    (d) Effect of subsequent charter or bylaw change. Notwithstanding 
any subsequent change to its charter or bylaws, the authority of a 
subsidiary holding company to engage in any transaction shall be 
determined only by the subsidiary holding company's charter or bylaws 
then in effect, unless otherwise provided by Federal law or regulation.



Sec. 239.24  Issuances of stock by subsidiary holding companies of mutual 
holding companies.

    (a) Requirements. No subsidiary holding company of a mutual holding 
company may issue stock to persons other than its mutual holding company 
parent in connection with a mutual holding company reorganization, or at 
any time subsequent to the subsidiary holding company's acquisition by 
the mutual holding company, unless the subsidiary holding company 
obtains advance approval of each such issuance from the Board. Approval 
of a mutual holding company reorganization filed pursuant to 
Sec. 239.3(a) shall be deemed to constitute approval of any stock 
issuance specifically applied for pursuant to this section in connection 
with the reorganization, unless otherwise specified by the Board. The 
Board shall approve any proposed issuance that meets each of the 
criteria set forth below in paragraphs (a)(1) through (a)(7) of this 
section.
    (1) The proposed issuance is to be made pursuant to a Stock Issuance 
Plan that contains all the provisions required by Sec. 239.25.
    (2) The Stock Issuance Plan is consistent with the terms of the 
subsidiary holding company's charter (or any proposed amendments 
thereto), including terms governing the type and amount of stock that 
may be issued.
    (3) The Stock Issuance Plan would provide the subsidiary holding 
company, its mutual holding company parent, and any subsidiary savings 
associations of the subsidiary holding company with fully sufficient 
capital and would not be inequitable or detrimental to the subsidiary 
holding company or its mutual holding company parent or to members of 
the mutual holding company parent.
    (4) The proposed price or price range of the stock to be issued is 
reasonable. The Board shall review the reasonableness of the proposed 
price or price range.

[[Page 146]]

    (5) The aggregate amount of outstanding common stock of the 
subsidiary holding company owned or controlled by persons other than the 
subsidiary holding company's mutual holding company parent at the close 
of the proposed issuance shall be less than 50 percent of the subsidiary 
holding company's total outstanding common stock, unless the subsidiary 
holding company was a stock holding company when acquired by the mutual 
holding company, in which case the foregoing restriction shall not 
apply. Any amount of preferred stock may be issued by any subsidiary 
holding company of a mutual holding company to persons other than the 
subsidiary holding company's mutual holding company, consistent with any 
other applicable laws and regulations.
    (6) The subsidiary holding company furnishes the information 
required by the Board in connection with the proposed issuance.
    (7) The proposed stock issuance meets the convenience and needs 
standard of Sec. 239.55(g).
    (8) The proposed issuance complies with all other applicable laws 
and regulations.
    (9) Unless otherwise determined by the Board, the limitations on the 
minimum and maximum amounts of the estimated price range required by 
Sec. 239.59(c) shall apply.
    (b) Related approvals. Approval by the Board of any stock issuance 
pursuant to this section shall also be deemed to constitute:
    (1) Approval of the form of stock certificate proposed to be 
utilized in connection with the stock issuance, provided such form was 
included in the application materials filed pursuant to this section; 
and
    (2) Approval of any charter or bylaw amendment required to authorize 
issuance of the stock, provided such amendment was proposed in the 
application materials filed pursuant to this section.
    (c) Offering restrictions. (1) No representations may be made in any 
manner in connection with the offer or sale of any stock issued pursuant 
to this section that the price, price range or any other pricing 
information related to such stock issuance has been approved by the 
Board or that the stock has been approved or disapproved by the Board or 
that the Board has endorsed the accuracy or adequacy of any securities 
offering documents disseminated in connection with such stock.
    (2) The sale of minority stock of the subsidiary holding company to 
be made under the minority stock issuance plan, including any sale in a 
public offering or direct community marketing, shall be completed as 
promptly as possible and within 45 calendar days after the last day of 
the subscription period, unless extended by the Board.
    (3) In the offer, sale, or purchase of stock issued pursuant to this 
section, no person shall:
    (i) Employ any device, scheme, or artifice to defraud;
    (ii) Make any untrue statement of a material fact or omit to state a 
material fact necessary in order to make the statements made, in the 
light of the circumstances under which they were made, not misleading; 
or
    (iii) Engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon a purchaser or 
seller.
    (4) Prior to the completion of a stock issuance pursuant to this 
section, no person shall transfer, or enter into any agreement or 
understanding to transfer, the legal or beneficial ownership of the 
stock to be issued to any other person.
    (5) Prior to the completion of a stock issuance pursuant to this 
section, no person shall make any offer, or any announcement of any 
offer, to purchase any stock to be issued, or knowingly acquire any 
stock in the issuance, in excess of the maximum purchase limitations 
established in the Stock Issuance Plan.
    (6) All stock issuances pursuant to this section must:
    (i) Comply with Sec. 239.59 and, to the extent applicable, the form 
or forms specified by the Board; and
    (ii) Provide that the offering be structured in a manner similar to 
a standard conversion under subpart E of this part, including the stock 
purchase priorities accorded members of the issuing subsidiary holding 
company's mutual holding company, unless the subsidiary holding company 
would

[[Page 147]]

qualify for a supervisory conversion if it were to undertake a 
conversion under subpart E of this part; or demonstrates to the 
satisfaction of the Board that a non-conforming issuance would be more 
beneficial to the savings association and subsidiary holding company 
compared to a conforming offering, considering, in the aggregate, the 
effect of each on the savings association and subsidiary holding 
company's financial and managerial resources and future prospects, the 
effect of the issuance upon the savings association and subsidiary 
holding company, the insurance risk to the Deposit Insurance Fund, and 
the convenience and needs of the community to be served.
    (7) Notwithstanding the restrictions in paragraph (c)(6)(ii) of this 
section, a subsidiary holding company of a mutual holding company may 
issue stock as part of a stock benefit plan to any insider, associate of 
an insider, or tax qualified or non-tax qualified employee stock benefit 
plan of the mutual holding company or subsidiary of the mutual holding 
company without including the purchase priorities of subpart E of this 
part.
    (8) As part of a reorganization, a reasonable amount of shares or 
proceeds may be contributed to a charitable organization that complies 
with Secs. 239.64(b) to 239.64(f), provided such contribution does not 
result in any taxes on excess business holdings under section 4943 of 
the Internal Revenue Code (26 U.S.C. 4943).
    (d) Procedural and substantive requirements. The procedural and 
substantive requirements of subpart E of this part shall apply to all 
mutual holding company stock issuances and subsidiary holding company 
stock issuances under this section, unless clearly inapplicable, as 
determined by the Board. For purposes of this paragraph, the term 
conversion as it appears in the provisions of subpart E of this part 
shall refer to the stock issuance, and the term mutual holding company 
shall refer to the subsidiary holding company undertaking the stock 
issuance.



Sec. 239.25  Contents of Stock Issuance Plans.

    (a) Mandatory provisions. Each of the provisions mandatory for all 
stock issuance plans under this paragraph (a) shall be deemed regulatory 
requirements. Each Stock Issuance Plan shall contain a complete 
description of all significant terms of the proposed stock issuance 
(including the information specified in Sec. 239.65(f) to the extent 
known), shall attach and incorporate the proposed form of stock 
certificate, the proposed stock order form, and any agreements or other 
documents defining the rights of the stockholders, and shall:
    (1) Provide that the stock shall be sold at a total price equal to 
the estimated pro forma market value of such stock, based upon an 
independent valuation;
    (2) Provide that the aggregate amount of outstanding common stock of 
the subsidiary holding company owned or controlled by persons other than 
the subsidiary holding company's mutual holding company parent at the 
close of the proposed issuance shall be less than fifty percent of the 
subsidiary holding company's total outstanding common stock (This 
provision may be omitted if the proposed issuance will be conducted by a 
subsidiary holding company that was in the stock form when acquired by 
its mutual holding company parent);
    (3) Provide that all employee stock ownership plans or other tax-
qualified employee stock benefit plans (collectively, ESOPs) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
outstanding shares of the subsidiary holding company's common stock or 
4.9 percent of the subsidiary holding company's stockholders' equity at 
the close of the proposed issuance;
    (4) Provide that all ESOPs and management recognition plans (MRPs) 
must not encompass, in the aggregate, more than either 4.9 percent of 
the outstanding shares of the subsidiary holding company's common stock 
or 4.9 percent of the subsidiary holding company's stockholders' equity 
at the close of the proposed issuance. However, if the subsidiary 
holding company's tangible capital equals at least

[[Page 148]]

ten percent at the time of implementation of the plan, the Board may 
permit such ESOPs and MRPs to encompass, in the aggregate, up to 5.88 
percent of the outstanding common stock or stockholders' equity at the 
close of the proposed issuance;
    (5) Provide that all MRPs must not encompass, in the aggregate, more 
than either 1.47 percent of the common stock of the subsidiary holding 
company or 1.47 percent of the subsidiary holding company's 
stockholders' equity at the close of the proposed issuance. However, if 
the subsidiary holding company's tangible capital is at least ten 
percent at the time of implementation of the plan, the Board may permit 
MRPs to encompass, in the aggregate, up to 1.96 percent of the 
outstanding shares of the subsidiary holding company's common stock or 
1.96 percent of the savings subsidiary holding company's stockholders' 
equity at the close of the proposed issuance;
    (6) Provide that all stock option plans (Option Plans) must not 
encompass, in the aggregate, more than either 4.9 percent of the 
subsidiary holding company's outstanding common stock at the close of 
the proposed issuance or 4.9 percent of the subsidiary holding company's 
stockholders' equity at the close of the proposed issuance;
    (7) Provide that an ESOP, a MRP or an Option Plan modified or 
adopted no earlier than one year after the close of: the proposed 
issuance, or any subsequent issuance that is made in substantial 
conformity with the purchase priorities Sec. 239.59(a) set forth in 
subpart E of this part, may exceed the percentage limitations contained 
in paragraphs (a)(3) through (6) of this section (plan expansion), 
subject to the following two requirements. First, all common stock 
awarded in connection with any plan expansion must be acquired for such 
awards in the secondary market. Second, such acquisitions must begin no 
earlier than when such plan expansion is permitted to be made;
    (8)(i) Provide that the aggregate amount of common stock that may be 
encompassed under all Option Plans and MRPs, or acquired by all insiders 
of the subsidiary holding company and subsidiary savings association and 
associates of insiders of the subsidiary holding company and subsidiary 
savings association, must not exceed the following percentages of common 
stock or stockholders' equity of the subsidiary holding company, held by 
persons other than the subsidiary holding company's mutual holding 
company parent at the close of the proposed issuance:

------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$ 50,000,000 or less....................................              35
$ 50,000,001-100,000,000................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (ii) The percentage limitations contained in paragraph 8(i) of this 
section may be exceeded provided that all stock acquired by insiders and 
associates of insiders or awarded under all MRPs and Option Plans in 
excess of those limitations is acquired in the secondary market. If 
acquired for such awards on the secondary market, such acquisitions must 
begin no earlier than one year after the close of the proposed issuance 
or any subsequent issuance that is made in substantial conformity with 
the purchase priorities set forth in subpart E of this part.
    (iii) In calculating the number of shares held by insiders and their 
associates under this provision, shares awarded but not delivered under 
an ESOP, MRP, or Option Plan that are attributable to such persons shall 
not be counted as being acquired by such persons.
    (9) Provide that the amount of common stock that may be encompassed 
under all Option Plans and MRPs must not exceed, in the aggregate, 25 
percent of the outstanding common stock held by persons other than the 
subsidiary holding company's mutual holding company parent at the close 
of the proposed issuance;
    (10) Provide that the issuance shall be conducted in compliance 
with, to the extent applicable, the forms required by the Board;

[[Page 149]]

    (11) Provide that the sales price of the shares of stock to be sold 
in the issuance shall be a uniform price determined in accordance with 
Sec. 239.24;
    (12) Provide that, if at the close of the stock issuance the 
subsidiary holding company has more than thirty-five shareholders of any 
class of stock, the subsidiary holding company shall promptly register 
that class of stock pursuant to the Securities Exchange Act of 1934, as 
amended (15 U.S.C. 78a-78jj), and undertake not to deregister such stock 
for a period of three years thereafter;
    (13) Provide that, if at the close of the stock issuance the 
subsidiary holding company has more than one hundred shareholders of any 
class of stock, the subsidiary holding company shall use its best 
efforts to:
    (i) Encourage and assist a market maker to establish and maintain a 
market for that class of stock; and
    (ii) List that class of stock on a national or regional securities 
exchange or on the NASDAQ quotation system;
    (14) Provide that, for a period of three years following the 
proposed issuance, no insider of the subsidiary holding company or his 
or her associates shall purchase, without the prior written approval of 
the Board, any stock of the subsidiary holding company except from a 
broker dealer registered with the Securities and Exchange Commission, 
except that the foregoing restriction shall not apply to:
    (i) Negotiated transactions involving more than one percent of the 
outstanding stock in the class of stock; or
    (ii) Purchases of stock made by and held by any tax-qualified or 
non-tax-qualified employee stock benefit plan of the subsidiary holding 
company even if such stock is attributable to insiders of the subsidiary 
holding company and subsidiary savings association or their associates;
    (15) Provide that stock purchased by insiders of the subsidiary 
holding company and subsidiary savings association and their associates 
in the proposed issuance shall not be sold for a period of at least one 
year following the date of purchase, except in the case of death of the 
insider or associate;
    (16) Provide that, in connection with stock subject to restriction 
on sale for a period of time:
    (i) Each certificate for such stock shall bear a legend giving 
appropriate notice of such restriction;
    (ii) Appropriate instructions shall be issued to the subsidiary 
holding company's transfer agent with respect to applicable restrictions 
on transfer of such stock; and
    (iii) Any shares issued as a stock dividend, stock split, or 
otherwise with respect to any such restricted stock shall be subject to 
the same restrictions as apply to the restricted stock;
    (17) Provide that the subsidiary holding company will not offer or 
sell any of the stock proposed to be issued to any person whose purchase 
would be financed by funds loaned, directly or indirectly, to the person 
by the subsidiary holding company;
    (18) Provide that, if necessary, the subsidiary holding company's 
charter will be amended to authorize issuance of the stock and attach 
and incorporate by reference the text of any such amendment;
    (19) Provide that the expenses incurred in connection with the 
issuance shall be reasonable;
    (20) Provide that the Stock Issuance Plan, if proposed as part of a 
Reorganization Plan, may be amended or terminated in the same manner as 
the Reorganization Plan. Otherwise, the Stock Issuance Plan shall 
provide that it may be substantively amended by the board of directors 
of the issuing subsidiary holding company as a result of comments from 
regulatory authorities or otherwise prior to approval of the Plan by the 
Board, and at any time thereafter with the concurrence of the Board; and 
that the Stock Issuance Plan may be terminated by the board of directors 
at any time prior to approval of the Plan by the Board, and at any time 
thereafter with the concurrence of the Board;
    (21) Provide that, unless an extension is granted by the Board, the 
Stock Issuance Plan shall be terminated if not completed within 90 days 
of the date of such approval; or
    (22) Provide that the subsidiary holding company may make scheduled 
discretionary contributions to a tax-

[[Page 150]]

qualified employee stock benefit plan provided such contributions do not 
cause the subsidiary holding company to fail to meet any of its 
regulatory capital requirements.
    (b) Optional provisions. A Stock Issuance Plan may:
    (1) Provide that, in the event the proposed stock issuance is part 
of a Reorganization Plan, the stock offering may be commenced 
concurrently with or at any time after the mailing to the members of the 
reorganizing association and any acquiree association of any proxy 
statement(s). The offering may be closed before the required membership 
vote(s), provided the offer and sale of the stock shall be conditioned 
upon the approval of the Reorganization Plan and Stock Issuance Plan by 
the members of the reorganizing association and any acquiree 
association;
    (2) Provide that any insignificant residue of stock of the 
subsidiary holding company not sold in the offering may be sold in such 
other manner as provided in the Stock Issuance Plan, with the Board's 
approval;
    (3) Provide that the subsidiary holding company may issue and sell, 
in lieu of shares of its stock, units of securities consisting of stock 
and long-term warrants or other equity securities, in which event any 
reference in the provisions of this section and in Sec. 239.24 to stock 
shall apply to such units of equity securities unless the context 
otherwise requires; or
    (4) Provide that the subsidiary holding company may reserve shares 
representing up to ten percent of the proposed offering for issuance in 
connection with an employee stock benefit plan.
    (c) Applicability of provisions of Sec. 239.63(a)(1) to minority 
stock issuances. Notwithstanding Sec. 239.24(d), Sec. 239.63(a)(1)(ii) 
do not apply to minority stock issuances, because the permissible sizes 
of ESOPs, MRPs, and Option Plans in minority stock issuances are subject 
to each of the requirements set forth at paragraphs (a)(3) through 
(a)(9) of this section. Section 239.63(a)(4) through (a)(14), apply for 
one year after the subsidiary holding company engages in a minority 
stock issuance that is conducted in accordance with the purchase 
priorities set forth in subpart E of this part. In addition to the 
shareholder vote requirement for Option Plans and MRPs set forth at 
Sec. 239.63(a)(1)(vi), any Option Plans and MRPs put to a shareholder 
vote after a minority stock issuance that is conducted in accordance 
with the purchase priorities set forth in subpart E of this part must be 
approved by a majority of the votes cast by stockholders other than the 
mutual holding company.



Sec. 239.26  Shareholders.

    (a) Shareholder meetings. An annual meeting of the shareholders of 
the subsidiary holding company for the election of directors and for the 
transaction of any other business of the subsidiary holding company 
shall be held annually within 150 days after the end of the subsidiary 
holding company's fiscal year. Unless otherwise provided in the 
subsidiary holding company's charter, special meetings of the 
shareholders may be called by the board of directors or on the request 
of the holders of 10 percent or more of the shares entitled to vote at 
the meeting, or by such other persons as may be specified in the bylaws 
of the subsidiary holding company. All annual and special meetings of 
shareholders shall be held at such place as the board of directors may 
determine in the state in which the subsidiary savings association has 
its principal place of business, or at any other convenient place the 
board of directors may designate.
    (b) Notice of shareholder meetings. Written notice stating the 
place, day, and hour of the meeting and the purpose or purposes for 
which the meeting is called shall be delivered not fewer than 20 nor 
more than 50 days before the date of the meeting, either personally or 
by mail, by or at the direction of the chairman of the board, the 
president, the secretary, or the directors, or other natural persons 
calling the meeting, to each shareholder of record entitled to vote at 
such meeting. If mailed, such notice shall be deemed to be delivered 
when deposited in the mail, addressed to the shareholder at the address 
appearing on the stock transfer

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books or records of the subsidiary holding company as of the record date 
prescribed in paragraph (c) of this section, with postage thereon 
prepaid. When any shareholders' meeting, either annual or special, is 
adjourned for 30 days or more, notice of the adjourned meeting shall be 
given as in the case of an original meeting. Notwithstanding anything in 
this section, however, a subsidiary holding company that is wholly owned 
shall not be subject to the shareholder notice requirement.
    (c) Fixing of record date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment thereof, or shareholders entitled to 
receive payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not less than 10 days prior to the 
date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment thereof.
    (d) Voting lists. (1) At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for the shares of the subsidiary holding company shall make a 
complete list of the stockholders of record entitled to vote at such 
meeting, or any adjournments thereof, arranged in alphabetical order, 
with the address and the number of shares held by each. This list of 
shareholders shall be kept on file at the home office of the subsidiary 
holding company and shall be subject to inspection by any shareholder of 
record or the stockholder's agent during the entire time of the meeting. 
The original stock transfer book shall constitute prima facie evidence 
of the stockholders entitled to examine such list or transfer books or 
to vote at any meeting of stockholders. Notwithstanding anything in this 
section, however, a subsidiary holding company that is wholly owned 
shall not be subject to the voting list requirements.
    (2) In lieu of making the shareholders list available for inspection 
by any shareholders as provided in paragraph (d)(1) of this section, the 
board of directors may perform such acts as required by paragraphs (a) 
and (b) of Rule 14a-7 of the General Rules and Regulations under the 
Securities and Exchange Act of 1934 (17 CFR 240.14a-7) as may be duly 
requested in writing, with respect to any matter which may be properly 
considered at a meeting of shareholders, by any shareholder who is 
entitled to vote on such matter and who shall defray the reasonable 
expenses to be incurred by the subsidiary holding company in performance 
of the act or acts required.
    (e) Shareholder quorum. A majority of the outstanding shares of the 
subsidiary holding company entitled to vote, represented in person or by 
proxy, shall constitute a quorum at a meeting of shareholders. The 
shareholders present at a duly organized meeting may continue to 
transact business until adjournment, notwithstanding the withdrawal of 
enough shareholders to leave less than a quorum. If a quorum is present, 
the affirmative vote of the majority of the shares represented at the 
meeting and entitled to vote on the subject matter shall be the act of 
the stockholders, unless the vote of a greater number of stockholders 
voting together or voting by classes is required by law or the charter. 
Directors, however, are elected by a plurality of the votes cast at an 
election of directors.
    (f) Shareholder voting-- (1) Proxies. Unless otherwise provided in 
the subsidiary holding company's charter, at all meetings of 
shareholders, a shareholder may vote in person or by proxy executed in 
writing by the shareholder or by a duly authorized attorney in fact. 
Proxies may be given telephonically or electronically as long as the 
holder uses a procedure for verifying the identity of the shareholder. A 
proxy may designate as holder a corporation, partnership or company, or 
other person. Proxies solicited on behalf of the management shall be 
voted as directed by the shareholder or,

[[Page 152]]

in the absence of such direction, as determined by a majority of the 
board of directors. No proxy shall be valid more than eleven months from 
the date of its execution except for a proxy coupled with an interest.
    (2) Shares controlled by subsidiary holding company. Neither 
treasury shares of its own stock held by the subsidiary holding company 
nor shares held by another corporation, if a majority of the shares 
entitled to vote for the election of directors of such other corporation 
are held by the subsidiary holding company, shall be voted at any 
meeting or counted in determining the total number of outstanding shares 
at any given time for purposes of any meeting.
    (g) Nominations and new business submitted by shareholders. 
Nominations for directors and new business submitted by shareholders 
shall be voted upon at the annual meeting if such nominations or new 
business are submitted in writing and delivered to the secretary of the 
subsidiary holding company at least five days prior to the date of the 
annual meeting. Ballots bearing the names of all the natural persons 
nominated shall be provided for use at the annual meeting.
    (h) Informal action by stockholders. If the bylaws of the subsidiary 
holding company so provide, any action required to be taken at a meeting 
of the stockholders, or any other action that may be taken at a meeting 
of the stockholders, may be taken without a meeting if consent in 
writing has been given by all the stockholders entitled to vote with 
respect to the subject matter.



Sec. 239.27  Board of directors.

    (a) General powers and duties. The business and affairs of the 
subsidiary holding company shall be under the direction of its board of 
directors. The board of directors shall annually elect a chairman of the 
board from among its members and shall designate the chairman of the 
board, when present, to preside at its meeting. Directors need not be 
stockholders unless the bylaws so require.
    (b) Number and term. The bylaws shall set forth a specific number of 
directors, not a range. The number of directors shall be not fewer than 
five nor more than fifteen, unless a higher or lower number has been 
authorized by the Board. Directors shall be elected for a term of one to 
three years and until their successors are elected and qualified. If a 
staggered board is chosen, the directors shall be divided into two or 
three classes as nearly equal in number as possible and one class shall 
be elected by ballot annually. In the case of a converting or newly 
chartered subsidiary holding company where all directors shall be 
elected at the first election of directors, if a staggered board is 
chosen, the terms shall be staggered in length from one to three years.
    (c) Regular meetings. A regular meeting of the board of directors 
shall be held immediately after, and at the same place as, the annual 
meeting of shareholders. The board of directors shall determine the 
place, frequency, time and procedure for notice of regular meetings.
    (d) Quorum. A majority of the number of directors shall constitute a 
quorum for the transaction of business at any meeting of the board of 
directors. The act of the majority of the directors present at a meeting 
at which a quorum is present shall be the act of the board of directors, 
unless a greater number is prescribed by regulation of the Board.
    (e) Vacancies. Any vacancy occurring in the board of directors may 
be filled by the affirmative vote of a majority of the remaining 
directors although less than a quorum of the board of directors. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the shareholders. Any directorship to 
be filled by reason of an increase in the number of directors may be 
filled by election by the board of directors for a term of office 
continuing only until the next election of directors by the 
shareholders.
    (f) Removal or resignation of directors. (1) At a meeting of 
shareholders called expressly for that purpose, any director may be 
removed only for cause, as defined in Sec. 239.41, by a vote of the 
holders of a majority of the shares then entitled to vote at an election 
of directors.

[[Page 153]]

Subsidiary holding companies may provide for procedures regarding 
resignations in the bylaws.
    (2) If less than the entire board is to be removed, no one of the 
directors may be removed if the votes cast against the removal would be 
sufficient to elect a director if then cumulatively voted at an election 
of the class of directors of which such director is a part.
    (3) Whenever the holders of the shares of any class are entitled to 
elect one or more directors by the provisions of the charter or 
supplemental sections thereto, the provisions of this section shall 
apply, in respect to the removal of a director or directors so elected, 
to the vote of the holders of the outstanding shares of that class and 
not to the vote of the outstanding shares as a whole.
    (g) Executive and other committees. The board of directors, by 
resolution adopted by a majority of the full board, may designate from 
among its members an executive committee and one or more other 
committees each of which, to the extent provided in the resolution or 
bylaws of the subsidiary holding company, shall have and may exercise 
all of the authority of the board of directors, except no committee 
shall have the authority of the board of directors with reference to: 
the declaration of dividends; the amendment of the charter or bylaws of 
the subsidiary holding company; recommending to the stockholders a plan 
of merger, consolidation, or conversion; the sale, lease, or other 
disposition of all, or substantially all, of the property and assets of 
the subsidiary holding company otherwise than in the usual and regular 
course of its business; a voluntary dissolution of the subsidiary 
holding company; a revocation of any of the foregoing; or the approval 
of a transaction in which any member of the executive committee, 
directly or indirectly, has any material beneficial interest. The 
designation of any committee and the delegation of authority thereto 
shall not operate to relieve the board of directors, or any director, of 
any responsibility imposed by law or regulation.
    (h) Notice of special meetings. Written notice of at least 24 hours 
regarding any special meeting of the board of directors or of any 
committee designated thereby shall be given to each director in 
accordance with the bylaws, although such notice may be waived by the 
director. The attendance of a director at a meeting shall constitute a 
waiver of notice of such meeting, except where a director attends a 
meeting for the express purpose of objecting to the transaction of any 
business because the meeting is not lawfully called or convened. Neither 
the business to be transacted at, nor the purpose of, any meeting need 
be specified in the notice or waiver of notice of such meeting. The 
bylaws may provide for telephonic participation at a meeting.
    (i) Action without a meeting. Any action required or permitted to be 
taken by the board of directors at a meeting may be taken without a 
meeting if a consent in writing, setting forth the actions so taken, 
shall be signed by all of the directors.
    (j) Presumption of assent. A director of the subsidiary holding 
company who is present at a meeting of the board of directors at which 
action on any subsidiary holding company matter is taken shall be 
presumed to have assented to the action taken unless his or her dissent 
or abstention shall be entered in the minutes of the meeting or unless a 
written dissent to such action shall be filed with the individual acting 
as the secretary of the meeting before the adjournment thereof or shall 
be forwarded by registered mail to the secretary of the subsidiary 
holding company within five days after the date on which a copy of the 
minutes of the meeting is received. Such right to dissent shall not 
apply to a director who voted in favor of such action.
    (k) Age limitation on directors. A subsidiary holding company may 
provide a bylaw on age limitation for directors. Bylaws on age 
limitations must comply with all Federal laws, rules and regulations.



Sec. 239.28  Officers.

    (a) Positions. The officers of the subsidiary holding company shall 
be a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller, each of whom shall be elected by the board of 
directors. The board of

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directors may also designate the chairman of the board as an officer. 
The offices of the secretary and treasurer or comptroller may be held by 
the same individual and the vice president may also be either the 
secretary or the treasurer or comptroller. The board of directors may 
designate one or more vice presidents as executive vice president or 
senior vice president. The board of directors may also elect or 
authorize the appointment of such other officers as the business of the 
subsidiary holding company may require. The officers shall have such 
authority and perform such duties as the board of directors may from 
time to time authorize or determine. In the absence of action by the 
board of directors, the officers shall have such powers and duties as 
generally pertain to their respective offices.
    (b) Removal. Any officer may be removed by the board of directors 
whenever in its judgment the best interests of the subsidiary holding 
company will be served thereby; but such removal, other than for cause, 
shall be without prejudice to the contractual rights, if any, of the 
individual so removed. Employment contracts shall conform with 
Sec. 239.41.
    (c) Age limitation on officers. A subsidiary holding company may 
provide a bylaw on age limitation for officers. Bylaws on age 
limitations must comply with all Federal laws, rules, and regulations.



Sec. 239.29  Certificates for shares and their transfer.

    (a) Certificates for shares. Certificates representing shares of 
capital stock of the subsidiary holding company shall be in such form as 
shall be determined by the board of directors and approved by the Board. 
The certificates shall be signed by the chief executive officer or by 
any other officer of the subsidiary holding company authorized by the 
board of directors, attested by the secretary or an assistant secretary, 
and sealed with the corporate seal or a facsimile thereof. The 
signatures of such officers upon a certificate may be facsimiles if the 
certificate is manually signed on behalf of a transfer agent or a 
registrar other than the subsidiary holding company itself or one of its 
employees. Each certificate for shares of capital stock shall be 
consecutively numbered or otherwise identified. The name and address of 
the person to whom the shares are issued, with the number of shares and 
date of issue, shall be entered on the stock transfer books of the 
subsidiary holding company. All certificates surrendered to the 
subsidiary holding company for transfer shall be cancelled and no new 
certificate shall be issued until the former certificate for a like 
number of shares shall have been surrendered and cancelled, except that 
in the case of a lost or destroyed certificate a new certificate may be 
issued upon such terms and indemnity to the subsidiary holding company 
as the board of directors may prescribe.
    (b) Transfer of shares. Transfer of shares of capital stock of the 
subsidiary holding company shall be made only on its stock transfer 
books. Authority for such transfer shall be given only by the holder of 
record or by a legal representative, who shall furnish proper evidence 
of such authority, or by an attorney authorized by a duly executed power 
of attorney and filed with the subsidiary holding company. The transfer 
shall be made only on surrender for cancellation of the certificate for 
the shares. The person in whose name shares of capital stock stand on 
the books of the subsidiary holding company shall be deemed by the 
subsidiary holding company to be the owner for all purposes.



Sec. 239.30  Annual reports; books and records.

    (a) Annual reports to stockholders. A subsidiary holding company not 
wholly-owned by a holding company shall, within 130 days after the end 
of its fiscal year, mail to each of its stockholders entitled to vote at 
its annual meeting an annual report containing financial statements that 
satisfy the requirements of rule 14a-3 under the Securities Exchange Act 
of 1934. (17 CFR 240.14a-3). Concurrently with such mailing a 
certification of such mailing signed by the chairman of the board, the 
president or a vice president of the subsidiary holding company, 
together with a copy of the report, shall be transmitted by the 
subsidiary holding

[[Page 155]]

company to the appropriate Reserve Bank.
    (b) Books and records. (1) Each subsidiary holding company shall 
keep correct and complete books and records of account; shall keep 
minutes of the proceedings of its stockholders, board of directors, and 
committees of directors; and shall keep at its home office or at the 
office of its transfer agent or registrar, a record of its stockholders, 
giving the names and addresses of all stockholders, and the number, 
class and series, if any, of the shares held by each.
    (2) Any stockholder or group of stockholders of a subsidiary holding 
company, holding of record the number of voting shares of such 
subsidiary holding company specified below, upon making written demand 
stating a proper purpose, shall have the right to examine, in person or 
by agent or attorney, at any reasonable time or times, nonconfidential 
portions of its books and records of account, minutes and record of 
stockholders and to make extracts therefrom. Such right of examination 
is limited to a stockholder or group of stockholders holding of record:
    (i) Voting shares having a cost of not less than $100,000 or 
constituting not less than one percent of the total outstanding voting 
shares, provided in either case such stockholder or group of 
stockholders have held of record such voting shares for a period of at 
least six months before making such written demand, or
    (ii) Not less than five percent of the total outstanding voting 
shares.
    No stockholder or group of stockholders of a subsidiary holding 
company shall have any other right under this section or common law to 
examine its books and records of account, minutes and record of 
stockholders, except as provided in its bylaws with respect to 
inspection of a list of stockholders.
    (3) The right to examination authorized by paragraph (b)(2) of this 
section and the right to inspect the list of stockholders provided by a 
subsidiary holding company's bylaws may be denied to any stockholder or 
group of stockholders upon the refusal of any such stockholder or group 
of stockholders to furnish such subsidiary holding company, its transfer 
agent or registrar an affidavit that such examination or inspection is 
not desired for any purpose which is in the interest of a business or 
object other than the business of the subsidiary holding company, that 
such stockholder has not within the five years preceding the date of the 
affidavit sold or offered for sale, and does not now intend to sell or 
offer for sale, any list of stockholders of the subsidiary holding 
company or of any other corporation, and that such stockholder has not 
within said five-year period aided or abetted any other person in 
procuring any list of stockholders for purposes of selling or offering 
for sale such list.
    (4) Notwithstanding any provision of this section or common law, no 
stockholder or group of stockholders shall have the right to obtain, 
inspect or copy any portion of any books or records of a subsidiary 
holding company containing:
    (i) A list of depositors in or borrowers from such subsidiary 
holding company;
    (ii) Their addresses;
    (iii) Individual deposit or loan balances or records; or
    (iv) Any data from which such information could be reasonably 
constructed.



Sec. 239.31  Indemnification; employment contracts.

    (a) Restrictions on indemnification. The provisions of Sec. 239.40 
shall apply to subsidiary holding companies.
    (b) Restrictions on employment contracts. The provisions of 
Sec. 239.41 and any policies of the Board thereunder shall apply to 
subsidiary holding companies.



             Subpart D_Indemnification; Employment Contracts



Sec. 239.40  Indemnification of directors, officers and employees.

    A mutual holding company shall indemnify its directors, officers, 
and employees in accordance with the following requirements:
    (a) Definitions and rules of construction. (1) Definitions for 
purposes of this section.
    (i) Action means any judicial or administrative proceeding, or 
threatened proceeding, whether civil, criminal, or

[[Page 156]]

otherwise, including any appeal or other proceeding for review;
    (ii) Court includes, without limitation, any court to which or in 
which any appeal or any proceeding for review is brought.
    (iii) Final judgment means a judgment, decree, or order which is not 
appealable or as to which the period for appeal has expired with no 
appeal taken.
    (iv) Settlement includes entry of a judgment by consent or 
confession or a plea of guilty or nolo contendere.
    (2) References in this section to any individual or other person, 
including any mutual holding company, shall include legal 
representatives, successors, and assigns thereof.
    (b) General. Subject to paragraphs (c) and (g) of this section, a 
mutual holding company shall indemnify any person against whom an action 
is brought or threatened because that person is or was a director, 
officer, or employee of the mutual holding company, for:
    (1) Any amount for which that person becomes liable under a judgment 
if such action; and
    (2) Reasonable costs and expenses, including reasonable attorney's 
fees, actually paid or incurred by that person in defending or settling 
such action, or in enforcing his or her rights under this section if he 
or she attains a favorable judgment in such enforcement action.
    (c) Requirements. Indemnification shall be made to such period under 
paragraph (b) of this section only if:
    (1) Final judgment on the merits is in his or her favor; or
    (2) In case of:
    (i) Settlement,
    (ii) Final judgment against him or her, or
    (iii) Final judgment in his or her favor, other than on the merits, 
if a majority of the disinterested directors of the mutual holding 
company determine that he or she was acting in good faith within the 
scope of his or her employment or authority as he or she could 
reasonably have perceived it under the circumstances and for a purpose 
he or she could reasonably have believed under the circumstances was in 
the best interests of the mutual holding company or its members.
    However, no indemnification shall be made unless the mutual holding 
company gives the Board at least 60 days' notice of its intention to 
make such indemnification. Such notice shall state the facts on which 
the action arose, the terms of any settlement, and any disposition of 
the action by a court. Such notice, a copy thereof, and a certified copy 
of the resolution containing the required determination by the board of 
directors shall be sent to the appropriate Reserve Bank, who shall 
promptly acknowledge receipt thereof. The notice period shall run from 
the date of such receipt. No such indemnification shall be made if the 
Board advises the mutual holding company in writing, within such notice 
period, of its objection to the indemnification.
    (d) Insurance. A mutual holding company may obtain insurance to 
protect it and its directors, officers, and employees from potential 
losses arising from claims against any of them for alleged wrongful 
acts, or wrongful acts, committed in their capacity as directors, 
officers, or employees. However, no mutual holding company may obtain 
insurance which provides for payment of losses of any individual 
incurred as a consequence of his or her willful or criminal misconduct.
    (e) Payment of expenses. If a majority of the directors of a mutual 
holding company concludes that, in connection with an action, any person 
ultimately may become entitled to indemnification under this section, 
the directors may authorize payment of reasonable costs and expenses, 
including reasonable attorneys' fees, arising from the defense or 
settlement of such action. Nothing in this paragraph shall prevent the 
directors of a mutual holding company from imposing such conditions on a 
payment of expenses as they deem warranted and in the interests of the 
mutual holding company. Before making advance payment of expenses under 
this paragraph, the mutual holding company shall obtain an agreement 
that the mutual holding company will be repaid if the person on whose 
behalf payment is made is later determined not to be entitled to such 
indemnification.
    (f) Exclusiveness of provisions. No mutual holding company shall 
indemnify

[[Page 157]]

any person referred to in paragraph (b) of this section or obtain 
insurance referred to in paragraph (d) of the section other than in 
accordance with this section. However, a mutual holding company which 
has a bylaw in effect relating to indemnification of its personnel shall 
be governed solely by that bylaw, except that its authority to obtain 
insurance shall be governed by paragraph (d) of this section.
    (g) The indemnification provided for in paragraph (b) of this 
section is subject to and qualified by 12 U.S.C. 1821(k).



Sec. 239.41  Employment contracts.

    (a) General. A mutual holding company may enter into an employment 
contract with its officers and other employees only in accordance with 
the requirements of this section. All employment contracts shall be in 
writing and shall be approved specifically by the respective mutual 
holding company's board of directors. A mutual holding company shall not 
enter into an employment contract with any of its officers or other 
employees if such contract would constitute an unsafe or unsound 
practice. The making of such an employment contract would be an unsafe 
or unsound practice if such contract could lead to material financial 
loss or damage to the mutual holding company or could interfere 
materially with the exercise by the members of its board of directors of 
their duty or discretion provided by law, charter, bylaw or regulation 
as to the employment or termination of employment of an officer or 
employee of the mutual holding company. This may occur, depending upon 
the circumstances of the case, where an employment contract provides for 
an excessive term.
    (b) Required provisions. Each employment contract shall provide 
that:
    (1) The mutual holding company's board of directors may terminate 
the officer or employee's employment at any time, but any termination by 
the mutual holding company's board of directors other than termination 
for cause, shall not prejudice the officer or employee's right to 
compensation or other benefits under the contract. The officer or 
employee shall have no right to receive compensation or other benefits 
for any period after termination for cause. Termination for cause shall 
include termination because of the officer or employee's personal 
dishonesty, incompetence, willful misconduct, breach of fiduciary duty 
involving personal profit, intentional failure to perform stated duties, 
willful violation of any law, rule, or regulation (other than traffic 
violations or similar offenses) or final cease-and-desist order, or 
material breach of any provision of the contract.
    (2) If the officer or employee is suspended and/or temporarily 
prohibited from participating in the conduct of the mutual holding 
company's affairs by a notice served under section 8 (e)(3) or (g)(1) of 
Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(3) and (g)(1)) the 
mutual holding company's obligations under the contract shall be 
suspended as of the date of service unless stayed by appropriate 
proceedings. If the charges in the notice are dismissed, the mutual 
holding company may in its discretion:
    (i) Pay the officer or employee all or part of the compensation 
withheld while its contract obligations were suspended, and
    (ii) Reinstate (in whole or in part) any of its obligations which 
were suspended.
    (3) If the officer or employee is removed and/or permanently 
prohibited from participating in the conduct of the mutual holding 
company's affairs by an order issued under section 8 (e)(4) or (g)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all 
obligations of the mutual holding company under the contract shall 
terminate as of the effective date of the order, but vested rights of 
the contracting parties shall not be affected.
    (4) If the subsidiary savings association is in default (as defined 
in section 3(x)(1) of the Federal Deposit Insurance Act), all 
obligations under the contract shall terminate as of the date of 
default, but this paragraph (b) shall not affect any vested rights of 
the contracting parties: Provided, that this paragraph (b) need not be 
included in an employment contract if prior written approval is secured 
from the Board.
    (5) If the mutual holding company is subject to bankruptcy 
proceedings

[[Page 158]]

under title 11 of the United States Code, all obligations of the mutual 
holding company under the contract shall terminate as of the date that 
the petition is filed, but vested rights of the contracting parties 
shall not be affected: Provided, that this paragraph (b) need not be 
included in an employment contract if prior written approval is secured 
from the Board.
    (6) All obligations under the contract shall be terminated, except 
to the extent determined that continuation of the contract is necessary 
to the continued operation of the mutual holding company--
    (i) By the Board, at the time the Federal Deposit Insurance 
Corporation enters into an agreement to provide assistance to or on 
behalf of the subsidiary savings association under the authority 
contained in 13(c) of the Federal Deposit Insurance Act; or
    (ii) By the Board, at the time the Board approves a supervisory 
merger to resolve problems related to operation of the mutual holding 
company or when the mutual holding company is determined by the Board to 
be in an unsafe or unsound condition.



             Subpart E_Conversions From Mutual to Stock Form



Sec. 239.50  Purpose and scope.

    (a) General. This subpart governs how a mutual holding company may 
convert from the mutual to the stock form of ownership. This subpart 
supersedes all inconsistent charter and bylaw provisions of mutual 
holding companies converting to stock form.
    (b) Prescribed forms. A mutual holding company must use the forms 
prescribed under this subpart and provide such information as the Board 
may require under the forms by regulation or otherwise. The forms 
required under this subpart include: Form AC (Application for 
Conversion); Form PS (Proxy Statement); Form OC (Offering Circular); and 
Form OF (Order Form).
    (c) Waivers. The Board may waive any requirement of this subpart or 
a provision in any prescribed form. To obtain a waiver, a mutual holding 
company must file a written request with the Board that:
    (1) Specifies the requirement(s) or provision(s) that the mutual 
holding company wants the Board to waive;
    (2) Demonstrates that the waiver is equitable; is not detrimental to 
the mutual holding company, mutual members, or other mutual holding 
companies or savings associations; and is not contrary to the public 
interest; and
    (3) Includes an opinion of counsel demonstrating that applicable law 
does not conflict with the waiver of the requirement or provision.



Sec. 239.51  Acquiring another insured stock depository institution as 
part of a conversion.

    When a mutual holding company converts to stock form, the subsidiary 
savings association may acquire for cash or stock another insured 
depository institution that is already in the stock form of ownership.



Sec. 239.52  Definitions.

    The following definitions apply to this subpart and the forms 
prescribed under this subpart:
    (a) Association members or members are persons who, under applicable 
law, are eligible to vote at the meeting on conversion.
    (b) Eligibility record date is the date for determining eligible 
account holders. The eligibility record date must be at least one year 
before the date that the board of directors adopts the plan of 
conversion.
    (c) Eligible account holders are any persons holding qualifying 
deposits on the eligibility record date.
    (d) IRS is the United States Internal Revenue Service.
    (e) Local community includes:
    (1) Every county, parish, or similar governmental subdivision in 
which the mutual holding company has a home or branch office;
    (2) Each county's, parish's, or subdivision's metropolitan 
statistical area;
    (3) All zip code areas in the mutual holding company's Community 
Reinvestment Act assessment area; and
    (4) Any other area or category the mutual holding company sets out 
in its plan of conversion, as approved by the Board.

[[Page 159]]

    (f) Mutual holding company has the same meaning in this subpart as 
that term is given in subpart A. For purposes of this subpart, 
references to mutual holding company shall also include a resulting 
stock holding company, where applicable.
    (g) Offer, offer to sell, or offer for sale is an attempt or offer 
to dispose of, or a solicitation of an offer to buy, a security or 
interest in a security for value. Preliminary negotiations or agreements 
with an underwriter, or among underwriters who are or will be in privity 
of contract with the mutual holding company or resulting stock holding 
company, are not offers, offers to sell, or offers for sale.
    (h) Proxy soliciting material includes a proxy statement, form of 
proxy, or other written or oral communication regarding the conversion.
    (i) Purchase or buy includes every contract to acquire a security or 
interest in a security for value.
    (j) Qualifying deposit is the total balance in an account holder's 
savings accounts at the close of business on the eligibility or 
supplemental eligibility record date. The mutual holding company's plan 
of conversion may provide that only savings accounts with total deposit 
balances of $50 or more will qualify.
    (k) Resulting stock holding company means the stock savings and loan 
holding company that is issuing stock in connection with conversion of a 
mutual holding company pursuant to this subpart.
    (l) Sale or sell includes every contract to dispose of a security or 
interest in a security for value. An exchange of securities in a merger 
or acquisition approved by the Board is not a sale.
    (m) Solicitation and solicit is a request for a proxy, whether or 
not accompanied by or included in a form of proxy; a request to execute, 
not execute, or revoke a proxy; or the furnishing of a form of proxy or 
other communication reasonably calculated to cause the members to 
procure, withhold, or revoke a proxy. Solicitation or solicit does not 
include providing a form of proxy at the unsolicited request of a 
member, the acts required to mail communications for members, or 
ministerial acts performed on behalf of a person soliciting a proxy.
    (n) Subscription offering is the offering of shares through 
nontransferable subscription rights to:
    (1) Eligible account holders under Sec. 239.59(h);
    (2) Tax-qualified employee stock ownership plans under 
Sec. 239.59(m);
    (3) Supplemental eligible account holders under Sec. 239.59(h); and
    (4) Other voting members under Sec. 239.59(j).
    (o) Supplemental eligibility record date is the date for determining 
supplemental eligible account holders. The supplemental eligibility 
record date is the last day of the calendar quarter before the Board 
approves the conversion and will occur only if the Board has not 
approved the conversion within 15 months of the eligibility record date.
    (p) Supplemental eligible account holders are any persons, except 
officers, directors, and their associates of the mutual holding company 
or subsidiary savings association, holding qualifying deposits on the 
supplemental eligibility record date.
    (q) Underwriter is any person who purchases any securities from the 
mutual holding company or resulting stock holding company with a view to 
distributing the securities, offers or sells securities for the mutual 
stock holding company or resulting stock holding company in connection 
with the securities' distribution, or participates or has a direct or 
indirect participation in the direct or indirect underwriting of any 
such undertaking. Underwriter does not include a person whose interest 
is limited to a usual and customary distributor's or seller's commission 
from an underwriter or dealer.



Sec. 239.53  Prior to conversion.

    (a) Pre-filing meeting and consultation. (1) The mutual holding 
company's board, or a subcommittee of the board, may meet with the staff 
of the appropriate Reserve Bank or Board staff before the mutual holding 
company's board of directors votes on the plan of conversion. At that 
meeting the mutual holding company may provide the Reserve Bank or Board 
staff with a written strategic plan that outlines the objectives of the 
proposed conversion

[[Page 160]]

and the intended use of the conversion proceeds.
    (2) The mutual holding company should also consult with the Board or 
appropriate Reserve Bank before it files its application for conversion. 
The Reserve Bank or Board will discuss the information that the mutual 
holding company must include in the application for conversion, general 
issues that the mutual holding company may confront in the conversion 
process, and any other pertinent issues.
    (b) Business plan. (1) Prior to filing an application for 
conversion, the mutual holding company must adopt a business plan 
reflecting the mutual holding company's intended plans for deployment of 
the proposed conversion proceeds. The business plan is required, under 
Sec. 239.55(b), to be included in the mutual holding company's 
conversion application. At a minimum, the business plan must address:
    (i) The subsidiary savings association's projected operations and 
activities for three years following the conversion. The business plan 
must describe how the conversion proceeds will be deployed at the 
savings association (and holding company, if applicable), what 
opportunities are available to reasonably achieve the planned deployment 
of conversion proceeds in the relevant proposed market areas, and how 
its deployment will provide a reasonable return on investment 
commensurate with investment risk, investor expectations, and industry 
norms, by the final year of the business plan. The business plan must 
include three years of projected financial statements. The business plan 
must provide that the subsidiary savings associations receive at least 
50 percent of the net conversion proceeds. The Board may require that a 
larger percentage of proceeds be contributed to the subsidiary savings 
associations.
    (ii) The mutual holding company's plan for deploying conversion 
proceeds to meet credit and lending needs in the proposed market areas. 
The Board strongly discourages business plans that provide for a 
substantial investment in mortgage securities or other securities, 
except as an interim measure to facilitate orderly, prudent deployment 
of proceeds during the three years following the conversion, or as part 
of a properly managed leverage strategy.
    (iii) The risks associated with the plan for deployment of 
conversion proceeds, and the effect of this plan on management 
resources, staffing, and facilities.
    (iv) The expertise of the mutual holding company and saving 
association subsidiary's management and board of directors, or that the 
mutual holding company has planned for adequate staffing and controls to 
prudently manage the growth, expansion, new investment, and other 
operations and activities proposed in its business plan.
    (2) The mutual holding company may not project returns of capital or 
special dividends in any part of the business plan. A newly converted 
company may not plan on stock repurchases in the first year of the 
business plan.
    (c) Management and board review of business plan. (1) The chief 
executive officer and members of the board of directors of the mutual 
holding company must review, and at least two-thirds of the board of 
directors must approve, the business plan.
    (2) The chief executive officer and at least two-thirds of the board 
of directors of the mutual holding company must certify that the 
business plan accurately reflects the intended plans for deployment of 
conversion proceeds, and that any new initiatives reflected in the 
business plan are reasonably achievable. The mutual holding company must 
submit these certifications with its business plan, as part of the 
conversion application under paragraph (b) of this section.
    (d) Board review of the business plan. (1) The Board will review the 
business plan to determine whether it demonstrates a safe and sound 
deployment of conversion proceeds, as part of its review of the 
conversion application. In making its determination, the Board will 
consider how the mutual holding company has addressed the applicable 
factors of paragraph (b) of this section. No single factor will be 
determinative. The Board will review every case on its merits.
    (2) The mutual holding company must file its business plan with the 
appropriate Reserve Bank. The Board or

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appropriate Reserve Bank may request additional information, if 
necessary, to support its determination under paragraph (d)(1) of this 
section. The mutual holding company must file its business plan as a 
confidential exhibit to the Form AC.
    (3) If the Board approves the application for conversion and the 
mutual holding company completes the conversion, the resulting stock 
holding company must operate within the parameters of the business plan. 
The Board must approve any material deviation from the business plan in 
writing prior to such material deviation.
    (e) Disclosure of business plan. (1) The mutual holding company may 
discuss information about the conversion with individuals that it 
authorizes to prepare documents for the conversion.
    (2) Except as permitted under paragraph (e)(1) of this section, the 
mutual holding company must keep all information about the conversion 
confidential until the board of directors adopts the plan of conversion.
    (3) If the mutual holding company violates this section, the Board 
may require it to take remedial action. For example, the Board may 
require the mutual holding company to take any or all of the following 
actions:
    (i) Publicly announce that the mutual holding company is considering 
a conversion;
    (ii) Set an eligibility record date acceptable to the Board;
    (iii) Limit the subscription rights of any person who violates or 
aids in a violation of this section; or
    (iv) Take any other action to ensure that the conversion is fair and 
equitable.



Sec. 239.54  Plan of conversion.

    (a) Adoption by the board of directors. Prior to filing an 
application for conversion, the board of directors of the mutual holding 
company must adopt a plan of conversion that conforms to Secs. 239.59 
through 239.62 and 239.63(b). The board of directors must adopt the plan 
by at least a two-thirds vote. The plan of conversion is required, under 
Sec. 239.55(b), to be included in the conversion application.
    (b) Contents of the plan of conversion. The mutual holding company 
must include the information included in Secs. 239.59 through 239.62 and 
239.63(b) in the plan of conversion. The Board may require the mutual 
holding company to delete or revise any provision in the plan of 
conversion if the Board determines the provision is inequitable; is 
detrimental to the mutual holding company, the account holders, other 
mutual holding companies, or other savings associations; or is contrary 
to public interest.
    (c) Notice of board of directors' approval of the plan of 
conversion--(1) Notice. The mutual holding company must promptly notify 
its members that the board of directors adopted a plan of conversion and 
that a copy of the plan is available for the members' inspection in the 
mutual holding company's home office and in each of the subsidiary 
savings association's branch offices. The mutual holding company must 
mail a letter to each member or publish a notice in the local newspaper 
in every local community where the savings association has an office. 
The mutual holding company may also issue a press release. The Board may 
require broader publication, if necessary, to ensure adequate notice to 
the members.
    (2) Contents of notice. The mutual holding company may include any 
of the following statements and descriptions in the letter, notice, or 
press release.
    (i) The board of directors adopted a proposed plan to convert from 
mutual to stock form.
    (ii) The mutual holding company will send its members a proxy 
statement with detailed information on the proposed conversion before 
the mutual holding company convenes a members' meeting to vote on the 
conversion.
    (iii) The members will have an opportunity to approve or disapprove 
the proposed conversion at a meeting. At least a majority of the 
eligible votes must approve the conversion.
    (iv) The mutual holding company will not vote existing proxies to 
approve or disapprove the conversion. The mutual holding company will 
solicit new proxies for voting on the proposed conversion.
    (v) The Board must approve the conversion before the conversion will 
be

[[Page 162]]

effective. The members will have an opportunity to file written 
comments, including objections and materials supporting the objections, 
with the Board.
    (vi) The IRS must issue a favorable tax ruling, or a tax expert must 
issue an appropriate tax opinion, on the tax consequences of the 
conversion before the Board will approve the conversion. The ruling or 
opinion must indicate the conversion will be a tax-free reorganization.
    (vii) The Board might not approve the conversion, and the IRS or a 
tax expert might not issue a favorable tax ruling or tax opinion.
    (viii) Savings account holders will continue to hold accounts in the 
savings association with the same dollar amounts, rates of return, and 
general terms as existing deposits. The FDIC will continue to insure the 
accounts.
    (ix) The mutual holding company's conversion will not affect 
borrowers' loans, including the amount, rate, maturity, security, and 
other contractual terms.
    (x) The savings association's business of accepting deposits and 
making loans will continue without interruption.
    (xi) The current management and staff will continue to conduct 
current services for depositors and borrowers under current policies and 
in existing offices.
    (xii) The subsidiary savings association may continue to be a member 
of the Federal Home Loan Bank System.
    (xiii) The mutual holding company may substantively amend the 
proposed plan of conversion before the members' meeting.
    (xiv) The mutual holding company may terminate the proposed 
conversion.
    (xv) After the Board approves the proposed conversion, the mutual 
holding company will send proxy materials providing additional 
information. After the mutual holding company sends proxy materials, 
members may telephone or write to the mutual holding company with 
additional questions.
    (xvi) The proposed record date for determining the eligible account 
holders who are entitled to receive subscription rights to purchase the 
shares.
    (xvii) A brief description of the circumstances under which 
supplemental eligible account holders will receive subscription rights 
to purchase the shares.
    (xviii) A brief description of how voting members may participate in 
the conversion.
    (xix) A brief description of how directors, officers, and employees 
will participate in the conversion.
    (xx) A brief description of the proposed plan of conversion.
    (xxi) The par value (if any) and approximate number of shares that 
will be issued and sold in the conversion.
    (3) Other requirements.
    (i) The mutual holding company may not solicit proxies, provide 
financial statements, describe the benefits of conversion, or estimate 
the value of the shares upon conversion in the letter, notice, or press 
release.
    (ii) If the mutual holding company responds to inquiries about the 
conversion, it may address only the matters listed in paragraph (c)(2) 
of this section.
    (d) Amending a plan of conversion. The mutual holding company may 
amend its plan of conversion before it solicits proxies. After the 
mutual holding company solicits proxies, it may amend the plan of 
conversion only if the Board concurs.



Sec. 239.55  Filing requirements.

    (a) Applications under this subpart. Any filing with the Board 
required under this subpart must be filed in accordance with Sec. 238.14 
of this chapter. The Board will review any filing made under this 
subpart in accordance with Sec. 238.14 of this chapter.
    (b) Requirements. (1) The application for conversion must include 
all of the following information.
    (i) A plan of conversion meeting the requirements of Sec. 239.54(b).
    (ii) Pricing materials meeting the requirements paragraph (g)(2) of 
this section.
    (iii) Proxy soliciting materials under Sec. 239.57(d), including:
    (A) A preliminary proxy statement with signed financial statements;
    (B) A form of proxy meeting the requirements of Sec. 239.57(b); and
    (C) Any additional proxy soliciting materials, including press 
releases, personal solicitation instructions,

[[Page 163]]

radio or television scripts that the mutual holding company plans to use 
or furnish to the members, and a legal opinion indicating that any 
marketing materials comply with all applicable securities laws.
    (iv) An offering circular described in Sec. 239.58(a).
    (v) The documents and information required by Form AC. The mutual 
holding company may obtain Form AC from the appropriate Reserve Bank and 
the Board's Web site (http://www.federalreserve.gov).
    (vi) Where indicated, written consents, signed and dated, of any 
accountant, attorney, investment banker, appraiser, or other 
professional who prepared, reviewed, passed upon, or certified any 
statement, report, or valuation for use. See Form AC, instruction B(7).
    (vii) The business plan, submitted as a separately bound, 
confidential exhibit. See paragraph (c) of this section.
    (viii) Any additional information the Board requests.
    (2) The Board will not accept for filing, and will return, any 
application for conversion that is improperly executed, materially 
deficient, substantially incomplete, or that provides for unreasonable 
conversion expenses.
    (c) Filing an application for conversion. (1) The mutual holding 
company must file the application for conversion on Form AC with the 
appropriate Reserve Bank.
    (2) Upon receipt of an application under this subpart, the Reserve 
Bank will promptly furnish notice and a copy of the application to the 
primary federal supervisor of any subsidiary savings association. The 
primary supervisor will have 30 calendar days from the date of the 
letter giving notice in which to submit its views and recommendations to 
the Board.
    (d) Confidential treatment of portions of an application for 
conversion. (1) The Board makes all filings under this subpart available 
to the public, but may keep portions of the application for conversion 
confidential under paragraph (d)(2) of this section.
    (2) The mutual holding company may request the Board keep portions 
of the application confidential. To do so, the mutual holding company 
must separately bind and clearly designate as ``confidential'' any 
portion of the application for conversion that the mutual holding 
company deems confidential. The mutual holding company must provide a 
written statement specifying the grounds supporting the request for 
confidentiality. The Board will not treat as confidential the portion of 
the application describing how the mutual holding company plans to meet 
the Community Reinvestment Act (CRA) objectives. The CRA portion of the 
application may not incorporate by reference information contained in 
the confidential portion of the application.
    (3) The Board will determine whether confidential information must 
be made available to the public under 5 U.S.C. 552 and part 261 of this 
chapter. The Board will advise the mutual holding company before it 
makes information the mutual holding company designated as 
``confidential'' available to the public.
    (e) Amending an application for conversion. To amend an application 
for conversion, the mutual holding company must:
    (1) File an amendment with an appropriate facing sheet;
    (2) Number each amendment consecutively;
    (3) Respond to all issues raised by the Board; and
    (4) Demonstrate that the amendment conforms to all applicable 
regulations.
    (f) Notice of filing of application and comment process--(1) Public 
notice of an application for conversion. (i) The mutual holding company 
must publish a public notice of the application for conversion in 
accordance with the procedures in Sec. 238.14 of this chapter. The 
mutual holding company must simultaneously prominently post the notice 
in its home office and in all of the branch offices of its subsidiary 
savings associations.
    (ii) Promptly after publication, the mutual holding company must 
file a copy of any public notice and an affidavit of publication from 
each publisher with the appropriate Reserve Bank.
    (iii) If the Board does not accept the application for conversion 
under Sec. 239.55(g) and requires the mutual holding company to file a 
new application,

[[Page 164]]

the mutual holding company must publish and post a new notice and allow 
an additional 30 days for comment.
    (2) Public comments. Commenters may submit comments on the 
application in accordance with the procedures in Sec. 238.14 of this 
chapter. A commenter must file any comments with the appropriate Reserve 
Bank.
    (g) Board review of the application for conversion--(1) Board action 
on a conversion application. The Board may approve an application for 
conversion only if:
    (i) The conversion complies with this subpart;
    (ii) The mutual holding company will meet all applicable regulatory 
capital requirements after the conversion; and
    (iii) The conversion will not result in a taxable reorganization 
under the Internal Revenue Code of 1986, as amended.
    (2) Board review of appraisal. The Board will review the appraisal 
required by paragraph (b)(1)(ii) of this section in determining whether 
to approve the application. The Board will review the appraisal under 
the following requirements.
    (i) Independent persons experienced and expert in corporate 
appraisal, and acceptable to the Board, must prepare the appraisal 
report.
    (ii) An affiliate of the appraiser may serve as an underwriter or 
selling agent, if the mutual holding company ensures that the appraiser 
is separate from the underwriter or selling agent affiliate and the 
underwriter or selling agent affiliate does not make recommendations or 
affect the appraisal.
    (iii) The appraiser may not receive any fee in connection with the 
conversion other than for appraisal services.
    (iv) The appraisal report must include a complete and detailed 
description of the elements of the appraisal, a justification for the 
appraisal methodology, and sufficient support for the conclusions.
    (v) If the appraisal is based on a capitalization of the pro forma 
income, it must indicate the basis for determining the income to be 
derived from the sale of shares, and demonstrate that the earnings 
multiple used is appropriate, including future earnings growth 
assumptions.
    (vi) If the appraisal is based on a comparison of the shares with 
outstanding shares of existing stock associations, the existing stock 
associations must be reasonably comparable in size, market area, 
competitive conditions, risk profile, profit history, and expected 
future earnings.
    (vii) The Board may decline to process the application for 
conversion and deem it materially deficient or substantially incomplete 
if the initial appraisal report is materially deficient or substantially 
incomplete.
    (viii) The mutual holding company may not represent or imply that 
the Board has approved the appraisal.
    (3) Board review of compliance record. The Board will review the 
compliance record of the subsidiary savings association under the 
regulations applicable to the savings association and the business plan 
to determine how the conversion will affect the convenience and needs of 
its communities.
    (i) Based on this review, the Board may approve the application, 
deny the application, or approve the application on the condition that 
the resulting stock holding company will improve the CRA performance or 
will address the particular credit or lending needs of the communities 
that it will serve.
    (ii) The Board may deny the application if the business plan does 
not demonstrate that the proposed use of conversion proceeds will help 
the resulting stock holding company to meet the credit and lending needs 
of the communities that the resulting stock holding company will serve.
    (4) The Board may request that the mutual holding company amend the 
application if further explanation is necessary, material is missing, or 
material must be corrected.
    (5) The Board will deny the application if the application does not 
meet the requirements of this subpart, unless the Board waives the 
requirement under Sec. 239.50(c).
    (h) Judicial review. (1) Any person aggrieved by the Board's final 
action on the application for conversion may ask the court of appeals of 
the United States for the circuit in which the principal office or 
residence of such person is located, or the U.S. Court of Appeals for 
the District of Columbia

[[Page 165]]

Circuit, to review the action under 12 U.S.C. 1467a(j), which provisions 
shall apply in all respects as if such final action were an order, 
subject to paragraph (h)(2) of this section.
    (2) To obtain court review of the action, the aggrieved person must 
file a written petition requesting that the court modify, terminate, or 
set aside the final Board action. The aggrieved person must file the 
petition with the court within the later of 30 days after the Board 
publishes notice of its final action in the Federal Register or 30 days 
after the mutual holding company mails the proxy statement to its 
members under Sec. 239.56(c).



Sec. 239.56  Vote by members.

    (a) Mutual member approval of the plan of conversion. (1) After the 
Board approves the plan of conversion, the mutual holding company must 
submit the plan of conversion to its members for approval. The mutual 
holding company must obtain this approval at a meeting of its members.
    (2) The members must approve the plan of conversion by a majority of 
the total outstanding votes.
    (3) The members may vote in person or by proxy.
    (4) The mutual holding company may notify eligible account holders 
or supplemental eligible account holders who are not voting members of 
the proposed conversion. The mutual holding company may include only the 
information in Sec. 239.54(c) in the notice.
    (b) Eligibility to vote for the plan of conversion. The mutual 
holding company determines members' eligibility to vote by setting a 
voting record date. The mutual holding company must set a voting record 
date that is not more than 60 days nor less than 20 days before the 
meeting.
    (c) Notifying members of the meeting. The mutual holding company 
must notify the members of the meeting to consider the conversion by 
sending the members a proxy statement.
    (2) The mutual holding company must notify its members 20 to 45 days 
before the meeting.
    (3) The mutual holding company must also notify each beneficial 
holder of an account at any subsidiary savings association held in a 
fiduciary capacity:
    (i) If the subsidiary savings association is a federal association 
and the name of the beneficial holder is disclosed on the records of the 
subsidiary savings association; or
    (ii) If the subsidiary savings association is a state-chartered 
association and the beneficial holder possesses voting rights under 
state law.
    (d) Submissions to the Board after the members' meeting. (1) 
Promptly after the members' meeting, the mutual holding company must 
file all of the following information with the appropriate Reserve Bank:
    (i) A certified copy of each adopted resolution on the conversion.
    (ii) The total votes eligible to be cast.
    (iii) The total votes represented in person or by proxy.
    (iv) The total votes cast in favor of and against each matter.
    (v) The percentage of votes necessary to approve each matter.
    (vi) An opinion of counsel that the mutual holding company conducted 
the members' meeting in compliance with all applicable state or federal 
laws and regulations.
    (2) Promptly after completion of the conversion, the mutual holding 
company must submit to the appropriate Reserve Bank an opinion of 
counsel that the mutual holding company has complied with all laws 
applicable to the conversion.



Sec. 239.57  Proxy solicitation.

    (a) Applicability of proxy solicitation provisions. (1) The mutual 
holding company must comply with these proxy solicitation provisions 
when the mutual holding company provides proxy solicitation material to 
members for the meeting to vote on the plan of conversion.
    (2) Members of the mutual holding company must comply with these 
proxy solicitation provisions when they provide proxy solicitation 
materials to members for the meeting to vote on the conversion, pursuant 
to paragraph (f) of this section except where:
    (i) The member solicits 50 people or fewer and does not solicit 
proxies on

[[Page 166]]

behalf of the mutual holding company; or
    (ii) The member solicits proxies through newspaper advertisements 
after the board of directors adopts the plan of conversion. Any 
newspaper advertisements may include only the following information:
    (A) The name of the mutual holding company;
    (B) The reason for the advertisement;
    (C) The proposal or proposals to be voted upon;
    (D) Where a member may obtain a copy of the proxy solicitation 
material; and
    (E) A request for the members of the mutual holding company to vote 
at the meeting.
    (b) Form of proxy. The form of proxy must include all of the 
following:
    (1) A statement in bold face type stating that management is 
soliciting the proxy.
    (2) Blank spaces where the member must date and sign the proxy.
    (3) Clear and impartial identification of each matter or group of 
related matters that members will vote upon. It must include any 
proposed charitable contribution as an item to be voted on separately.
    (4) The phrase ``Revocable Proxy'' in bold face type (at least 18 
point).
    (5) A description of any charter or state law requirement that 
restricts or conditions votes by proxy.
    (6) An acknowledgment that the member received a proxy statement 
before he or she signed the form of proxy.
    (7) The date, time, and the place of the meeting, when available.
    (8) A way for the member to specify by ballot whether he or she 
approves or disapproves of each matter that members will vote upon.
    (9) A statement that management will vote the proxy in accordance 
with the member's specifications.
    (10) A statement in bold face type indicating how management will 
vote the proxy if the member does not specify a choice for a matter.
    (c) Permissible use of proxies. (1) The mutual holding company may 
not use previously executed proxies for the plan of conversion vote. If 
members consider the plan of conversion at an annual meeting, the mutual 
holding company may vote proxies obtained through other proxy 
solicitations only on matters not related to the plan of conversion.
    (2) The mutual holding company may vote a proxy obtained under this 
subpart on matters that are incidental to the conduct of the meeting. 
The mutual holding company or its management may not vote a proxy 
obtained under this subpart at any meeting other than the meeting (or 
any adjournment of the meeting) to vote on the plan of conversion.
    (d) Proxy statement requirements--(1) Content requirements. The 
mutual holding company must prepare the proxy statement in compliance 
with this subpart and Form PS. The mutual holding company may obtain 
Form PS from the appropriate Reserve Bank and the Board's Web site 
(http://www.federalreserve.gov).
    (2) Other requirements. (i) The Board will review the proxy 
solicitation material in its review of the application for conversion.
    (ii) The mutual holding company must provide a written proxy 
statement to the members before or at the same time the mutual holding 
company provides any other soliciting material. The mutual holding 
company must mail proxy solicitation material to the members no later 
than ten days after the Board approves the conversion.
    (e) Filing revised proxy materials. (1) The mutual holding company 
must file revised proxy materials as an amendment to the application for 
conversion.
    (2) To revise the proxy solicitation materials, the mutual holding 
company must file:
    (i) Revised proxy materials as required by Form PS;
    (ii) Revised form of proxy, if applicable; and
    (iii) Any additional proxy solicitation material subject to 
paragraph (d) of this section.
    (3) The mutual holding company must clearly indicate changes from 
the prior filing.
    (4) The mutual holding company must file a definitive copy of all 
proxy solicitation material, in the form in which the mutual holding 
company furnishes the material to the members.

[[Page 167]]

The mutual holding company must file no later than the date that it 
sends or gives the proxy solicitation material to the members. The 
mutual holding company must indicate the date that it plans to release 
the materials.
    (5) Unless the Board requests the mutual holding company to do so, 
the mutual holding company does not have to file copies of replies to 
inquiries from the members or copies of communications that merely 
request members to sign and return proxy forms.
    (f) Mailing proxy solicitation material. (1) The mutual holding 
company must mail the member's proxy solicitation material if:
    (i) The board of directors adopted a plan of conversion;
    (ii) A member requests in writing that the mutual holding company 
mail the proxy solicitation material; and
    (iii) The member agrees to defray reasonable expenses of the mutual 
holding company.
    (2) As soon as practicable after the mutual holding company receives 
a request under paragraph (f)(1) of this section, the mutual holding 
company must mail or otherwise furnish the following information to the 
member:
    (i) The approximate number of members that the mutual holding 
company solicited or will solicit, or the approximate number of members 
of any group of account holders that the member designates; and
    (ii) The estimated cost of mailing the proxy solicitation material 
for the member.
    (3) The mutual holding company must mail proxy solicitation material 
to the designated members promptly after the member furnishes the 
materials, envelopes (or other containers), and postage (or payment for 
postage) to the mutual holding company.
    (4) The mutual holding company is not responsible for the content of 
a member's proxy solicitation material.
    (5) A member may furnish other members its own proxy solicitation 
material, subject to the rules in this section.
    (g) Prohibited solicitations. (1) False or misleading statements. 
(i) No one may use proxy solicitation material for the members' meeting 
if the material contains any statement which, considering the time and 
the circumstances of the statement:
    (A) Is false or misleading with respect to any material fact;
    (B) Omits any material fact that is necessary to make the statements 
not false or misleading; or
    (C) Omits any material fact that is necessary to correct a statement 
in an earlier communication that has become false or misleading.
    (ii) No one may represent or imply that the Board determined that 
the proxy solicitation material is accurate, complete, not false or not 
misleading, or passed upon the merits of or approved any proposal.
    (2) Other prohibited solicitations. No person may solicit:
    (i) An undated or post-dated proxy;
    (ii) A proxy that states it will be dated after the date it is 
signed by a member;
    (iii) A proxy that is not revocable at will by the member; or
    (iv) A proxy that is part of another document or instrument.
    (3) If a solicitation violates this section, the Board may require 
remedial measures, including:
    (i) Correction of the violation by a retraction and a new 
solicitation;
    (ii) Rescheduling the members' meeting; or
    (iii) Any other actions necessary to ensure a fair vote.
    (4) The Board may also bring an enforcement action against the 
violator for violations of this section.
    (h) Re-soliciting proxies. If the mutual holding company amends its 
application for conversion, the Board may require it to re-solicit 
proxies for the members' meeting as a condition of approval of the 
amendment.



Sec. 239.58  Offering circular.

    (a) Filing requirements. (1) The mutual holding company must prepare 
and file the offering circular with the appropriate Reserve Bank in 
compliance with this subpart and Form OC. The mutual holding company may 
obtain Form OC from the Reserve Bank and the Board's Web site (http://
www.federalreserve.gov).
    (2) The mutual holding company must condition the stock offering 
upon

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member approval of the plan of conversion.
    (3) The Board will review the Form OC and may comment on the 
included disclosures and financial statements.
    (4) The mutual holding company must file a revised offering 
circular, final offering circular, and any post-effective amendment to 
the final offering circular.
    (5) The Board will not approve the adequacy or accuracy of the 
offering circular or the disclosures.
    (b) Distribution of the offering circular. (1) The mutual holding 
company may distribute a preliminary offering circular at the same time 
as or after the mutual holding company mails the proxy statement to its 
members.
    (2) The mutual holding company must distribute the offering circular 
in accordance with this subpart and with all applicable securities laws.
    (3) The mutual holding company must distribute the offering circular 
to persons listed in the plan of conversion no later than ten days after 
the Board approves the conversion.
    (c) Post-effective amendments to the offering circular. (1) The 
mutual holding company must file a post-effective amendment to the 
offering circular with the Board when a material event or change of 
circumstance occurs.
    (2) After the Securities and Exchange Commission declares the post-
effective amendment effective, the mutual holding company must 
immediately deliver the amendment to each person who subscribed for or 
ordered shares in the offering.
    (3) The post-effective amendment must indicate that each person may 
increase, decrease, or rescind their subscription or order.
    (4) The post-effective offering period must remain open no less than 
10 days nor more than 20 days, unless the Board approves a longer 
rescission period.



Sec. 239.59  Offers and sales of stock.

    (a) Purchase priorities. The mutual holding company must offer to 
sell the conversion shares in the following order:
    (1) Eligible account holders.
    (2) Tax-qualified employee stock ownership plans.
    (3) Supplemental eligible account holders.
    (4) Other voting members who have subscription rights.
    (5) The community, the community and the general public, or the 
general public.
    (b) Offering conversion shares. (1) The mutual holding company may 
offer to sell the conversion shares if the Board approves the 
conversion, subject to compliance with requirements of the Securities 
and Exchange Commission.
    (2) The offer may commence at the same time as the proxy 
solicitation of the members begins.
    (c) Pricing conversion shares. (1) The conversion shares must be 
sold at a uniform price per share and at a total price that is equal to 
the estimated pro forma market value of the shares after conversion.
    (2) The maximum price must be no more than 15 percent above the 
midpoint of the estimated price range in the offering circular.
    (3) The minimum price must be no more than 15 percent below the 
midpoint of the estimated price range in the offering circular.
    (4) If the Board permits, the maximum price of conversion shares 
sold may be increased. The maximum price, as adjusted, must be no more 
than 15 percent above the maximum price computed under paragraph (c)(2) 
of this section.
    (5) The maximum price must be between $5 and $50 per share.
    (6) The mutual holding company must include the estimated price in 
any preliminary offering circular.
    (d) Selling conversion shares. (1) The mutual holding company must 
distribute order forms to all eligible account holders, supplemental 
eligible account holders, and other voting members to enable them to 
subscribe for the conversion shares they are permitted under the plan of 
conversion. The mutual holding company may either send the order forms 
with the offering circular or after it distributes the offering 
circular.
    (2) The mutual holding company may sell the conversion shares in a 
community offering, a public offering, or both. The mutual holding 
company may

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begin the community offering, the public offering, or both at any time 
during the subscription offering or upon conclusion of the subscription 
offering.
    (3) The mutual holding company may pay underwriting commissions 
(including underwriting discounts). The Board may object to the payment 
of unreasonable commissions. The mutual holding company may reimburse an 
underwriter for accountable expenses in a subscription offering if the 
public offering is limited. If no public offering occurs, the mutual 
holding company may pay an underwriter a consulting fee. The Board may 
object to the payment of unreasonable consulting fees.
    (4) If the mutual holding company conducts the community offering, 
the public offering, or both at the same time as the subscription 
offering, it must fill all subscription orders first.
    (5) The mutual holding company must prepare the order form in 
compliance with this subpart and Form OF. The mutual holding company may 
obtain Form OF from the Reserve Bank and from the Board's Web site 
(www.federalreserve.gov).
    (e) Prohibited sales practices. (1) In connection with offers, 
sales, or purchases of conversion shares under this subpart, the mutual 
holding company and its directors, officers, agents, or employees may 
not:
    (i) Employ any device, scheme, or artifice to defraud;
    (ii) Obtain money or property by means of any untrue statement of a 
material fact or any omission of a material fact necessary to make the 
statements, in light of the circumstances under which they were made, 
not misleading; or
    (iii) Engage in any act, transaction, practice, or course of 
business that operates or would operate as a fraud or deceit upon a 
purchaser or seller.
    (2) During the conversion, no person may:
    (i) Transfer, or enter into any agreement or understanding to 
transfer, the legal or beneficial ownership of subscription rights for 
the conversion shares or the underlying securities to the account of 
another;
    (ii) Make any offer, or any announcement of an offer, to purchase 
any of the conversion shares from anyone but the mutual holding company; 
or
    (iii) Knowingly acquire more than the maximum purchase allowable 
under the plan of conversion.
    (3) The restrictions in paragraphs (e)(2)(i) and (e)(2)(ii) of this 
section do not apply to offers for more than 10 percent of any class of 
conversion shares by:
    (i) An underwriter or a selling group, acting on behalf of the 
mutual holding company or resulting stock holding company, that makes 
the offer with a view toward public resale; or
    (ii) One or more of the tax-qualified employee stock ownership plans 
so long as the plan or plans do not beneficially own more than 25 
percent of any class of the equity securities in the aggregate.
    (4) Any person that violates the restrictions in paragraphs 
(e)(2)(i) and (e)(2)(ii) of this section may face prosecution or other 
legal action.
    (f) Payment for conversion shares. (1) A subscriber may purchase 
conversion shares with cash, by a withdrawal from a savings account, or 
a withdrawal from a certificate of deposit. If a subscriber purchases 
conversion shares by a withdrawal from a certificate of deposit, the 
mutual holding company or its subsidiary savings association may not 
assess a penalty for the withdrawal.
    (2) The mutual holding company may not extend credit to any person 
to purchase the conversion shares.
    (g) Interest on payments for conversion shares. (1) The mutual 
holding company or its subsidiary savings association must pay interest 
from the date it receives a payment for conversion shares until the date 
it completes or terminates the conversion. The mutual holding company or 
its subsidiary savings association must pay interest at no less than the 
passbook rate for amounts paid in cash, check, or money order.
    (2) If a subscriber withdraws money from a savings account to 
purchase conversion shares, the mutual holding

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company or its subsidiary savings association must pay interest on the 
payment until the mutual holding company completes or terminates the 
conversion as if the withdrawn amount remained in the account.
    (3) If a depositor fails to maintain the applicable minimum balance 
requirement because he or she withdraws money from a certificate of 
deposit to purchase conversion shares, the mutual holding company or its 
subsidiary savings association may cancel the certificate and pay 
interest at no less than the passbook rate on any remaining balance.
    (h) Subscription rights for each eligible account holder and each 
supplemental eligible account holder. (1) The mutual holding company 
must give each eligible account holder subscription rights to purchase 
conversion shares in an amount equal to the greater of:
    (i) The maximum purchase limitation established for the community 
offering or the public offering under paragraph (p) of this section;
    (ii) One-tenth of one percent of the total stock offering; or
    (iii) Fifteen times the following number: The total number of 
conversion shares that the mutual holding company will issue, multiplied 
by the following fraction: the numerator is the total qualifying deposit 
of the eligible account holder, and the denominator is the total 
qualifying deposits of all eligible account holders. The mutual holding 
company must round down the product of this multiplied fraction to the 
next whole number.
    (2) The mutual holding company must give subscription rights to 
purchase shares to each supplemental eligible account holder in the same 
amount as described in paragraph (h)(1) of this section, except that the 
mutual holding company must compute the fraction described in paragraph 
(h)(1)(iii) of this section as follows: the numerator is the total 
qualifying deposit of the supplemental eligible account holder, and the 
denominator is the total qualifying deposits of all supplemental 
eligible account holders.
    (i) Officers, directors, and their associates as eligible account 
holders. The officers, directors, and their associates of the mutual 
holding company and subsidiary savings association may be eligible 
account holders. However, if an officer, director, or his or her 
associate receives subscription rights based on increased deposits in 
the year before the eligibility record date, the mutual holding company 
must subordinate subscription rights for these deposits to subscription 
rights exercised by other eligible account holders.
    (j) Other voting members eligible to purchase conversion shares. (1) 
The mutual holding company must give rights to purchase the conversion 
shares in the conversion to voting members who are neither eligible 
account holders nor supplemental eligible account holders. The mutual 
holding company must allocate rights to each voting member that are 
equal to the greater of:
    (i) The maximum purchase limitation established for the community 
offering and the public offering under paragraph (p) of this section; or
    (ii) One-tenth of one percent of the total stock offering.
    (2) The mutual holding company must subordinate the voting members' 
rights to the rights of eligible account holders, tax-qualified employee 
stock ownership plans, and supplemental eligible account holders.
    (k) Purchase limitations for officers, directors, and their 
associates. (1) When the mutual holding company converts, the officers, 
directors, and their associates of the mutual holding company and 
subsidiary savings association may not purchase, in the aggregate, more 
than the following percentage of the total stock offering:

------------------------------------------------------------------------
                                                            Officer and
                                                             director
                    Institution size                         purchases
                                                             (percent)
------------------------------------------------------------------------
$50,000,000 or less.....................................              35
$50,000,001-100,000,000.................................              34
$100,000,001-150,000,000................................              33
$150,000,001-200,000,000................................              32
$200,000,001-250,000,000................................              31
$250,000,001-300,000,000................................              30
$300,000,001-350,000,000................................              29
$350,000,001-400,000,000................................              28
$400,000,001-450,000,000................................              27
$450,000,001-500,000,000................................              26
Over $500,000,000.......................................              25
------------------------------------------------------------------------

    (2) The purchase limitations in this section do not apply to shares 
held in tax-qualified employee stock benefit plans that are attributable 
to the officers, directors, and their associates.

[[Page 171]]

    (l) Allocating conversion shares in the event of oversubscription. 
(1) If the conversion shares are oversubscribed by the eligible account 
holders, the mutual holding company must allocate shares among the 
eligible account holders so that each, to the extent possible, may 
purchase 100 shares.
    (2) If the conversion shares are oversubscribed by the supplemental 
eligible account holders, the mutual holding company must allocate 
shares among the supplemental eligible account holders so that each, to 
the extent possible, may purchase 100 shares.
    (3) If a person is an eligible account holder and a supplemental 
eligible account holder, the mutual holding company must include the 
eligible account holder's allocation in determining the number of 
conversion shares that the mutual holding company may allocate to the 
person as a supplemental eligible account holder.
    (4) For conversion shares that the mutual holding company does not 
allocate under paragraphs (l)(1) and (l)(2) of this section, the mutual 
holding company must allocate the shares among the eligible or 
supplemental eligible account holders equitably, based on the amounts of 
qualifying deposits. The mutual holding company must describe this 
method of allocation in its plan of conversion.
    (5) If shares remain after the mutual holding company has allocated 
shares as provided in paragraphs (l)(1) and (l)(2) of this section, and 
if the voting members oversubscribe, the mutual holding company must 
allocate the conversion shares among those members equitably. The mutual 
holding company must describe the method of allocation in its plan of 
conversion.
    (m) Employee stock ownership plan purchase of conversion shares. (1) 
The tax-qualified employee stock ownership plan of the mutual holding 
company may purchase up to 10 percent of the total offering of the 
conversion shares.
    (2) If the Board approves a revised stock valuation range as 
described in paragraph (c)(5) of this section, and the final conversion 
stock valuation range exceeds the former maximum stock offering range, 
the mutual holding company may allocate conversion shares to the tax-
qualified employee stock ownership plan, up to the 10 percent limit in 
paragraph (m)(1) of this section.
    (3) If the tax-qualified employee stock ownership plan is not able 
to or chooses not to purchase stock in the offering, it may, with prior 
Board approval and appropriate disclosure in the offering circular, 
purchase stock in the open market, or purchase authorized but unissued 
conversion shares.
    (4) The mutual holding company may include stock contributed to a 
charitable organization in the conversion in the calculation of the 
total offering of conversion shares under paragraphs (m)(1) and (m)(2) 
of this section, unless the Board objects on supervisory grounds.
    (n) Purchase limitations. (1) The mutual holding company may limit 
the number of shares that any person, group of associated persons, or 
persons otherwise acting in concert, may subscribe to up to five percent 
of the total stock sold.
    (2) If the mutual holding company sets a limit of five percent under 
paragraph (n)(1) of this section, it may modify that limit with Board 
approval to provide that any person, group of associated persons, or 
persons otherwise acting in concert subscribing for five percent, may 
purchase between five and ten percent as long as the aggregate amount 
that the subscribers purchase does not exceed 10 percent of the total 
stock offering.
    (3) The mutual holding company may require persons exercising 
subscription rights to purchase a minimum number of conversion shares. 
The minimum number of shares must equal the lesser of the number of 
shares obtained by a $500 subscription or 25 shares.
    (4) In setting purchase limitations under this section, the mutual 
holding company may not aggregate conversion shares attributed to a 
person in the tax-qualified employee stock ownership plan with shares 
purchased directly by, or otherwise attributable to, that person.
    (o) Purchase preference for persons in the local community. (1) In 
the subscription offering, subject to the purchase priorities set forth 
in paragraph (a) of this section, the mutual holding company may give a 
purchase preference to

[[Page 172]]

eligible account holders, supplemental eligible account holders, and 
voting members residing in the local community.
    (2) In the community offering, the mutual holding company must give 
a purchase preference to natural persons residing in the local 
community.
    (p) Conditions on community offerings and public offerings. (1) If 
the mutual holding company offers conversion shares in a community 
offering, a public offering, or both, it must offer and sell the stock 
to achieve a widespread distribution of the stock.
    (2) If the mutual holding company offers shares in a community 
offering, a public offering, or both, it must first fill orders for the 
stock up to a maximum of two percent of the conversion stock on a basis 
that will promote a widespread distribution of stock. The mutual holding 
company must allocate any remaining shares on an equal number of shares 
per order basis until it fills all orders.



Sec. 239.60  Completion of the offering.

    (a) Deadline for completing the sale of stock. The mutual holding 
company must complete all sales of the stock within 45 calendar days 
after the last day of the subscription period, unless the offering is 
extended under paragraph (b) of this section.
    (b) Offering period extension. (1) The mutual holding company must 
request, in writing, an extension of any offering period.
    (2) The Board may grant extensions of time to sell the shares. The 
Board will not grant any single extension of more than 90 days.
    (3) If the Board grants the request for an extension of time, the 
mutual holding company must provide a post-effective amendment to the 
offering circular under Sec. 239.58(c) to each person who subscribed for 
or ordered stock. The amendment must indicate that the Board extended 
the offering period and that each person who subscribed for or ordered 
stock may increase, decrease, or rescind their subscription or order 
within the time remaining in the extension period.



Sec. 239.61  Completion of the conversion.

    (a) Completion of the conversion. (1) In the plan of conversion, the 
mutual holding company must set a date by which the conversion must be 
completed. This date must not be more than 24 months from the date that 
the members approve the plan of conversion. The date, once set, may not 
be extended by the mutual holding company or by the Board. The mutual 
holding company must terminate the conversion if it is not completed by 
that date.
    (2) The conversion is complete on the date that the mutual holding 
company accepts the offers for stock of the resulting stock holding 
company.
    (b) Termination of the conversion. (1) The members may terminate the 
conversion by failing to approve the conversion at the members' meeting.
    (2) The mutual holding company may terminate the conversion before 
the members' meeting.
    (3) The mutual holding company may terminate the conversion after 
the members' meeting only if the Board concurs.
    (c) Voting rights for stockholders following conversion. The 
resulting stock holding company must provide the stockholders with 
exclusive voting rights.
    (d) Rights of savings account holders. The resulting stock holding 
company must provide a liquidation account for each eligible and 
supplemental eligible account holder under Sec. 239.62(a)(1)-(3).



Sec. 239.62  Liquidation accounts.

    (a) Liquidation account. (1) A liquidation account represents the 
potential interest of eligible account holders and supplemental eligible 
account holders in the mutual holding company's net worth at the time of 
conversion. The resulting stock holding company must maintain a sub-
account to reflect the interest of each account holder.
    (2) Before the resulting stock holding company may provide a 
liquidation distribution to common stockholders, the resulting stock 
holding company must give a liquidation distribution to those eligible 
account holders and supplemental eligible account holders who hold 
savings accounts from the time of conversion until liquidation.

[[Page 173]]

    (3) The resulting stock holding company may not record the 
liquidation account in the financial statements. The resulting stock 
holding company must disclose the liquidation account in the footnotes 
to the financial statements.
    (4) The initial balance of the liquidation account is the net worth 
in the statement of financial condition included in the final offering 
circular.
    (b) Liquidation sub-accounts. (1)(i) The resulting stock holding 
company determines the initial sub-account balance for a savings account 
held by an eligible account holder by multiplying the initial balance of 
the liquidation account by the following fraction: The numerator is the 
qualifying deposit in the savings account on the eligibility record 
date. The denominator is total qualifying deposits of all eligible 
account holders on that date.
    (ii) The resulting stock holding company determines the initial sub-
account balance for a savings account held by a supplemental eligible 
account holder by multiplying the initial balance of the liquidation 
account by the following fraction: The numerator is the qualifying 
deposit in the savings account on the supplemental eligibility record 
date. The denominator is total qualifying deposits of all supplemental 
eligible account holders on that date.
    (iii) If an account holder holds a savings account on the 
eligibility record date and a separate savings account on the 
supplemental eligibility record date, the resulting stock holding 
company must compute separate sub-accounts for the qualifying deposits 
in the savings account on each record date.
    (2) The resulting stock holding company may not increase the initial 
sub-account balances. The resulting stock holding company must decrease 
the initial balance under Sec. 239.62(d) as depositors reduce or close 
their accounts.
    (c) Retention of voting rights based on liquidation sub-accounts. 
Eligible account holders or supplemental eligible account holders do not 
retain any voting rights based on their liquidation sub-accounts.
    (d) Adjusting liquidation sub-accounts. (1)(i) The resulting stock 
holding company must reduce the balance of an eligible account holder's 
or supplemental eligible account holder's sub-account if the deposit 
balance in the account holder's savings account at the close of business 
on any annual closing date, which for purposes of this section is the 
fiscal year end, after the relevant eligibility record dates is less 
than:
    (A) The deposit balance in the account holder's savings account at 
the close of business on any other annual closing date after the 
relevant eligibility record date; or
    (B) The qualifying deposits in the account holder's savings account 
on the relevant eligibility record date.
    (ii) The reduction must be proportionate to the reduction in the 
deposit balance.
    (2) If the resulting stock holding company reduces the balance of a 
liquidation sub-account, the resulting stock holding company may not 
subsequently increase it if the deposit balance increases.
    (3) The resulting stock holding company is not required to adjust 
the liquidation account and sub-account balances at each annual closing 
date if it maintains sufficient records to make the computations if a 
liquidation subsequently occurs.
    (4) The resulting stock holding company must maintain the 
liquidation sub-account for each account holder as long as the account 
holder maintains an account with the same social security number or tax 
identification number, as applicable.
    (5) If there is a complete liquidation, the resulting stock holding 
company must provide each account holder with a liquidation distribution 
in the amount of the sub-account balance.
    (e) Liquidation defined. (1) For purposes of this subpart, a 
liquidation is a sale of the assets and settlement of the liabilities 
with the intent to cease operations and close. Upon liquidation, the 
resulting stock holding company must return the charter to the 
governmental agency that issued it. The government agency must cancel 
the charter.
    (2) A merger, consolidation, or similar combination or transaction 
with another depository institution, is not a liquidation. If the 
resulting stock holding company is involved in such a

[[Page 174]]

transaction, the surviving institution must assume the liquidation 
account.
    (f) Effect of liquidation on net worth. The liquidation account does 
not affect the net worth.



Sec. 239.63  Post-conversion.

    (a) Management stock benefit plans. (1) During the 12 months after 
the conversion, the resulting stock holding company may implement a 
stock option plan (Option Plan), an employee stock ownership plan or 
other tax-qualified employee stock benefit plan (collectively, ESOP), 
and a management recognition plan (MRP), provided the resulting stock 
holding company meets all of the following requirements.
    (i) The resulting stock holding company discloses the plans in the 
proxy statement and offering circular and indicates in the offering 
circular that there will be a separate shareholder vote on the Option 
Plan and the MRP at least six months after the conversion. No 
shareholder vote is required to implement the ESOP. The ESOP must be 
tax-qualified.
    (ii) The Option Plan does not exceed more than ten percent of the 
number of shares that the resulting stock holding company issued in the 
conversion.
    (iii)(A) The ESOP and MRP do not exceed, in the aggregate, more than 
ten percent of the number of shares that the resulting stock holding 
company issued in the conversion. If the resulting stock holding company 
has tangible capital of ten percent or more following the conversion, 
the Board may permit the ESOP and MRP to represent, in the aggregate, up 
to 12 percent of the number of shares issued in the conversion; and
    (B) The MRP does not exceed more than three percent of the number of 
shares that the resulting stock holding company issued in the 
conversion. If the resulting stock holding company has tangible capital 
of ten percent or more after the conversion, the Board may permit the 
MRP to represent up to four percent of the number of shares that the 
resulting stock holding company issued in the conversion.
    (iv) No individual receives more than 25 percent of the shares under 
any plan.
    (v) The directors who are not the officers do not receive more than 
five percent of the shares of the MRP or Option Plan individually, or 30 
percent of any such plan in the aggregate.
    (vi) The shareholders approve each of the Option Plan and the MRP by 
a majority of the total votes eligible to be cast at a duly called 
meeting before the resulting stock holding company establishes or 
implements the plan. The resulting stock holding company may not hold 
this meeting until six months after the conversion.
    (vii) When the resulting stock holding company distributes proxies 
or related material to shareholders in connection with the vote on a 
plan, the resulting stock holding company states that the plan complies 
with Board regulations and that the Board does not endorse or approve 
the plan in any way. The resulting stock holding company may not make 
any written or oral representations to the contrary.
    (viii) The resulting stock holding company does not grant stock 
options at less than the market price at the time of grant.
    (ix) The resulting stock holding company does not fund the Option 
Plan or the MRP at the time of the conversion.
    (x) The plan does not begin to vest earlier than one year after 
shareholders approve the plan, and does not vest at a rate exceeding 20 
percent per year.
    (xi) The plan permits accelerated vesting only for disability or 
death, or if the resulting stock holding company undergoes a change of 
control.
    (xii) The plan provides that the executive officers or directors 
must exercise or forfeit their options in the event the institution 
becomes critically undercapitalized under the applicable regulatory 
capital requirements, is subject to Board enforcement action, or 
receives a capital directive under Sec. 263.83 of this chapter.
    (xiii) The resulting stock holding company files a copy of the 
proposed Option Plan or MRP with the Board and certifies to the Board 
that the plan approved by the shareholders is the same plan that the 
resulting stock holding company filed with, and disclosed in, the proxy 
materials distributed to shareholders in connection with the vote on the 
plan.

[[Page 175]]

    (xiv) The resulting stock holding company files the plan and the 
certification with the Board within five calendar days after the 
shareholders approve the plan.
    (2) The resulting stock holding company may provide dividend 
equivalent rights or dividend adjustment rights to allow for stock 
splits or other adjustments to the stock in the ESOP, MRP, and Option 
Plan.
    (3) The restrictions in paragraph (a)(1) of this section do not 
apply to plans implemented more than 12 months after the conversion, 
provided that materials pertaining to any shareholder vote regarding 
such plans are not distributed within the 12 months after the 
conversion. If a plan adopted in conformity with paragraph (a)(1) of 
this section is amended more than 12 months following the conversion, 
the shareholders must ratify any material deviations to the requirements 
in paragraph (a)(1) of this section.
    (b) Restrictions on the sale of conversion shares by directors, 
officers, and their associates. (1) Directors and officers who purchase 
conversion shares may not sell the shares for one year after the date of 
purchase, except that in the event of the death of the officer or 
director, the successor in interest may sell the shares.
    (2) The resulting stock holding company must include notice of the 
restriction described in paragraph (b)(1) of this section on each 
certificate of stock that a director or officer purchases during the 
conversion or receives in connection with a stock dividend, stock split, 
or otherwise with respect to such restricted shares.
    (3) The resulting stock holding company must instruct the stock 
transfer agent about the transfer restrictions in this section.
    (4) For three years after the resulting stock holding company 
converts, the officers, directors, and their associates may purchase 
stock of the resulting stock holding company only from a broker or 
dealer registered with the Securities and Exchange Commission. However, 
the officers, directors, and their associates may engage in a negotiated 
transaction involving more than one percent of the outstanding stock, 
and may purchase stock through any of the management or employee stock 
benefit plans.
    (c) Repurchase of conversion shares. (1) The resulting stock holding 
company may not repurchase its shares in the first year after the 
conversion except:
    (i) In extraordinary circumstances, the resulting stock holding 
company may make open market repurchases of up to five percent of the 
outstanding stock in the first year after the conversion if the 
resulting stock holding company files a notice under paragraph (d)(1) of 
this section and the Board does not disapprove the repurchase. The Board 
will not approve such repurchases unless the repurchase meets the 
standards in paragraph (d)(3) of this section, and the repurchase is 
consistent with paragraph (c)(3) of this section.
    (ii) The resulting stock holding company may repurchase qualifying 
shares of a director or conduct a Board approved repurchase pursuant to 
an offer made to all shareholders of the stock holding company.
    (iii) Repurchases to fund management recognition plans that have 
been ratified by shareholders do not count toward the repurchase 
limitations in this section. Repurchases in the first year to fund such 
plans require prior written notification to the Board.
    (iv) Purchases to fund tax qualified employee stock benefit plans do 
not count toward the repurchase limitations in this section.
    (2) After the first year, the resulting stock holding company may 
repurchase the shares, subject to all other applicable regulatory and 
supervisory restrictions and paragraph (c)(3) of this section.
    (3) All stock repurchases are subject to the following restrictions.
    (i) The resulting stock holding company may not repurchase the 
shares if the repurchase will reduce its applicable capital levels below 
the amount required for the liquidation account under Sec. 239.62(a). 
The resulting stock holding company must comply with the capital 
distribution requirements of this subpart.
    (ii) The restrictions on share repurchases apply to a charitable 
organization under Sec. 239.64(b). The resulting stock holding company 
must aggregate

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purchases of shares by the charitable organization with the repurchases.
    (d) Board review of repurchase of conversion shares. (1) To 
repurchase stock in the first year following conversion, other than 
repurchases under paragraphs (c)(1)(iii) or (c)(1)(iv) of this section, 
the resulting stock holding company must file a written notice with the 
appropriate Reserve Bank. The resulting stock holding company must 
provide the following information:
    (i) The proposed repurchase program;
    (ii) The effect of the repurchases on the regulatory capital and 
other capital levels; and
    (iii) The purpose of the repurchases and, if applicable, an 
explanation of the extraordinary circumstances necessitating the 
repurchases.
    (2) The resulting stock holding company must file the notice with 
the appropriate Reserve Bank at least thirty days before the resulting 
stock holding company begins the repurchase program. The Board may 
extend its review of the notice for an additional sixty days.
    (3) The resulting stock holding company may not repurchase the 
shares if the Board objects to the repurchase program. The Board will 
not object to the repurchase program if:
    (i) The repurchase program will not adversely affect the financial 
condition of the resulting savings association;
    (ii) The resulting stock holding company submits sufficient 
information to evaluate the proposed repurchases;
    (iii) The resulting stock holding company demonstrate extraordinary 
circumstances and a compelling and valid business purpose for the share 
repurchases; and
    (iv) The repurchase program would not be contrary to other 
applicable regulations.
    (e) Declaring and paying dividends following conversion. The 
resulting stock holding company may declare or pay a dividend on its 
shares after it converts if:
    (1) The dividend will not reduce the regulatory capital below the 
amount required for the liquidation account under Sec. 239.62(a);
    (2) The resulting stock holding company complies with all applicable 
regulatory capital requirements after it declares or pays dividends;
    (3) The resulting stock holding company complies with the capital 
distribution requirements under this subpart; and
    (4) The resulting stock holding company does not return any capital, 
other than ordinary dividends, to purchasers during the term of the 
business plan submitted with the conversion.
    (f) Eligibility to acquire shares after conversion. (1) For three 
years after the resulting stock holding company converts, no person may, 
directly or indirectly, acquire or offer to acquire the beneficial 
ownership of more than ten percent of any class of the equity securities 
without the Board's prior written approval. If a person violates this 
prohibition, the resulting stock holding company may not permit the 
person to vote shares in excess of ten percent, and may not count the 
shares in excess of ten percent in any shareholder vote.
    (2) A person acquires beneficial ownership of more than ten percent 
of a class of shares when he or she holds any combination of the stock 
or revocable or irrevocable proxies under circumstances that give rise 
to a conclusive control determination or rebuttable control 
determination under Secs. 238.21(a) and (d) of this chapter. The Board 
will presume that a person has acquired shares if the acquiror entered 
into a binding written agreement for the transfer of shares. For 
purposes of this section, an offer is made when it is communicated. An 
offer does not include non-binding expressions of understanding or 
letters of intent regarding the terms of a potential acquisition.
    (3) Notwithstanding the restrictions in this section:
    (i) Paragraphs (f)(1) and (f)(2) of this section do not apply to any 
offer with a view toward public resale made exclusively to the resulting 
stock holding company, to the underwriters, or to a selling group acting 
on behalf of the resulting savings association.
    (ii) Unless the Board objects in writing, any person may offer or 
announce an offer to acquire up to one percent of any class of shares. 
In computing the one percent limit, the person must include all of his 
or her acquisitions of

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the same class of shares during the prior 12 months.
    (iii) A corporation whose ownership is, or will be, substantially 
the same as the ownership may acquire or offer to acquire more than ten 
percent of the common stock, if it makes the offer or acquisition more 
than one year after the resulting stock holding company converts.
    (iv) One or more of the tax-qualified employee stock benefit plans 
may acquire the shares, if the plan or plans do not beneficially own 
more than 25 percent of any class of shares of the resulting savings 
association in the aggregate.
    (v) An acquiror does not have to file a separate application to 
obtain Board approval under paragraph (f)(1) of this section, if the 
acquiror files an application under part 238 of this chapter that 
specifically addresses the criteria listed under paragraph (f)(4) of 
this section and the resulting stock holding company does not oppose the 
proposed acquisition.
    (4) The Board may deny an application under paragraph (f)(1) of this 
section if the proposed acquisition:
    (i) Is contrary to the purposes of this subpart;
    (ii) Is manipulative or deceptive;
    (iii) Subverts the fairness of the conversion;
    (iv) Is likely to injure the resulting stock holding company;
    (v) Is inconsistent with the plan to meet the credit and lending 
needs of the proposed market area;
    (vi) Otherwise violates laws or regulations; or
    (vii) Does not prudently deploy the conversion proceeds.
    (g) Additional requirements that apply following conversion. After 
conversion, the resulting stock holding company must:
    (1) Promptly register the shares under the Securities Exchange Act 
of 1934 (15 U.S.C. 78a-78jj, as amended). The resulting stock holding 
company may not deregister the shares for three years.
    (2) Encourage and assist a market maker to establish and to maintain 
a market for the shares. A market maker for a security is a dealer who:
    (i) Regularly publishes bona fide competitive bid and offer 
quotations for the security in a recognized inter-dealer quotation 
system;
    (ii) Furnishes bona fide competitive bid and offer quotations for 
the security on request; or
    (iii) May effect transactions for the security in reasonable 
quantities at quoted prices with other brokers or dealers.
    (3) Use the best efforts to list the shares on a national or 
regional securities exchange or on the National Association of 
Securities Dealers Automated Quotation system.
    (4) File all post-conversion reports that the Board requires.



Sec. 239.64  Contributions to charitable organizations.

    (a) Forming a charitable organization as part of a conversion. When 
a mutual holding company converts to the stock form, it may form a 
charitable organization. Its contributions to the charitable 
organization are governed by the requirements of paragraphs (b) through 
(f) of this section.
    (b) Donating conversion shares or conversion proceeds to a 
charitable organization. Some of the conversion shares or proceeds may 
be contributed to a charitable organization if:
    (1) The plan of conversion provides for the proposed contribution;
    (2) The members approve the proposed contribution; and
    (3) The IRS either has approved, or approves within two years after 
formation, the charitable organization as a tax-exempt charitable 
organization under the Internal Revenue Code.
    (c) Member approval of charitable contributions. At the meeting to 
consider conversion of the mutual holding company, the members must 
separately approve by at least a majority of the total eligible votes, a 
contribution of conversion shares or proceeds. If the mutual holding 
company has a subsidiary holding company with minority shareholders, or 
if the subsidiary savings association has minority shareholders, and the 
mutual holding company is adding a charitable contribution as part of a 
second step stock conversion, it must also have the minority 
shareholders separately approve the

[[Page 178]]

charitable contribution by a majority of their total eligible votes.
    (d) Charitable organization contribution limits. A reasonable amount 
of conversion shares or proceeds may be contributed to a charitable 
organization, if the contribution will not exceed limits for charitable 
deductions under the Internal Revenue Code and the Board does not object 
on supervisory grounds. If the mutual holding company or resulting stock 
holding company is well-capitalized pursuant to Sec. 238.62 of this 
chapter, the Board generally will not object if it contributes an 
aggregate amount of eight percent or less of the conversion shares or 
proceeds.
    (e) Charitable organization requirements. The charitable 
organization's charter (or trust agreement) and gift instrument must 
provide that:
    (1) The charitable organization's primary purpose is to serve and 
make grants in the local community;
    (2) As long as the charitable organization controls shares, it must 
vote those shares in the same ratio as all other shares voted on each 
proposal considered by the shareholders;
    (3) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for an independent director (or trustee) from the local 
community. This director may not be the officer, director, or employee, 
or the affiliate's officer, director, or employee, and should have 
experience with local community charitable organizations and grant 
making; and
    (4) For at least five years after its organization, one seat on the 
charitable organization's board of directors (or board of trustees) is 
reserved for a director from the board of directors or the board of 
directors of an acquiror or resulting institution in the event of a 
merger or acquisition of the organization.
    (5) The Board may examine the charitable organization at the 
charitable organization's expense;
    (6) The charitable organization must comply with all supervisory 
directives that the Board imposes;
    (7) The charitable organization must annually provide the Board with 
a copy of the annual report that the charitable organization submitted 
to the IRS;
    (8) The charitable organization must operate according to written 
policies adopted by its board of directors (or board of trustees), 
including a conflict of interest policy; and
    (9) The charitable organization may not engage in self-dealing, and 
must comply with all laws necessary to maintain its tax-exempt status 
under the Internal Revenue Code.
    (f) Conflicts of interest involving the directors of the mutual 
holding company or resulting stock holding company. (1) An individual 
who is the director, officer, or employee, or a person who has the power 
to direct the management or policies, or otherwise owes a fiduciary duty 
to the mutual holding company or resulting stock holding company and who 
will serve as an officer, director, or employee of the charitable 
organization, is subject to the following obligations:
    (i) The individual must not advance their own personal or business 
interests, or those of others with whom the individual has a personal or 
business relationship, at the expense of the mutual holding company or 
resulting stock holding company;
    (ii) If the individual has an interest in a matter or transaction 
before the board of directors, the individual must:
    (A) Disclose to the board all material nonprivileged information 
relevant to the board's decision on the matter or transaction, including 
the existence, nature and extent of the individual's interests, and the 
facts known to the individual as to the matter or transaction under 
consideration;
    (B) Refrain from participating in the board's discussion of the 
matter or transaction; and
    (C) Recuse themselves from voting on the matter or transaction (if 
the individual is a director). See Form AC, which provides further 
information or operating plans and conflict of interest plans. The 
mutual holding company may obtain Form AC from the appropriate Reserve 
Bank and the Board's Web site at http://www.federalreserve.gov.
    (2) Before the board of directors may adopt a plan of conversion 
that includes a charitable organization, the

[[Page 179]]

mutual holding company must identify the directors that will serve on 
the charitable organization's board. These directors may not participate 
in the board's discussions concerning contributions to the charitable 
organization, and may not vote on the matter.
    (3) The stock certificates of shares contributed to the charitable 
organization or that the charitable organization otherwise acquires must 
bear the following legend: ``The board of directors must consider the 
shares that this stock certificate represents as voted in the same ratio 
as all other shares voted on each proposal considered by the 
shareholders, as long as the shares are controlled by the charitable 
organization.''
    (4) As long as the charitable organization controls shares, the 
resulting stock holding company must consider those shares as voted in 
the same ratio as all of the shares voted on each proposal considered by 
the shareholders.
    (5) After the stock offering is complete, the resulting stock 
holding company must submit an executed copy of the following documents 
to the appropriate Reserve Bank: the charitable organization's charter 
and bylaws (or trust agreement), operating plan (within six months after 
the stock offering), conflict of interest policy, and the gift 
instrument for the contributions of either stock or cash to the 
charitable organization.



Sec. 239.65  Voluntary supervisory conversions.

    (a) Voluntary supervisory conversion. (1) The mutual holding company 
must comply with this section and Sec. 239.66 to engage in a voluntary 
supervisory conversion. This subpart applies to all voluntary 
supervisory conversions under sections 10(o)(7) and 10(p) of the Home 
Owners' Loan Act (12 U.S.C. 1467a(o) and (p)).
    (2) Sections 239.50 through 239.64 also apply to a voluntary 
supervisory conversion, unless a requirement is clearly inapplicable.
    (b) Conducting a voluntary supervisory conversion. In conducting a 
voluntary supervisory conversion, the mutual holding company may:
    (1) Sell its shares to the public;
    (2) Convert into stock form by merging into a state-chartered 
corporation; or
    (3) Sell its shares directly to an acquiror, who may be an 
individual, company, depository institution, or depository institution 
holding company.
    (c) Member rights in a voluntary supervisory conversion. Members of 
the mutual holding company do not have the right to approve or 
participate in a voluntary supervisory conversion, and will not have any 
legal or beneficial ownership interests in the converted association, 
unless the Board provides otherwise. The members may have interests in a 
liquidation account, if one is established.
    (d) Eligibility for a voluntary supervisory conversion. A mutual 
holding company may be eligible to engage in a voluntary supervisory 
conversion if:
    (1) Either the mutual holding company or its subsidiary savings 
association is significantly undercapitalized under applicable 
regulatory capital requirements (or the mutual holding company or its 
subsidiary savings association is undercapitalized under applicable 
regulatory capital requirements and a standard conversion that would 
make it adequately capitalized is not feasible) and will be a viable 
entity following the conversion;
    (2) Severe financial conditions threaten stability of the mutual 
holding company, and a conversion is likely to improve its financial 
condition.
    (e) A mutual holding company or its subsidiary savings association 
will be a viable entity following the conversion if it satisfies all of 
the following:
    (1) It will be adequately capitalized as a result of the conversion;
    (2) It, the proposed conversion, and its acquiror(s) comply with 
applicable supervisory policies;
    (3) The transaction is in the best interest of the mutual holding 
company and its subsidiary savings associations, and the best interest 
of the Deposit Insurance Fund and the public; and
    (4) The transaction will not injure or be detrimental to the mutual 
holding company and its subsidiary savings associations, the Deposit 
Insurance Fund, or the public interest.

[[Page 180]]

    (f) Plan of voluntary supervisory conversion. A majority of the 
board of directors of the mutual holding company must approve a plan of 
voluntary supervisory conversion. The mutual holding company must 
include all of the following information in the plan of voluntary 
supervisory conversion.
    (1) The name and address of the mutual holding company.
    (2) The name, address, date and place of birth, and social security 
number or tax identification number, as applicable, of each proposed 
purchaser of conversion shares and a description of that purchaser's 
relationship to the mutual holding company.
    (3) The title, per-unit par value, number, and per-unit and 
aggregate offering price of shares that the mutual holding company will 
issue.
    (4) The number and percentage of shares that each investor will 
purchase.
    (5) The aggregate number and percentage of shares that each 
director, officer, and any affiliates or associates of the director or 
officer will purchase.
    (6) A description of any liquidation account.
    (7) Certified copies of all resolutions of the board of directors 
relating to the conversion.
    (g) Voluntary supervisory conversion application. The mutual holding 
company must include all of the following information and documents in a 
voluntary supervisory conversion application to the Board under this 
subpart:
    (1) Eligibility. (i) Evidence establishing that the mutual holding 
company meets the eligibility requirements under paragraph (d) of this 
section.
    (ii) An opinion of qualified, independent counsel or an independent, 
certified public accountant regarding the tax consequences of the 
conversion, or an IRS ruling indicating that the transaction qualifies 
as a tax-free reorganization.
    (2) Plan of conversion. A plan of voluntary supervisory conversion 
that complies with paragraph (e) of this section.
    (3) Business plan. A business plan that complies with 
Sec. 239.53(b), when required by the Board.
    (4) Financial data. (i) The most recent audited financial statements 
and Thrift Financial Report. The mutual holding company must explain how 
its current capital levels or the capital levels of its subsidiary 
savings associations make it eligible to engage in a voluntary 
supervisory conversion under paragraph (d) of this section.
    (ii) A description of the estimated conversion expenses.
    (iii) Evidence supporting the value of any non-cash asset 
contributions. Appraisals must be acceptable to the Board and the non-
cash asset must meet all other Board policy guidelines.
    (iv) Pro forma financial statements that reflect the effects of the 
transaction. The mutual holding company must identify the tangible, 
core, and risk-based capital levels and show the adjustments necessary 
to compute the capital levels. The mutual holding company must prepare 
the pro forma statements in conformance with Board regulations and 
policy.
    (5) Proposed documents. (i) The proposed charter and bylaws.
    (ii) The proposed stock certificate form.
    (6) Agreements. (i) A copy of any agreements between the mutual 
holding company and proposed purchasers.
    (ii) A copy and description of all existing and proposed employment 
contracts. The mutual holding company must describe the term, salary, 
and severance provisions of the contract, the identity and background of 
the officer or employee to be employed, and the amount of any conversion 
shares to be purchased by the officer or employee or his or her 
affiliates or associates.
    (7) Related applications. (i) All filings required under the 
securities offering rules of subpart E of this part.
    (ii) Any required Holding Company Act application or Control Act 
notice under part 238 of this chapter.
    (iii) A subordinated debt application, if applicable.
    (iv) Applications for permission to organize a stock savings and 
loan holding company and for approval of a merger.
    (v) A statement describing any other applications required under 
federal or state banking laws for all transactions

[[Page 181]]

related to the conversion, copies of all dispositive documents issued by 
regulatory authorities relating to the applications, and, if requested 
by the Board, copies of the applications and related documents.
    (8) Waiver request. A description of any of the features of the 
application that do not conform to the requirements of this subpart, 
including any request for waiver of any of these requirements.
    (h) Offers and sales of stock. If the mutual holding company 
converts under this subpart, the conversion shares must be offered and 
sold in compliance with Sec. 239.59.
    (i) Post-conversion acquisition of shares. For three years after the 
completion of a voluntary supervisory conversion, neither the resulting 
stock holding company nor the principal shareholder(s) may acquire 
shares from minority shareholders without the Board's prior approval.



Sec. 239.66  Board review of the voluntary supervisory conversion 
application.

    (a) Board review of a voluntary supervisory conversion application. 
The Board will generally approve the application to engage in a 
voluntary supervisory conversion unless it determines:
    (1) The mutual holding company does not meet the eligibility 
requirements for a voluntary supervisory conversion under 
Secs. 239.65(d) or because the proceeds from the sale of the conversion 
stock, less the expenses of the conversion, would be insufficient to 
satisfy any applicable viability requirement;
    (2) The transaction is detrimental to or would cause potential 
injury to the mutual holding company, its subsidiary savings 
association, or the Deposit Insurance Fund or is contrary to the public 
interest;
    (3) The mutual holding company or the acquiror, or the controlling 
parties or directors and officers of the mutual holding company or the 
acquiror, have engaged in unsafe or unsound practices in connection with 
the voluntary supervisory conversion; or
    (4) The mutual holding company fails to justify an employment 
contract incidental to the conversion, or the employment contract will 
be an unsafe or unsound practice or represent a sale of control. In a 
voluntary supervisory conversion, the Board generally will not approve 
employment contracts of more than one year for the existing management.
    (b) Conditions the Board may impose on an approval. (1) The Board 
will condition approval of a voluntary supervisory conversion 
application on all of the following.
    (i) The conversion stock sale must be complete within three months 
after the Board approves the application. The Board may grant an 
extension for good cause.
    (ii) The mutual holding company and the resulting stock holding 
company must comply with all filing requirements of subpart E of this 
part.
    (iii) The mutual holding company must submit an opinion of 
independent legal counsel indicating that the sale of the shares 
complies with all applicable state securities law requirements.
    (iv) The mutual holding company and the resulting stock holding 
company must comply with all applicable laws, rules, and regulations.
    (v) The mutual holding company and the resulting stock holding 
company must satisfy any other requirements or conditions the Board may 
impose.
    (2) The Board may condition approval of a voluntary supervisory 
conversion application on either of the following:
    (i) The mutual holding company and the resulting stock holding 
company must satisfy any conditions and restrictions the Board imposes 
to prevent unsafe or unsound practices, to protect the Deposit Insurance 
Fund and the public interest, and to prevent potential injury or 
detriment to the mutual holding company before and after the conversion. 
The Board may impose these conditions and restrictions on the mutual 
holding company and the resulting stock holding company (before and 
after the conversion), the acquiror, controlling parties, or directors 
and officers of the mutual holding company or the acquiror; or
    (ii) The mutual holding company or the resulting stock holding 
company must infuse a larger amount of capital, if necessary, for safety 
and soundness reasons.

[[Page 182]]



    Sec. Appendix A to Part 239--Mutual Holding Company Model Charter

                 FEDERAL MUTUAL HOLDING COMPANY CHARTER

    Section 1: Corporate title. The name of the mutual holding company 
is __(the ``Mutual Holding Company'').
    Section 2: Duration. The duration of the Mutual Holding Company is 
perpetual.
    Section 3: Purpose and powers. The purpose of the Mutual Holding 
Company is to pursue any or all of the lawful objectives of a federal 
mutual savings and loan holding company chartered under section 10(o) of 
the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of 
the express, implied, and incidental powers conferred thereby and all 
acts amendatory thereof and supplemental thereto, subject to the 
Constitution and the laws of the United States as they are now in 
effect, or as they may hereafter be amended, and subject to all lawful 
and applicable rules, regulations, and orders of the Federal Reserve 
Board (``Board'').
    Section 4: Capital. The Mutual Holding Company shall have no capital 
stock.
    Section 5: Members. [The content of this section 5 shall be 
identical to the content of the parallel section in the charter of the 
reorganizing association, with the following exceptions: (A) Any 
provisions conferring membership rights upon borrowers of the 
reorganizing association shall be eliminated and replaced with 
provisions grandfathering those rights in accordance with 12 CFR 239.5; 
and (B) appropriate changes shall be made to indicate that membership 
rights in the mutual holding company derive from deposit accounts in 
and, to the extent of any grandfather provisions, borrowings from the 
resulting association. Set forth below is an example of how section 5 
should appear in the charter of a mutual holding company formed by a 
reorganizing association whose charter conforms to the model charter 
prescribed for federal mutual savings associations for calendar year 
1989. Additional changes to this section 5 may be required whenever a 
mutual holding company reorganization involves an acquiree association, 
or a mutual holding company makes a post-reorganization acquisition of a 
mutual savings association, so as to preserve the membership rights of 
the members of the acquired association consistent with 12 CFR 239.5.]
    All holders of the savings, demand, or other authorized accounts of 
__[insert the name of the resulting association] (the ``Association'') 
are members of the Mutual Holding Company. With respect to all questions 
requiring action by the members of the Mutual Holding Company, each 
holder of an account in the Association shall be permitted to cast one 
vote for each $100, or fraction thereof, of the withdrawal value of the 
member's account. In addition, borrowers from the Association as of 
__[insert the date of the reorganization or any earlier date as of which 
new borrowings ceased to result in membership rights] shall be entitled 
to one vote for the period of time during which such borrowings are in 
existence. [The foregoing sentence should be included only if the 
charter of the reorganizing association confers voting rights on any 
borrowers.] No member, however, shall cast more than one thousand votes. 
All accounts shall be nonassessable.
    Section 6. Directors. The Mutual Holding Company shall be under the 
direction of a board of directors. The authorized number of directors 
shall not be fewer than five nor more than fifteen, as fixed in the 
Mutual Holding Company's bylaws, except that the number of directors may 
be decreased to a number less than five or increased to a number greater 
than fifteen with the prior approval of the Board.
    Section 7: Capital, surplus, and distribution of earnings. [The 
content of this section 7 shall be identical to the content of the 
parallel section in the charter of the reorganizing association, except 
for changes made to indicate that distribution rights in the mutual 
holding company derive from deposit accounts in the resulting 
association, any changes required to provide that the Board shall be the 
approving authority in instances where the charter requires regulatory 
approval of distributions, and any other changes necessary to 
accommodate the mutual holding company format. Set forth below is an 
example of how section 7 should appear in the charter of a mutual 
holding company formed by a reorganizing association whose charter 
conforms to the model charter prescribed for federal mutual savings 
associations for calendar year 1989. Additional changes to this section 
7 may be required whenever a mutual holding company reorganization 
involves an acquiree association, or a mutual holding company makes a 
post-reorganization acquisition of a mutual savings association, so as 
to preserve the membership rights of the members of the acquired 
association consistent with 12 CFR 239.5].
    The Mutual Holding Company shall distribute net earnings to account 
holders of the Association on such basis and in accordance with such 
terms and conditions as may from time to time be authorized by the 
Board, provided that the Mutual Holding Company may establish minimum 
account balance requirements for account holders to be eligible for 
distributions of earnings.
    All holders of accounts of the Association shall be entitled to 
equal distribution of the assets of the Mutual Holding Company, pro rata 
to the value of their accounts in the Association, in the event of 
voluntary or involuntary liquidation, dissolution, or winding up of the 
Mutual Holding Company.

[[Page 183]]

    Section 8. Amendment. Adoption of any preapproved charter amendment 
shall be effective after such preapproved amendment has been approved by 
the members at a legal meeting. Any other amendment, addition, change, 
or repeal of this charter must be approved by the Board prior to 
approval by the members at a legal meeting and shall be effective upon 
filing with the Board in accordance with regulatory procedures.
 Attest:________________________________________________________________
Secretary of the Association
 By:____________________________________________________________________
President or Chief Executive Officer of the Association
 By:____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
 Effective Date:________________________________________________________



  Sec. Appendix B to Part 239--Subsidiary Holding Company of a Mutual 
                      Holding Company Model Charter

             FEDERAL MHC SUBSIDIARY HOLDING COMPANY CHARTER

    Section 1. Corporate title. The full corporate title of the mutual 
holding company (``MHC'') subsidiary holding company is XXX.
    Section 2. Domicile. The domicile of the MHC subsidiary holding 
company shall be in the city of --, in the State of --.
    Section 3. Duration. The duration of the MHC subsidiary holding 
company is perpetual.
    Section 4. Purpose and powers. The purpose of the MHC subsidiary 
holding company is to pursue any or all of the lawful objectives of a 
federal mutual holding company chartered under section 10(o) of the Home 
Owners' Loan Act, 12 U.S.C. 1467a(o), and to exercise all of the 
express, implied, and incidental powers conferred thereby and by all 
acts amendatory thereof and supplemental thereto, subject to the 
Constitution and laws of the United States as they are now in effect, or 
as they may hereafter be amended, and subject to all lawful and 
applicable rules, regulations, and orders of the Board of Governors of 
the Federal Reserve System (``Board'').
    Section 5. Capital stock. The total number of shares of all classes 
of the capital stock that the MHC subsidiary holding company has the 
authority to issue is --, all of which shall be common stock of par [or 
if no par is specified then shares shall have a stated] value of -- per 
share. The shares may be issued from time to time as authorized by the 
board of directors without the approval of its shareholders, except as 
otherwise provided in this section 5 or to the extent that such approval 
is required by governing law, rule, or regulation. The consideration for 
the issuance of the shares shall be paid in full before their issuance 
and shall not be less than the par [or stated] value. Neither promissory 
notes nor future services shall constitute payment or part payment for 
the issuance of shares of the MHC subsidiary holding company. The 
consideration for the shares shall be cash, tangible or intangible 
property (to the extent direct investment in such property would be 
permitted to the MHC subsidiary holding company), labor, or services 
actually performed for the MHC subsidiary holding company, or any 
combination of the foregoing. In the absence of actual fraud in the 
transaction, the value of such property, labor, or services, as 
determined by the board of directors of the MHC subsidiary holding 
company, shall be conclusive. Upon payment of such consideration, such 
shares shall be deemed to be fully paid and nonassessable. In the case 
of a stock dividend, that part of the retained earnings of the MHC 
subsidiary holding company that is transferred to common stock or paid-
in capital accounts upon the issuance of shares as a stock dividend 
shall be deemed to be the consideration for their issuance.
    Except for shares issued in the initial organization of the MHC 
subsidiary holding company, no shares of capital stock (including shares 
issuable upon conversion, exchange, or exercise of other securities) 
shall be issued, directly or indirectly, to officers, directors, or 
controlling persons (except for shares issued to the parent mutual 
holding company) of the MHC subsidiary holding company other than as 
part of a general public offering or as qualifying shares to a director, 
unless the issuance or the plan under which they would be issued has 
been approved by a majority of the total votes eligible to be cast at a 
legal meeting.
    The holders of the common stock shall exclusively possess all voting 
power. Each holder of shares of common stock shall be entitled to one 
vote for each share held by such holder, except as to the cumulation of 
votes for the election of directors, unless the charter provides that 
there shall be no such cumulative voting. Subject to any provision for a 
liquidation account, in the event of any liquidation, dissolution, or 
winding up of the MHC subsidiary holding company, the holders of the 
common stock shall be entitled, after payment or provision for payment 
of all debts and liabilities of the MHC subsidiary holding company, to 
receive the remaining assets of the MHC subsidiary holding company 
available for distribution, in cash or in kind. Each share of common 
stock shall have the same relative rights as and be identical in all 
respects with all the other shares of common stock.
    Section 6. Preemptive rights. Holders of the capital stock of the 
MHC subsidiary holding company shall not be entitled to preemptive 
rights with respect to any shares of

[[Page 184]]

the MHC subsidiary holding company which may be issued.
    Section 7. Directors. The MHC subsidiary holding company shall be 
under the direction of a board of directors. The authorized number of 
directors, as stated in the MHC subsidiary holding company's bylaws, 
shall not be fewer than five nor more than fifteen except when a greater 
or lesser number is approved by the Board, or his or her delegate.
    Section 8. Amendment of charter. Except as provided in Section 5, no 
amendment, addition, alteration, change or repeal of this charter shall 
be made, unless such is proposed by the board of directors of the MHC 
subsidiary holding company, approved by the shareholders by a majority 
of the votes eligible to be cast at a legal meeting, unless a higher 
vote is otherwise required, and approved or preapproved by the Board.

 Attest:________________________________________________________________
Secretary of the Subsidiary Holding Company
 By:____________________________________________________________________
President or Chief Executive Officer of the Subsidiary Holding Company
By:_____________________________________________________________________
Secretary of the Board of Governors of the Federal Reserve System
 Effective Date:________________________________________________________



    Sec. Appendix C to Part 239--Mutual Holding Company Model Bylaws

                MODEL BYLAWS FOR MUTUAL HOLDING COMPANIES

    The term ``trustees'' may be substituted for the term ``directors.''
    1. Annual meeting of members. The annual meeting of the members of 
the mutual holding company for the election of directors and for the 
transaction of any other business of the mutual holding company shall be 
held, as designated by the board of directors, at a location within the 
state that constitutes the principal place of business of the mutual 
holding company, or at any other convenient place the board of directors 
may designate, at (insert date and time within 150 days after the end of 
the mutual holding company's fiscal year, if not a legal holiday, or if 
a legal holiday then on the next succeeding day not a legal holiday). At 
each annual meeting, the officers shall make a full report of the 
financial condition of the mutual holding company and of its progress 
for the preceding year and shall outline a program for the succeeding 
year.
    2. Special meetings of members. Special meetings of the members of 
the mutual holding company may be called at any time by the president or 
the board of directors and shall be called by the president, a vice 
president, or the secretary upon the written request of members of 
record, holding in the aggregate at least one-tenth of the voting 
capital of the mutual holding company. Such written request shall state 
the purpose of the meeting and shall be delivered at the principal place 
of business of the mutual holding company addressed to the president. 
For purposes of this section, ``voting capital'' means FDIC-insured 
deposits as of the voting record date. Annual and special meetings shall 
be conducted in accordance with the most current edition of Robert's 
Rules of Order or any other set of written procedures agreed to by the 
board of directors.
    3. Notice of meeting of members. Notice of each meeting shall be 
either published once a week for the two successive calendar weeks (in 
each instance on any day of the week) immediately prior to the week in 
which such meeting shall convene, in a newspaper printed in the English 
language and of general circulation in the city or county in which the 
principal place of business of the mutual holding company is located, or 
mailed postage prepaid at least (insert number no less than 15) days and 
not more than (insert number not more than 45) days prior to the date on 
which such meeting shall convene, to each of its members of record at 
the last address appearing on the books of the mutual holding company. 
Such notice shall state the name of the mutual holding company, the 
place of the meeting, the date and time when it shall convene, and the 
matters to be considered. A similar notice shall be posted in a 
conspicuous place in each of the offices of the mutual holding company 
during the 14 days immediately preceding the date on which such meeting 
shall convene. If any member, in person or by authorized attorney, shall 
waive in writing notice of any meeting of members, notice thereof need 
not be given to such member. When any meeting is adjourned for 30 days 
or more, notice of the adjournment and reconvening of the meeting shall 
be given as in the case of the original meeting.
    4. Fixing of record date. For the purpose of determining members 
entitled to notice of or to vote at any meeting of members or any 
adjournment thereof, or in order to make a determination of members for 
any other proper purpose, the board of directors shall fix in advance a 
record date for any such determination of members. Such date shall be 
not more than 60 days nor fewer than 10 days prior to the date on which 
the action, requiring such determination of members, is to be taken. The 
member entitled to participate in any such action shall be the member of 
record on the books of the mutual holding company on such record date. 
The number of votes which each member shall be entitled to cast at any 
meeting of the members shall be determined from the books of the mutual 
holding company as of such record date. Any member of such record date 
who ceases to be a member prior to such meeting shall not be entitled to 
vote at that meeting. The same

[[Page 185]]

determination shall apply to any adjourned meeting.
    5. Member quorum. Any number of members present and voting, 
represented in person or by proxy, at a regular or special meeting of 
the members shall constitute a quorum. A majority of all votes cast at 
any meeting of the members shall determine any question, unless 
otherwise required by regulation. Directors, however, are elected by a 
plurality of the votes cast at an election of directors. At any 
adjourned meeting any business may be transacted which might have been 
transacted at the meeting as originally called. Members present at a 
duly constituted meeting may continue to transact business until 
adjournment.
    6. Voting by proxy. Voting at any annual or special meeting of the 
members may be by proxy pursuant to the rules and regulations of the 
Board of Governors of the Federal Reserve System (Board), provided, that 
no proxies shall be voted at any meeting unless such proxies shall have 
been placed on file with the secretary of the mutual holding company, 
for verification, prior to the convening of such meeting. Proxies may be 
given telephonically or electronically as long as the holder uses a 
procedure for verifying the identity of the member. All proxies with a 
term greater than eleven months or solicited at the expense of the 
mutual holding company must run to the board of directors as a whole, or 
to a committee appointed by a majority of such board. Accounts held by 
an administrator, executor, guardian, conservator or receiver may be 
voted in person or by proxy by such person. Accounts held by a trustee 
may be voted by such trustee either in person or by proxy, in accordance 
with the terms of the trust agreement, but no trustee shall be entitled 
to vote accounts without a transfer of such accounts into the trustee 
name. Accounts held in trust in an IRA or Keogh Account, however, may be 
voted by the mutual holding company if no other instructions are 
received. Joint accounts shall be entitled to no more than 1000 votes, 
and any owner may cast all the votes unless the mutual holding company 
has otherwise been notified in writing.
    7. Communication between members. Communication between members 
shall be subject to any applicable rules or regulations of the Board. No 
member, however, shall have the right to inspect or copy any portion of 
any books or records of a mutual holding company containing: (i) a list 
of depositors in or borrowers from such mutual holding company; (ii) 
their addresses; (iii) individual deposit or loan balances or records; 
or (iv) any data from which such information could reasonably be 
constructed.
    8. Number of directors, membership. The number of directors shall be 
__[not fewer than five nor more than fifteen], except where authorized 
by the Board. Each director shall be a member of the mutual holding 
company. Directors shall be elected for periods of one to three years 
and until their successors are elected and qualified, but if a staggered 
board is chosen, provision shall be made for the election of 
approximately one-third or one-half of the board each year, as 
appropriate.
    9. Meetings of the board. The board of directors shall meet 
regularly without notice at the principal place of business of the 
mutual holding company at least once each month at an hour and date 
fixed by resolution of the board, provided that the place of meeting may 
be changed by the directors. Special meetings of the board may be held 
at any place specified in a notice of such meeting and shall be called 
by the secretary upon the written request of the chairman or of three 
directors. All special meetings shall be held upon at least 24 hours 
written notice to each director unless notice is waived in writing 
before or after such meeting. Such notice shall state the place, date, 
time, and purposes of such meeting. A majority of the authorized 
directors shall constitute a quorum for the transaction of business. The 
act of a majority of the directors present at any meeting at which there 
is a quorum shall be the act of the board. Action may be taken without a 
meeting if unanimous written consent is obtained for such action. The 
board may also permit telephonic participation at meetings. The meetings 
shall be under the direction of a chairman, appointed annually by the 
board, or in the absence of the chairman, the meetings shall be under 
the direction of the president.
    10. Officers, employees, and agents. Annually at the meeting of the 
board of directors of the mutual holding company following the annual 
meeting of the members of the mutual holding company, the board shall 
elect a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller: Provided, that the offices of president and 
secretary may not be held by the same person and a vice president may 
also be the treasurer or comptroller. The board may appoint such 
additional officers, employees, and agents as it may from time to time 
determine. The term of office of all officers shall be one year or until 
their respective successors are elected and qualified. Any officer may 
be removed at any time by the board with or without cause, but such 
removal, other than for cause, shall be without prejudice to the 
contractual rights, if any, of the person so removed. In the absence of 
designation from time to time of powers and duties by the board, the 
officers shall have such powers and duties as generally pertain to their 
respective offices. Any indemnification by the mutual holding company of 
the mutual holding company's personnel is subject

[[Page 186]]

to any applicable rules or regulations of the Board.
    11. Vacancies, resignation or removal of directors. Members of the 
mutual holding company shall elect directors by ballot: Provided, that 
in the event of a vacancy on the board between meetings of members, the 
board of directors may, by their affirmative vote, fill such vacancy, 
even if the remaining directors constitute less than a quorum. A 
director elected to fill a vacancy shall be elected to serve only until 
the next election of directors by the members. Any director may resign 
at any time by sending a written notice of such resignation to the 
mutual holding company delivered to the secretary. Unless otherwise 
specified therein such resignation shall take effect upon receipt by the 
secretary. More than three consecutive absences from regular meetings of 
the board, unless excused by resolution of the board, shall 
automatically constitute a resignation, effective when such resignation 
is accepted by the board. At a meeting of members called expressly for 
that purpose, directors or the entire board may be removed, only with 
cause, by a vote of the holders of a majority of the shares then 
entitled to vote at an election of directors.
    12. Powers of the board. The board of directors shall have the 
power: (a) By resolution, to appoint from among its members and remove 
an executive committee, which committee shall have and may exercise the 
powers of the board between the meetings of the board, but no such 
committee shall have the authority of the board to amend the charter or 
bylaws, adopt a plan of merger, consolidation, dissolution, or provide 
for the disposition of all or substantially all the property and assets 
of the mutual holding company. Such committee shall not operate to 
relieve the board, or any member thereof, of any responsibility imposed 
by law; (b) To appoint and remove by resolution the members of such 
other committees as may be deemed necessary and prescribe the duties 
thereof; (c) To fix the compensation of directors, officers, and 
employees; and to remove any officer or employee at any time with or 
without cause; (d) To limit payments on capital which may be accepted; 
and (e) To exercise any and all of the powers of the mutual holding 
company not expressly reserved by the charter to the members.
    13. Execution of instruments, generally. All documents and 
instruments or writings of any nature shall be signed, executed, 
verified, acknowledged, and delivered by such officers, agents, or 
employees of the mutual holding company or any one of them and in such 
manner as from time to time may be determined by resolution of the 
board. All notes, drafts, acceptances, checks, endorsements, and all 
evidences of indebtedness of the mutual holding company whatsoever shall 
be signed by such officer or officers or such agent or agents of the 
mutual holding company and in such manner as the board may from time to 
time determine. Endorsements for deposit to the credit of the mutual 
holding company in any of its duly authorized depositories shall be made 
in such manner as the board may from time to time determine. Proxies to 
vote with respect to shares or accounts of other mutual holding 
companies or stock of other corporations owned by, or standing in the 
name of, the mutual holding company may be executed and delivered from 
time to time on behalf of the mutual holding company by the president or 
a vice president and the secretary or an assistant secretary of the 
mutual holding company or by any other persons so authorized by the 
board.
    14. Nominating committee. The chairman, at least 30 days prior to 
the date of each annual meeting, shall appoint a nominating committee of 
three individuals who are members of the mutual holding company. Such 
committee shall make nominations for directors in writing and deliver to 
the secretary such written nominations at least 15 days prior to the 
date of the annual meeting, which nominations shall then be posted in a 
prominent place in the principal place of business for the 15-day period 
prior to the date of the annual meeting, except in the case of a nominee 
substituted as a result of death or other incapacity. Provided such 
committee is appointed and makes such nominations, no nominations for 
directors except those made by the nominating committee shall be voted 
upon at the annual meeting unless other nominations by members are made 
in writing and delivered to the secretary of the mutual holding company 
at least 10 days prior to the date of the annual meeting, which 
nominations shall then be posted in a prominent place in the principal 
place of business for the 10-day period prior to the date of the annual 
meeting, except in the case of a nominee substituted as a result of 
death or other incapacity. Ballots bearing the names of all individuals 
nominated by the nominating committee and by other members prior to the 
annual meeting shall be provided for use by the members at the annual 
meeting. If at any time the chairman shall fail to appoint such 
nominating committee, or the nominating committee shall fail or refuse 
to act at least 15 days prior to the annual meeting, nominations for 
directors may be made at the annual meeting by any member and shall be 
voted upon.
    15. New business. Any new business to be taken up at the annual 
meeting, including any proposal to increase or decrease the number of 
directors of the mutual holding company, shall be stated in writing and 
filed with the secretary of the mutual holding company at least 30 days 
before the date of the annual meeting, and all business so stated, 
proposed, and filed shall be considered at

[[Page 187]]

the annual meeting; but no other proposal shall be acted upon at the 
annual meeting. Any member may make any other proposal at the annual 
meeting and the same may be discussed and considered; but unless stated 
in writing and filed with the secretary 30 days before the meeting, such 
proposal shall be laid over for action at an adjourned, special, or 
regular meeting of the members taking place at least 30 days thereafter. 
This provision shall not prevent the consideration and approval or 
disapproval at the annual meeting of the reports of officers and 
committees, but in connection with such reports no new business shall be 
acted upon at such annual meeting unless stated and filed as herein 
provided.
    16. Seal. The seal shall be two concentric circles between which 
shall be the name of the mutual holding company. The year of 
incorporation, the word ``Incorporated'' or an emblem may appear in the 
center.
    17. Amendment. Adoption of any bylaw amendment pursuant to 
Sec. 239.15 of the Board's regulations, as long as consistent with 
applicable law, rules and regulations, and which adequately addresses 
the subject and purpose of the stated by law section, shall be effective 
after (i) approval of the amendment by a majority vote of the authorized 
board, or by a vote of the members of the mutual holding company at a 
legal meeting; and (ii) receipt of any applicable regulatory approval. 
When a mutual holding company fails to meet its quorum requirement 
solely due to vacancies on the board, the bylaws may be amended by an 
affirmative vote of a majority of the sitting board.
    18. Age limitations. [Bylaws on age limitations must comply with all 
Federal laws, such as the Age Discrimination in Employment Act and the 
Employee Retirement Income Security Act.]
    (a) Directors. No individual __ years of age shall be eligible for 
election, reelection, appointment, or reappointment to the board of the 
mutual holding company. No director shall serve as such beyond the 
annual meeting of the mutual holding company immediately following the 
director becoming __(fill in age used above), except that a director 
serving on __(fill in bylaw adoption date) may complete the term as 
director. This age limitation does not apply to an advisory director.
    (b) Officers. No individual __ years of age shall be eligible for 
election, reelection, appointment, or reappointment as an officer of the 
mutual holding company. No officer shall serve beyond the annual meeting 
of the mutual holding company immediately following the officer becoming 
__(fill in age used above), except that an officer serving on __(fill in 
bylaw adoption date) may complete the term. However, an officer shall, 
at the option of the board, retire at age __ if the officer has served 
in an executive or high policy-making post for at least two years 
immediately prior to retirement and is immediately entitled to 
nonforfeitable annual retirement benefits of at least __.



  Sec. Appendix D to Part 239--Subsidiary Holding Company of a Mutual 
                      Holding Company Model Bylaws

                  MHC Subsidiary Holding Company Bylaws

                         Article I--Home Office

    The home office of the Subsidiary Holding Company shall be at 
________ [set forth the full address] in the County of ________ , in the 
State of ________ .

                        Article II--Shareholders

    Section 1. Place of Meetings. All annual and special meetings of 
shareholders shall be held at the home office of the Subsidiary Holding 
Company or at such other convenient place as the board of directors may 
determine.
    Section 2. Annual Meeting. A meeting of the shareholders of the 
Subsidiary Holding Company for the election of directors and for the 
transaction of any other business of the Subsidiary Holding Company 
shall be held annually within 150 days after the end of the Subsidiary 
Holding Company's fiscal year on the __of __ if not a legal holiday, and 
if a legal holiday, then on the next day following which is not a legal 
holiday, at __, or at such other date and time within such 150-day 
period as the board of directors may determine.
    Section 3. Special Meetings. Special meetings of the shareholders 
for any purpose or purposes, unless otherwise prescribed by the 
regulations of the Board of Governors of the Federal Reserve System 
(``Board''), may be called at any time by the chairman of the board, the 
president, or a majority of the board of directors, and shall be called 
by the chairman of the board, the president, or the secretary upon the 
written request of the holders of not less than one-tenth of all of the 
outstanding capital stock of the Subsidiary Holding Company entitled to 
vote at the meeting. Such written request shall state the purpose or 
purposes of the meeting and shall be delivered to the home office of the 
Subsidiary Holding Company addressed to the chairman of the board, the 
president, or the secretary.
    Section 4. Conduct of Meetings. Annual and special meetings shall be 
conducted in accordance with the most current edition of Robert's Rules 
of Order unless otherwise prescribed by regulations of the Board or 
these bylaws or the board of directors adopts another written procedure 
for the conduct of meetings. The board of directors shall designate, 
when present, either the chairman of

[[Page 188]]

the board or president to preside at such meetings.
    Section 5. Notice of Meetings. Written notice stating the place, 
day, and hour of the meeting and the purpose(s) for which the meeting is 
called shall be delivered not fewer than 20 nor more than 50 days before 
the date of the meeting, either personally or by mail, by or at the 
direction of the chairman of the board, the president, or the secretary, 
or the directors calling the meeting, to each shareholder of record 
entitled to vote at such meeting. If mailed, such notice shall be deemed 
to be delivered when deposited in the mail, addressed to the shareholder 
at the address as it appears on the stock transfer books or records of 
the Subsidiary Holding Company as of the record date prescribed in 
section 6 of this article II with postage prepaid. When any 
shareholders' meeting, either annual or special, is adjourned for 30 
days or more, notice of the adjourned meeting shall be given as in the 
case of an original meeting. It shall not be necessary to give any 
notice of the time and place of any meeting adjourned for less than 30 
days or of the business to be transacted at the meeting, other than an 
announcement at the meeting at which such adjournment is taken.
    Section 6. Fixing of Record Date. For the purpose of determining 
shareholders entitled to notice of or to vote at any meeting of 
shareholders or any adjournment, or shareholders entitled to receive 
payment of any dividend, or in order to make a determination of 
shareholders for any other proper purpose, the board of directors shall 
fix in advance a date as the record date for any such determination of 
shareholders. Such date in any case shall be not more than 60 days and, 
in case of a meeting of shareholders, not fewer than 10 days prior to 
the date on which the particular action, requiring such determination of 
shareholders, is to be taken. When a determination of shareholders 
entitled to vote at any meeting of shareholders has been made as 
provided in this section, such determination shall apply to any 
adjournment.
    Section 7. Voting Lists. At least 20 days before each meeting of the 
shareholders, the officer or agent having charge of the stock transfer 
books for shares of the Subsidiary Holding Company shall make a complete 
list of the shareholders of record entitled to vote at such meeting, or 
any adjournment thereof, arranged in alphabetical order, with the 
address and the number of shares held by each. This list of shareholders 
shall be kept on file at the home office of the Subsidiary Holding 
Company and shall be subject to inspection by any shareholder of record 
or the shareholder's agent at any time during usual business hours for a 
period of 20 days prior to such meeting. Such list shall also be 
produced and kept open at the time and place of the meeting and shall be 
subject to inspection by any shareholder of record or any shareholder's 
agent during the entire time of the meeting. The original stock transfer 
book shall constitute prima facie evidence of the shareholders entitled 
to examine such list or transfer books or to vote at any meeting of 
shareholders. In lieu of making the shareholder list available for 
inspection by shareholders as provided in the preceding paragraph, the 
board of directors may elect to follow the procedures prescribed in 
Sec. 239.26(d) of the Board's regulations as now or hereafter in effect.
    Section 8. Quorum. A majority of the outstanding shares of the 
Subsidiary Holding Company entitled to vote, represented in person or by 
proxy, shall constitute a quorum at a meeting of shareholders. If less 
than a majority of the outstanding shares is represented at a meeting, a 
majority of the shares so represented may adjourn the meeting from time 
to time without further notice. At such adjourned meeting at which a 
quorum shall be present or represented, any business may be transacted 
which might have been transacted at the meeting as originally notified. 
The shareholders present at a duly organized meeting may continue to 
transact business until adjournment, notwithstanding the withdrawal of 
enough shareholders to constitute less than a quorum. If a quorum is 
present, the affirmative vote of the majority of the shares represented 
at the meeting and entitled to vote on the subject matter shall be the 
act of the shareholders, unless the vote of a greater number of 
shareholders voting together or voting by classes is required by law or 
the charter. Directors, however, are elected by a plurality of the votes 
cast at an election of directors.
    Section 9. Proxies. At all meetings of shareholders, a shareholder 
may vote by proxy executed in writing by the shareholder or by his or 
her duly authorized attorney in fact. Proxies may be given 
telephonically or electronically as long as the holder uses a procedure 
for verifying the identity of the shareholder. Proxies solicited on 
behalf of the management shall be voted as directed by the shareholder 
or, in the absence of such direction, as determined by a majority of the 
board of directors. No proxy shall be valid more than eleven months from 
the date of its execution except for a proxy coupled with an interest.
    Section 10. Voting of Shares in the Name of Two or More Persons. 
When ownership stands in the name of two or more persons, in the absence 
of written directions to the Subsidiary Holding Company to the contrary, 
at any meeting of the shareholders of the Subsidiary Holding Company any 
one or more of such shareholders may cast, in person or by proxy, all 
votes to which such ownership is entitled. In the event an attempt is 
made to cast conflicting votes, in person or

[[Page 189]]

by proxy, by the several persons in whose names shares of stock stand, 
the vote or votes to which those persons are entitled shall be cast as 
directed by a majority of those holding such and present in person or by 
proxy at such meeting, but no votes shall be cast for such stock if a 
majority cannot agree.
    Section 11. Voting of Shares by Certain Holders. Shares standing in 
the name of another corporation may be voted by any officer, agent, or 
proxy as the bylaws of such corporation may prescribe, or, in the 
absence of such provision, as the board of directors of such corporation 
may determine. Shares held by an administrator, executor, guardian, or 
conservator may be voted by him or her, either in person or by proxy, 
without a transfer of such shares into his or her name. Shares standing 
in the name of a trustee may be voted by him or her, either in person or 
by proxy, but no trustee shall be entitled to vote shares held by him or 
her without a transfer of such shares into his or her name. Shares held 
in trust in an IRA or Keogh Account, however, may by voted by the 
Subsidiary Holding Company if no other instructions are received. Shares 
standing in the name of a receiver may be voted by such receiver, and 
shares held by or under the control of a receiver may be voted by such 
receiver without the transfer into his or her name if authority to do so 
is contained in an appropriate order of the court or other public 
authority by which such receiver was appointed. A shareholder whose 
shares are pledged shall be entitled to vote such shares until the 
shares have been transferred into the name of the pledgee, and 
thereafter the pledgee shall be entitled to vote the shares so 
transferred. Neither treasury shares of its own stock held by the 
Subsidiary Holding Company nor shares held by another corporation, if a 
majority of the shares entitled to vote for the election of directors of 
such other corporation are held by the Subsidiary Holding Company, shall 
be voted at any meeting or counted in determining the total number of 
outstanding shares at any given time for purposes of any meeting. [If 
charter authorizes cumulative voting, the following Section 12 shall 
apply, otherwise renumber Sections 13-16 as Sections 12-15.]
    Section 12. Cumulative Voting. Every shareholder entitled to vote at 
an election for directors shall have the right to vote, in person or by 
proxy, the number of shares owned by the shareholder for as many persons 
as there are directors to be elected and for whose election the 
shareholder has a right to vote, or to cumulate the votes by giving one 
candidate as many votes as the number of such directors to be elected 
multiplied by the number of shares shall equal or by distributing such 
votes on the same principle among any number of candidates.
    Section 13. Inspectors of Election. In advance of any meeting of 
shareholders, the board of directors may appoint any individual other 
than nominees for office as inspectors of election to act at such 
meeting or any adjournment. The number of inspectors shall be either one 
or three. Any such appointment shall not be altered at the meeting. If 
inspectors of election are not so appointed, the chairman of the board 
or the president may, or on the request of not fewer than 10 percent of 
the votes represented at the meeting shall, make such appointment at the 
meeting. If appointed at the meeting, the majority of the votes present 
shall determine whether one or three inspectors are to be appointed. In 
case any individual appointed as inspector fails to appear or fails or 
refuses to act, the vacancy may be filled by appointment by the board of 
directors in advance of the meeting or at the meeting by the chairman of 
the board or the president. Unless otherwise prescribed by regulations 
of the Board, the duties of such inspectors shall include: determining 
the number of shares and the voting power of each share, the shares 
represented at the meeting, the existence of a quorum, and the 
authenticity, validity and effect of proxies; receiving votes, ballots, 
or consents; hearing and determining all challenges and questions in any 
way arising in connection with the rights to vote; counting and 
tabulating all votes or consents; determining the result; and such acts 
as may be proper to conduct the election or vote with fairness to all 
shareholders.
    Section 14. Nominating Committee. The board of directors shall act 
as a nominating committee for selecting the management nominees for 
election as directors. Except in the case of a nominee substituted as a 
result of the death or other incapacity of a management nominee, the 
nominating committee shall deliver written nominations to the secretary 
at least 20 days prior to the date of the annual meeting. Upon delivery, 
such nominations shall be posted in a conspicuous place in each office 
of the Subsidiary Holding Company. No nominations for directors except 
those made by the nominating committee shall be voted upon at the annual 
meeting unless other nominations by shareholders are made in writing and 
delivered to the secretary of the Subsidiary Holding Company at least 
five days prior to the date of the annual meeting. Upon delivery, such 
nominations shall be posted in a conspicuous place in each office of the 
Subsidiary Holding Company. Ballots bearing the names of all persons 
nominated by the nominating committee and by shareholders shall be 
provided for use at the annual meeting. However, if the nominating 
committee shall fail or refuse to act at least 20 days prior to the 
annual meeting, nominations for directors may be made at the annual 
meeting by any

[[Page 190]]

shareholder entitled to vote and shall be voted upon.
    Section 15. New Business. Any new business to be taken up at the 
annual meeting shall be stated in writing and filed with the secretary 
of the Subsidiary Holding Company at least five days before the date of 
the annual meeting, and all business so stated, proposed, and filed 
shall be considered at the annual meeting; but no other proposal shall 
be acted upon at the annual meeting. Any shareholder may make any other 
proposal at the annual meeting and the same may be discussed and 
considered, but unless stated in writing and filed with the secretary at 
least five days before the meeting, such proposal shall be laid over for 
action at an adjourned, special, or annual meeting of the shareholders 
taking place 30 days or more thereafter. This provision shall not 
prevent the consideration and approval or disapproval at the annual 
meeting of reports of officers, directors, and committees; but in 
connection with such reports, no new business shall be acted upon at 
such annual meeting unless stated and filed as herein provided.
    Section 16. Informal Action by Shareholders. Any action required to 
be taken at a meeting of the shareholders, or any other action which may 
be taken at a meeting of shareholders, may be taken without a meeting if 
consent in writing, setting forth the action so taken, shall be given by 
all of the shareholders entitled to vote with respect to the subject 
matter.

                     Article III--Board of Directors

    Section 1. General Powers. The business and affairs of the 
Subsidiary Holding Company shall be under the direction of its board of 
directors. The board of directors shall annually elect a chairman of the 
board and a president from among its members and shall designate, when 
present, either the chairman of the board or the president to preside at 
its meetings.
    Section 2. Number and Term. The board of directors shall consist of 
__ [not fewer than five nor more than fifteen] members, and shall be 
divided into three classes as nearly equal in number as possible. The 
members of each class shall be elected for a term of three years and 
until their successors are elected and qualified. One class shall be 
elected by ballot annually.
    Section 3. Regular Meetings. A regular meeting of the board of 
directors shall be held without other notice than this bylaw following 
the annual meeting of shareholders. The board of directors may provide, 
by resolution, the time and place, for the holding of additional regular 
meetings without other notice than such resolution. Directors may 
participate in a meeting by means of a conference telephone or similar 
communications device through which all individuals participating can 
hear each other at the same time. Participation by such means shall 
constitute presence in person for all purposes.
    Section 4. Qualification. Each director shall at all times be the 
beneficial owner of not less than 100 shares of capital stock of the 
Subsidiary Holding Company unless the Subsidiary Holding Company is a 
wholly owned subsidiary of a holding company.
    Section 5. Special Meetings. Special meetings of the board of 
directors may be called by or at the request of the chairman of the 
board, the president, or one-third of the directors. The persons 
authorized to call special meetings of the board of directors may fix 
any place, within the Subsidiary Holding Company's normal lending 
territory, as the place for holding any special meeting of the board of 
directors called by such persons. Members of the board of directors may 
participate in special meetings by means of conference telephone or 
similar communications equipment by which all persons participating in 
the meeting can hear each other. Such participation shall constitute 
presence in person for all purposes.
    Section 6. Notice. Written notice of any special meeting shall be 
given to each director at least 24 hours prior thereto when delivered 
personally or by telegram or at least five days prior thereto when 
delivered by mail at the address at which the director is most likely to 
be reached. Such notice shall be deemed to be delivered when deposited 
in the mail so addressed, with postage prepaid if mailed, when delivered 
to the telegraph company if sent by telegram, or when the Subsidiary 
Holding Company receives notice of delivery if electronically 
transmitted. Any director may waive notice of any meeting by a writing 
filed with the secretary. The attendance of a director at a meeting 
shall constitute a waiver of notice of such meeting, except where a 
director attends a meeting for the express purpose of objecting to the 
transaction of any business because the meeting is not lawfully called 
or convened. Neither the business to be transacted at, nor the purpose 
of, any meeting of the board of directors need be specified in the 
notice of waiver of notice of such meeting.
    Section 7. Quorum. A majority of the number of directors fixed by 
section 2 of this article III shall constitute a quorum for the 
transaction of business at any meeting of the board of directors; but if 
less than such majority is present at a meeting, a majority of the 
directors present may adjourn the meeting from time to time. Notice of 
any adjourned meeting shall be given in the same manner as prescribed by 
section 5 of this article III.
    Section 8. Manner of Acting. The act of the majority of the 
directors present at a meeting at which a quorum is present shall be the 
act of the board of directors, unless a greater

[[Page 191]]

number is prescribed by regulation of the Board or by these bylaws.
    Section 9. Action Without a Meeting. Any action required or 
permitted to be taken by the board of directors at a meeting may be 
taken without a meeting if a consent in writing, setting forth the 
action so taken, shall be signed by all of the directors.
    Section 10. Resignation. Any director may resign at any time by 
sending a written notice of such resignation to the home office of the 
Subsidiary Holding Company addressed to the chairman of the board or the 
president. Unless otherwise specified, such resignation shall take 
effect upon receipt by the chairman of the board or the president. More 
than three consecutive absences from regular meetings of the board of 
directors, unless excused by resolution of the board of directors, shall 
automatically constitute a resignation, effective when such resignation 
is accepted by the board of directors.
    Section 11. Vacancies. Any vacancy occurring on the board of 
directors may be filled by the affirmative vote of a majority of the 
remaining directors although less than a quorum of the board of 
directors. A director elected to fill a vacancy shall be elected to 
serve only until the next election of directors by the shareholders. Any 
directorship to be filled by reason of an increase in the number of 
directors may be filled by election by the board of directors for a term 
of office continuing only until the next election of directors by the 
shareholders.
    Section 12. Compensation. Directors, as such, may receive a stated 
salary for their services. By resolution of the board of directors, a 
reasonable fixed sum, and reasonable expenses of attendance, if any, may 
be allowed for attendance at each regular or special meeting of the 
board of directors. Members of either standing or special committees may 
be allowed such compensation for attendance at committee meetings as the 
board of directors may determine.
    Section 13. Presumption of Assent. A director of the Subsidiary 
Holding Company who is present at a meeting of the board of directors at 
which action on any Subsidiary Holding Company matter is taken shall be 
presumed to have assented to the action taken unless his or her dissent 
or abstention shall be entered in the minutes of the meeting or unless 
he or she shall file a written dissent to such action with the 
individual acting as the secretary of the meeting before the adjournment 
thereof or shall forward such dissent by registered mail to the 
secretary of the Subsidiary Holding Company within five days after the 
date a copy of the minutes of the meeting is received. Such right to 
dissent shall not apply to a director who voted in favor of such action.
    Section 14. Removal of Directors. At a meeting of shareholders 
called expressly for that purpose, any director may be removed only for 
cause by a vote of the holders of a majority of the shares then entitled 
to vote at an election of directors. If less than the entire board is to 
be removed, no one of the directors may be removed if the votes cast 
against the removal would be sufficient to elect a director if then 
cumulatively voted at an election of the class of directors of which 
such director is a part. [If cumulative voting has been deleted, the 
preceding sentence should be deleted.] Whenever the holders of the 
shares of any class are entitled to elect one or more directors by the 
provisions of the charter or supplemental sections thereto, the 
provisions of this section shall apply, in respect to the removal of a 
director or directors so elected, to the vote of the holders of the 
outstanding shares of that class and not to the vote of the outstanding 
shares as a whole.

               Article IV--Executive and Other Committees

    Section 1. Appointment. The board of directors, by resolution 
adopted by a majority of the full board, may designate the chief 
executive officer and two or more of the other directors to constitute 
an executive committee. The designation of any committee pursuant to 
this Article IV and the delegation of authority shall not operate to 
relieve the board of directors, or any director, of any responsibility 
imposed by law or regulation.
    Section 2. Authority. The executive committee, when the board of 
directors is not in session, shall have and may exercise all of the 
authority of the board of directors except to the extent, if any, that 
such authority shall be limited by the resolution appointing the 
executive committee; and except also that the executive committee shall 
not have the authority of the board of directors with reference to: the 
declaration of dividends; the amendment of the charter or bylaws of the 
Subsidiary Holding Company, or recommending to the shareholders a plan 
of merger, consolidation, or conversion; the sale, lease, or other 
disposition of all or substantially all of the property and assets of 
the Subsidiary Holding Company otherwise than in the usual and regular 
course of its business; a voluntary dissolution of the Subsidiary 
Holding Company; a revocation of any of the foregoing; or the approval 
of a transaction in which any member of the executive committee, 
directly or indirectly, has any material beneficial interest.
    Section 3. Tenure. Subject to the provisions of section 8 of this 
article IV, each member of the executive committee shall hold office 
until the next regular annual meeting of the board of directors 
following his or her designation and until a successor is designated as 
a member of the executive committee.

[[Page 192]]

    Section 4. Meetings. Regular meetings of the executive committee may 
be held without notice at such times and places as the executive 
committee may fix from time to time by resolution. Special meetings of 
the executive committee may be called by any member thereof upon not 
less than one day's notice stating the place, date, and hour of the 
meeting, which notice may be written or oral. Any member of the 
executive committee may waive notice of any meeting and no notice of any 
meeting need be given to any member thereof who attends in person. The 
notice of a meeting of the executive committee need not state the 
business proposed to be transacted at the meeting.
    Section 5. Quorum. A majority of the members of the executive 
committee shall constitute a quorum for the transaction of business at 
any meeting thereof, and action of the executive committee must be 
authorized by the affirmative vote of a majority of the members present 
at a meeting at which a quorum is present.
    Section 6. Action Without a Meeting. Any action required or 
permitted to be taken by the executive committee at a meeting may be 
taken without a meeting if a consent in writing, setting forth the 
action so taken, shall be signed by all of the members of the executive 
committee.
    Section 7. Vacancies. Any vacancy in the executive committee may be 
filled by a resolution adopted by a majority of the full board of 
directors.
    Section 8. Resignations and Removal. Any member of the executive 
committee may be removed at any time with or without cause by resolution 
adopted by a majority of the full board of directors. Any member of the 
executive committee may resign from the executive committee at any time 
by giving written notice to the president or secretary of the Subsidiary 
Holding Company. Unless otherwise specified, such resignation shall take 
effect upon its receipt; the acceptance of such resignation shall not be 
necessary to make it effective. No notice of any meeting need be given 
to any member thereof who attends in person. The notice of a meeting of 
the executive committee need not state the business proposed to be 
transacted at the meeting.
    Section 9. Procedure. The executive committee shall elect a 
presiding officer from its members and may fix its own rules of 
procedure, which shall not be inconsistent with these bylaws. It shall 
keep regular minutes of its proceedings and report the same to the board 
of directors for its information at the meeting held next after the 
proceedings shall have occurred.
    Section 10. Other Committees. The board of directors may by 
resolution establish an audit, loan, or other committee composed of 
directors as they may determine to be necessary or appropriate for the 
conduct of the business of the Subsidiary Holding Company and may 
prescribe the duties, constitution, and procedures thereof.

                           Article V--Officers

    Section 1. Positions. The officers of the Subsidiary Holding Company 
shall be a president, one or more vice presidents, a secretary, and a 
treasurer or comptroller, each of whom shall be elected by the board of 
directors. The board of directors may also designate the chairman of the 
board as an officer. The offices of the secretary and treasurer or 
comptroller may be held by the same individual and a vice president may 
also be either the secretary or the treasurer or comptroller. The board 
of directors may designate one or more vice presidents as executive vice 
president or senior vice president. The board of directors may also 
elect or authorize the appointment of such other officers as the 
business of the Subsidiary Holding Company may require. The officers 
shall have such authority and perform such duties as the board of 
directors may from time to time authorize or determine. In the absence 
of action by the board of directors, the officers shall have such powers 
and duties as generally pertain to their respective offices.
    Section 2. Election and Term of Office. The officers of the 
Subsidiary Holding Company shall be elected annually at the first 
meeting of the board of directors held after each annual meeting of the 
shareholders. If the election of officers is not held at such meeting, 
such election shall be held as soon thereafter as possible. Each officer 
shall hold office until a successor has been duly elected and qualified 
or until the officer's death, resignation, or removal in the manner 
hereinafter provided. Election or appointment of an officer, employee, 
or agent shall not of itself create contractual rights. The board of 
directors may authorize the Subsidiary Holding Company to enter into an 
employment contract with any officer in accordance with regulations of 
the Board; but no such contract shall impair the right of the board of 
directors to remove any officer at any time in accordance with section 3 
of this article V.
    Section 3. Removal. Any officer may be removed by the board of 
directors whenever in its judgment the best interests of the Subsidiary 
Holding Company will be served thereby, but such removal, other than for 
cause, shall be without prejudice to the contractual rights, if any, of 
the officer so removed.
    Section 4. Vacancies. A vacancy in any office because of death, 
resignation, removal, disqualification, or otherwise may be filled by 
the board of directors for the unexpired portion of the term.
    Section 5. Remuneration. The remuneration of the officers shall be 
fixed from time to time by the board of directors.

[[Page 193]]

           Article VI--Contracts, Loans, Checks, and Deposits

    Section 1. Contracts. To the extent permitted by regulations of the 
Board, and except as otherwise prescribed by these bylaws with respect 
to certificates for shares, the board of directors may authorize any 
officer, employee, or agent of the Subsidiary Holding Company to enter 
into any contract or execute and deliver any instrument in the name of 
and on behalf of the Subsidiary Holding Company. Such authority may be 
general or confined to specific instances.
    Section 2. Loans. No loans shall be contracted on behalf of the 
Subsidiary Holding Company and no evidence of indebtedness shall be 
issued in its name unless authorized by the board of directors. Such 
authority may be general or confined to specific instances.
    Section 3. Checks; Drafts. etc. All checks, drafts, or other orders 
for the payment of money, notes, or other evidences of indebtedness 
issued in the name of the Subsidiary Holding Company shall be signed by 
one or more officers, employees or agents of the Subsidiary Holding 
Company in such manner as shall from time to time be determined by the 
board of directors.
    Section 4. Deposits. All funds of the Subsidiary Holding Company not 
otherwise employed shall be deposited from time to time to the credit of 
the Subsidiary Holding Company in any duly authorized depositories as 
the board of directors may select.

         Article VII--Certificates for Shares and Their Transfer

    Section 1. Certificates for Shares. Certificates representing shares 
of capital stock of the Subsidiary Holding Company shall be in such form 
as shall be determined by the board of directors and approved by the 
Board. Such certificates shall be signed by the chief executive officer 
or by any other officer of the Subsidiary Holding Company authorized by 
the board of directors, attested by the secretary or an assistant 
secretary, and sealed with the corporate seal or a facsimile thereof. 
The signatures of such officers upon a certificate may be facsimiles if 
the certificate is manually signed on behalf of a transfer agent or a 
registrar other than the Subsidiary Holding Company itself or one of its 
employees. Each certificate for shares of capital stock shall be 
consecutively numbered or otherwise identified. The name and address of 
the person to whom the shares are issued, with the number of shares and 
date of issue, shall be entered on the stock transfer books of the 
Subsidiary Holding Company. All certificates surrendered to the 
Subsidiary Holding Company for transfer shall be canceled and no new 
certificate shall be issued until the former certificate for a like 
number of shares has been surrendered and canceled, except that in the 
case of a lost or destroyed certificate, a new certificate may be issued 
upon such terms and indemnity to the Subsidiary Holding Company as the 
board of directors may prescribe.
    Section 2. Transfer of Shares. Transfer of shares of capital stock 
of the Subsidiary Holding Company shall be made only on its stock 
transfer books. Authority for such transfer shall be given only by the 
holder of record or by his or her legal representative, who shall 
furnish proper evidence of such authority, or by his or her attorney 
authorized by a duly executed power of attorney and filed with the 
Subsidiary Holding Company. Such transfer shall be made only on 
surrender for cancellation of the certificate for such shares. The 
person in whose name shares of capital stock stand on the books of the 
Subsidiary Holding Company shall be deemed by the Subsidiary Holding 
Company to be the owner for all purposes.

                        Article VIII--Fiscal Year

    The fiscal year of the Subsidiary Holding Company shall end on the 
________of________each year. The appointment of accountants shall be 
subject to annual ratification by the shareholders.

                          Article IX--Dividends

    Subject to the terms of the Subsidiary Holding Company's charter and 
the regulations and orders of the Board, the board of directors may, 
from time to time, declare, and the Subsidiary Holding Company may pay, 
dividends on its outstanding shares of capital stock.

                        Article X--Corporate Seal

    The board of directors shall provide a Subsidiary Holding Company 
seal, which shall be two concentric circles between which shall be the 
name of the Subsidiary Holding Company. The year of incorporation or an 
emblem may appear in the center.

                         Article XI--Amendments

    These bylaws may be amended in a manner consistent with regulations 
of the Board and shall be effective after: (i) approval of the amendment 
by a majority vote of the authorized board of directors, or by a 
majority vote of the votes cast by the shareholders of the Subsidiary 
Holding Company at any legal meeting, and (ii) receipt of any applicable 
regulatory approval. When a Subsidiary Holding Company fails to meet its 
quorum requirements, solely due to vacancies on the board, then the 
affirmative vote of a majority of the sitting board will be required to 
amend the bylaws.

[[Page 194]]



PART 240_RETAIL FOREIGN EXCHANGE TRANSACTIONS (REGULATION NN)--Table of Contents



Sec.
240.1  Authority, purpose, and scope.
240.2  Definitions.
240.3  Prohibited transactions.
240.4  Notification.
240.5  Application and closing out of offsetting long and short 
          positions.
240.6  Disclosure.
240.7  Recordkeeping.
240.8  Capital requirements.
240.9  Margin requirements.
240.10  Required reporting to customers.
240.11  Unlawful representations.
240.12  Authorization to trade.
240.13  Trading and operational standards.
240.14  Supervision.
240.15  Notice of transfers.
240.16  Customer dispute resolution.
240.17  Reservation of authority.

    Authority: 7 U.S.C. 2(c)(2)(E), 12 U.S.C. 248, 321-338, 1813(q), 
1818, 1844(b), 3106a, 3108.

    Source: 78 FR 21027, Apr. 9, 2013, unless otherwise noted.



Sec. 240.1  Authority, purpose and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (the Board) under the authority of section 
2(c)(2)(E) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(E)), sections 
9 and 11 of the Federal Reserve Act (12 U.S.C. 321-338 and 248), section 
5(b) of the Bank Holding Company Act of 1956 (12 U.S.C. 1844(b)), 
sections 9 and 13a of the International Banking Act of 1978 (12 U.S.C. 
3106a and 3108), and sections 3(q) and 8 of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(q) and 1818).
    (b) Purpose. This part establishes rules applicable to retail 
foreign exchange transactions engaged in by banking institutions on or 
after May 13, 2013.
    (c) Scope. Except as provided in paragraph (d) of this section, this 
part applies to banking institutions, as defined in section 240.2(b) of 
this part, and any branches or offices of those institutions wherever 
located. This part applies to subsidiaries of banking institutions 
organized under the laws of the United States or any U.S. state that are 
not subject to the jurisdiction of another federal regulatory agency 
authorized to prescribe rules or regulations under section 2(c)(2)(E) of 
the Commodity Exchange Act (7 U.S.C. (2)(c)(2)(E)).
    (d) International applicability. Sections 240.3 and 240.5 through 
240.16 do not apply to retail foreign exchange transactions between a 
foreign branch or office of a banking institution and a non-U.S. 
customer. With respect to those transactions, the foreign branch or 
office remains subject to any disclosure, recordkeeping, capital, 
margin, reporting, business conduct, documentation, and other 
requirements of applicable foreign law.



Sec. 240.2  Definitions.

    For purposes of this part, the following terms have the same meaning 
as in the Commodity Exchange Act (7 U.S.C. 1 et seq.): ``affiliated 
person of a futures commission merchant''; ``associated person''; 
``contract of sale''; ``commodity''; ``futures commission merchant''; 
``future delivery''; ``option''; ``security''; and ``security futures 
product.''
    (a) Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Banking institution means:
    (1) A state member bank (as defined in 12 CFR 208.2);
    (2) An uninsured state-licensed U.S. branch or agency of a foreign 
bank;
    (3) A financial holding company (as defined in section 2 of the Bank 
Holding Company Act of 1956; 12 U.S.C. 1841);
    (4) A bank holding company (as defined in section 2 of the Bank 
Holding Company Act of 1956; 12 U.S.C. 1841);
    (5) A savings and loan holding company (as defined in section 10 of 
the Home Owners Loan Act; 12 U.S.C. 1467a)
    (6) A corporation operating under the fifth undesignated paragraph 
of section 25 of the Federal Reserve Act (12 U.S.C. 603), commonly known 
as ``an agreement corporation;'' and
    (7) A corporation organized under section 25A of the Federal Reserve 
Act (12 U.S.C. 611 et seq.), commonly known as an ``Edge Act 
corporation.''
    (c) Commodity Exchange Act means the Commodity Exchange Act (7 
U.S.C. 1 et seq.).

[[Page 195]]

    (d) Eligible contract participant has the same meaning as in the 
Commodity Exchange Act (7 U.S.C. 1 et seq., as implemented in 17 CFR 
1.3(m).
    (e) Forex means foreign exchange.
    (f) Identified banking product has the same meaning as in section 
401(b) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 
27(b)).
    (g) Institution-affiliated party or IAP has the same meaning as in 
12 U.S.C. 1813(u)(1), (2), or (3).
    (h) Introducing broker means any person who solicits or accepts 
orders from a retail forex customer in connection with retail forex 
transactions.
    (i) Related person, when used in reference to a retail forex 
counterparty, means:
    (1) Any general partner, officer, director, or owner of ten percent 
or more of the capital stock of the retail forex counterparty;
    (2) An associated person or employee of the retail forex 
counterparty, if the retail forex counterparty is not an insured 
depository institution;
    (3) An IAP, if the retail forex counterparty is an insured 
depository institution; and
    (4) Any relative or spouse of any of the foregoing persons, or any 
relative of such spouse, who shares the same home as any of the 
foregoing persons.
    (j) Retail foreign exchange dealer means any person other than a 
retail forex customer that is, or that offers to be, the counterparty to 
a retail forex transaction, except for a person described in item (aa), 
(bb), (cc)(AA), (dd), or (ff) of section 2(c)(2)(B)(i)(II) of the 
Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)).
    (k) Retail forex account means the account of a retail forex 
customer, established with a banking institution, in which retail forex 
transactions with the banking institution as counterparty are 
undertaken, or the account of a retail forex customer that is 
established in order to enter into such transactions.
    (l) Retail forex account agreement means the contractual agreement 
between a banking institution and a retail forex customer that contains 
the terms governing the customer's retail forex account with the banking 
institution.
    (m) Retail forex business means engaging in one or more retail forex 
transactions with the intent to derive income from those transactions, 
either directly or indirectly.
    (n) Retail forex counterparty includes, as appropriate:
    (1) A banking institution;
    (2) A retail foreign exchange dealer;
    (3) A futures commission merchant;
    (4) An affiliated person of a futures commission merchant; and
    (5) A broker or dealer registered under section 15(b) (except 
paragraph (11) thereof) or 15C of the Securities Exchange Act of 1934 
(15 U.S.C. 78o(b), 78o-5) or a U.S. financial institution other than a 
banking institution, provided the counterparty is subject to a rule or 
regulation of a Federal regulatory agency covering retail forex 
transactions.
    (o) Retail forex customer means a customer that is not an eligible 
contract participant, acting on his, her, or its own behalf and engaging 
in retail forex transactions.
    (p) Retail forex proprietary account means a retail forex account 
carried on the books of a banking institution for one of the following 
persons; a retail forex account of which 10 percent or more is owned by 
one of the following persons; or a retail forex account of which an 
aggregate of 10 percent or more of which is owned by more than one of 
the following persons:
    (1) The banking institution;
    (2) An officer, director or owner of ten percent or more of the 
capital stock of the banking institution; or
    (3) An employee of the banking institution, whose duties include:
    (i) The management of the banking institution's business;
    (ii) The handling of the banking institution's retail forex 
transactions;
    (iii) The keeping of records, including without limitation the 
software used to make or maintain those records, pertaining to the 
banking institution's retail forex transactions; or
    (iv) The signing or co-signing of checks or drafts on behalf of the 
banking institution;
    (4) A spouse or minor dependent living in the same household as of 
any of the foregoing persons; or

[[Page 196]]

    (5) An affiliate of the banking institution;
    (q) Retail forex transaction means an agreement, contract, or 
transaction in foreign currency, other than an identified banking 
product or a part of an identified banking product, that is offered or 
entered into by a banking institution with a person that is not an 
eligible contract participant and that is:
    (1) A contract of sale of a commodity for future delivery or an 
option on such a contract; or
    (2) An option, other than an option executed or traded on a national 
securities exchange registered pursuant to section 6(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or
    (3) Offered or entered into on a leveraged or margined basis, or 
financed by a banking institution, its affiliate, or any person acting 
in concert with the banking institution or its affiliate on a similar 
basis, other than:
    (i) A security that is not a security futures product as defined in 
section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or
    (ii) A contract of sale that--
    (A) Results in actual delivery within two days; or
    (B) Creates an enforceable obligation to deliver between a seller 
and buyer that have the ability to deliver and accept delivery, 
respectively, in connection with their line of business; or
    (iii) An agreement, contract, or transaction that the Board 
determines is not functionally or economically similar to an agreement, 
contract, or transaction described in paragraph (p)(1) or (p)(2) of this 
section.



Sec. 240.3  Prohibited transactions.

    (a) Fraudulent conduct prohibited. No banking institution or its 
related persons may, directly or indirectly, in or in connection with 
any retail forex transaction:
    (1) Cheat or defraud or attempt to cheat or defraud any person;
    (2) Knowingly make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (3) Knowingly deceive or attempt to deceive any person by any means 
whatsoever.
    (b) Acting as counterparty and exercising discretion prohibited. A 
banking institution that has authority to cause retail forex 
transactions to be effected for a retail forex customer without the 
retail forex customer's specific authorization may not (and an affiliate 
of such an institution may not) act as the counterparty for any retail 
forex transaction with that retail forex customer.



Sec. 240.4  Notification.

    (a) Notification required. Before commencing a retail forex 
business, a banking institution shall provide the Board with prior 
written notice in compliance with this section. The notice will become 
effective 60 days after a complete notice is received by the Board, 
provided the Board does not request additional information or object in 
writing. In the event the Board requests additional information, the 
notice will become effective 60 days after all information requested by 
the Board is received by the Board unless the Board objects in writing.
    (b) Notification requirements. A banking institution shall provide 
the following in its written notification:
    (1) Information concerning customer due diligence, including without 
limitation credit evaluations, customer appropriateness, and ``know your 
customer'' documentation;
    (2) The haircuts to be applied to noncash margin as provided in 
240.9(b)(2);
    (3) Information concerning new product approvals;
    (4) Information on addressing conflicts of interest; and
    (5) A resolution by the banking institution's Board of Directors 
that the banking institution has established and implemented written 
policies, procedures, and risk measurement and management systems and 
controls for the purpose of ensuring that it conducts retail forex 
transactions in a safe and sound manner and in compliance with this 
part.
    (c) Treatment of existing retail forex businesses. A banking 
institution that is engaged in a retail forex business on the effective 
date of this part may continue to do so, until and unless the Board 
objects in writing, so long as the

[[Page 197]]

institution submits the information required to be submitted under 
paragraphs (b)(1) through (5) of this section within 30 days of the 
effective date of this part, subject to an extension of time by the 
Board, and such additional information as requested by the Board 
thereafter.
    (d) Compliance with the Commodity Exchange Act. A banking 
institution that is engaged in a retail forex business on the effective 
date of this part and complies with paragraph (c) of this section shall 
be deemed to be acting pursuant to a rule or regulation described in 
section 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C. 
2(c)(2)(E)(ii)(I)).



Sec. 240.5  Application and closing out of offsetting long and short 
positions.

    (a) Application of purchases and sales. Any banking institution 
that--
    (1) Engages in a retail forex transaction involving the purchase of 
any currency for the account of any retail forex customer when the 
account of such retail forex customer at the time of such purchase has 
an open retail forex transaction for the sale of the same currency;
    (2) Engages in a retail forex transaction involving the sale of any 
currency for the account of any retail forex customer when the account 
of such retail forex customer at the time of such sale has an open 
retail forex transaction for the purchase of the same currency;
    (3) Purchases a put or call option involving foreign currency for 
the account of any retail forex customer when the account of such retail 
forex customer at the time of such purchase has a short put or call 
option position with the same underlying currency, strike price, and 
expiration date as that purchased; or
    (4) Sells a put or call option involving foreign currency for the 
account of any retail forex customer when the account of such retail 
forex customer at the time of such sale has a long put or call option 
position with the same underlying currency, strike price, and expiration 
date as that sold shall:
    (i) Immediately apply such purchase or sale against such previously 
held opposite transaction with the same customer; and
    (ii) Promptly furnish such retail forex customer with a statement 
showing the financial result of the transactions involved and the name 
of any introducing broker to the account.
    (b) Close-out against oldest open position. In all instances in 
which the short or long position in a customer's retail forex account 
immediately prior to an offsetting purchase or sale is greater than the 
quantity purchased or sold, the banking institution shall apply such 
offsetting purchase or sale to the oldest portion of the previously held 
short or long position.
    (c) Transactions to be applied as directed by customer. 
Notwithstanding paragraphs (a) and (b) of this section, the offsetting 
transaction shall be applied as directed by a retail forex customer's 
specific instructions. These instructions may not be made by the banking 
institution or a related person.



Sec. 240.6  Disclosure.

    (a) Risk disclosure statement required. No banking institution may 
open or maintain an account for a retail forex customer for the purpose 
of engaging in retail forex transactions unless the banking institution 
has furnished the retail forex customer with a separate written 
disclosure statement containing only the language set forth in paragraph 
(d) of this section and the disclosures required by paragraphs (e), (f), 
and (g) of this section.
    (b) Acknowledgement of risk disclosure statement required. The 
banking institution must receive from the retail forex customer a 
written acknowledgement signed and dated by the customer that the 
customer received and understood the written disclosure statement 
required by paragraph (a) of this section.
    (c) Placement of risk disclosure statement. The disclosure statement 
may be attached to other documents as the initial page(s) of such 
documents and as the only material on such page(s).
    (d) Content of risk disclosure statement. The language set forth in 
the written disclosure statement required by paragraph (a) of this 
section shall be as follows:

[[Page 198]]

                        Risk Disclosure Statement

    Retail forex transactions generally involve the leveraged trading of 
contracts denominated in foreign currency with a banking institution as 
your counterparty. Because of the leverage and the other risks disclosed 
here, you can rapidly lose all of the funds or property you give the 
banking institution as margin for such trading and you may lose more 
than you pledge as margin. You should be aware of and carefully consider 
the following points before determining whether such trading is 
appropriate for you.
    (1) Trading foreign currencies is a not on a regulated market or 
exchange--your banking institution is your trading counterparty and has 
conflicting interests. The retail forex transaction you are entering 
into is not conducted on an interbank market, nor is it conducted on a 
futures exchange subject to regulation by the Commodity Futures Trading 
Commission. The foreign currency trades you transact are trades with 
your banking institution as the counterparty. When you sell, the banking 
institution is the buyer. When you buy, the banking institution is the 
seller. As a result, when you lose money trading, your banking 
institution is making money on such trades, in addition to any fees, 
commissions, or spreads the banking institution may charge.
    (2) Any electronic trading platform that you may use for retail 
foreign currency transactions with your banking institution is not a 
regulated exchange. It is an electronic connection for accessing your 
banking institution. The terms of availability of such a platform are 
governed only by your contract with your banking institution. Any 
trading platform that you may use to enter into off-exchange foreign 
currency transactions is only connected to your banking institution. You 
are accessing that trading platform only to transact with your banking 
institution. You are not trading with any other entities or customers of 
the banking institution by accessing such platform. The availability and 
operation of any such platform, including the consequences of the 
unavailability of the trading platform for any reason, is governed only 
by the terms of your account agreement with the banking institution.
    (3) You may be able to offset or liquidate any trading positions 
only through your banking institution because the transactions are not 
made on an exchange, and your banking institution may set its own 
prices. Your ability to close your transactions or offset positions is 
limited to what your banking institution will offer to you, as there is 
no other market for these transactions. Your banking institution may 
offer any prices it wishes. Your banking institution may establish its 
prices by offering spreads from third party prices, but it is under no 
obligation to do so or to continue to do so. Your banking institution 
may offer different prices to different customers at any point in time 
on its own terms. The terms of your account agreement alone govern the 
obligations your banking institution has to you to offer prices and 
offer offset or liquidating transactions in your account and make any 
payments to you. The prices offered by your banking institution may or 
may not reflect prices available elsewhere at any exchange, interbank, 
or other market for foreign currency.
    (4) Paid solicitors may have undisclosed conflicts. The banking 
institution may compensate introducing brokers for introducing your 
account in ways that are not disclosed to you. Such paid solicitors are 
not required to have, and may not have, any special expertise in 
trading, and may have conflicts of interest based on the method by which 
they are compensated. You should thoroughly investigate the manner in 
which all such solicitors are compensated and be very cautious in 
granting any person or entity authority to trade on your behalf. You 
should always consider obtaining dated written confirmation of any 
information you are relying on from your banking institution in making 
any trading or account decisions.
    (5) Retail forex transactions are not insured by the Federal Deposit 
Insurance Corporation.
    (6) Retail forex transactions are not a deposit in, or guaranteed 
by, a banking institution.
    (7) Retail forex transactions are subject to investment risks, 
including possible loss of all amounts invested.
    Finally, you should thoroughly investigate any statements by any 
banking institution that minimize the importance of, or contradict, any 
of the terms of this risk disclosure. Such statements may indicate sales 
fraud.
    This brief statement cannot, of course, disclose all the risks and 
other aspects of trading off-exchange foreign currency with a banking 
institution. I hereby acknowledge that I have received and understood 
this risk disclosure statement.

________________________________________________________________________
Date

________________________________________________________________________
Signature of Customer
    (e)(1) Disclosure of profitable accounts ratio. Immediately 
following the language set forth in paragraph (d) of this section, the 
statement required by paragraph (a) of this section shall include, for 
each of the most recent four calendar quarters during which the banking 
institution maintained retail forex customer accounts:

[[Page 199]]

    (i) The total number of retail forex customer accounts maintained by 
the banking institution over which the banking institution does not 
exercise investment discretion;
    (ii) The percentage of such accounts that were profitable for retail 
forex customer accounts during the quarter; and
    (iii) The percentage of such accounts that were not profitable for 
retail forex customer accounts during the quarter.
    (2) Statement of profitable trades. (i) The banking institution's 
statement of profitable trades shall include the following legend: Past 
performance is not necessarily indicative of future results.
    (ii) Each banking institution shall provide, upon request, to any 
retail forex customer or prospective retail forex customer the total 
number of retail forex accounts maintained by the banking institution 
for which the banking institution does not exercise investment 
discretion, the percentage of such accounts that were profitable, and 
the percentage of such accounts that were not profitable for each 
calendar quarter during the most recent five-year period during which 
the banking institution maintained such accounts.
    (f) Disclosure of fees and other charges. Immediately following the 
language required by paragraph (e) of this section, the statement 
required by paragraph (a) of this section shall include:
    (1) The amount of any fee, charge, spread, or commission that the 
banking institution may impose on the retail forex customer in 
connection with a retail forex account or retail forex transaction;
    (2) An explanation of how the banking institution will determine the 
amount of such fees, charges, spreads, or commissions; and
    (3) The circumstances under which the banking institution may impose 
such fees, charges, spreads, or commissions.
    (g) Set-off. Immediately following the language required by 
paragraph (f) of this section, the statement required by paragraph (a) 
of this section shall include:
    (1) A statement as to whether the banking institution will or will 
not retain the right to set off obligations of the retail forex customer 
arising from the customer's retail forex transactions, including margin 
calls and losses, against the customer's other assets held by the 
banking institution;
    (2) If the banking institution states that it reserves its right to 
set off obligations of the retail forex customer arising from the 
customer's retail forex transactions against the customer's other 
assets, the banking institution must receive from the retail forex 
customer a written acknowledgement signed and dated by the customer that 
the customer received and understood the written disclosure required by 
paragraph (g)(1) of this section.
    (h) Future disclosure requirements. If, with regard to a retail 
forex customer, the banking institution changes any fee, charge, or 
commission required to be disclosed under paragraph (f) of this section, 
then the banking institution shall mail or deliver to the retail forex 
customer a notice of the changes at least 15 days prior to the effective 
date of the change.
    (i) Form of disclosure requirements. The disclosures required by 
this section shall be clear and conspicuous and designed to call 
attention to the nature and significance of the information provided.
    (j) Other disclosure requirements unaffected. This section does not 
relieve a banking institution from any other disclosure obligation it 
may have under applicable law.



Sec. 240.7  Recordkeeping.

    (a) General rule. A banking institution engaging in retail forex 
transactions shall keep full, complete and systematic records, together 
with all pertinent data and memoranda, of all transactions relating to 
its retail forex business, including:
    (1) Retail forex account records. For each retail forex account:
    (i) The name and address of the person for whom such retail forex 
account is carried or introduced and the principal occupation or 
business of the person;
    (ii) The name of any other person guaranteeing the account or 
exercising trading control with respect to the account;

[[Page 200]]

    (iii) The establishment or termination of the account;
    (iv) A means to identify the person who has solicited and is 
responsible for the account or assign account numbers in such a manner 
as to identify that person;
    (v) The funds in the account, net of any commissions and fees;
    (vi) The account's net profits and losses on open trades;
    (vii) The funds in the account plus or minus the net profits and 
losses on open trades, adjusted for the net option value in the case of 
open options positions;
    (viii) Financial ledger records that show separately for each retail 
forex customer all charges against and credits to such retail forex 
customer's account, including but not limited to retail forex customer 
funds deposited, withdrawn, or transferred, and charges or credits 
resulting from losses or gains on closed transactions; and
    (ix) A list of all retail forex transactions executed for the 
account, with the details specified in paragraph (a)(2) of this section.
    (2) Retail forex transaction records. For each retail forex 
transaction:
    (i) The date and time the banking institution received the order;
    (ii) The price at which the banking institution placed the order, 
or, in the case of an option, the premium that the retail forex customer 
paid;
    (iii) The customer account identification information;
    (iv) The currency pair;
    (v) The size or quantity of the order;
    (vi) Whether the order was a buy or sell order;
    (vii) The type of order, if the order was not a market order;
    (viii) The size and price at which the order is executed, or in the 
case of an option, the amount of the premium paid for each option 
purchased, or the amount credited for each option sold;
    (ix) For options, whether the option is a put or call, expiration 
date, quantity, underlying contract for future delivery or underlying 
physical, strike price, and details of the purchase price of the option, 
including premium, mark-up, commission, and fees;
    (x) For futures, the delivery date; and
    (xi) If the order was made on a trading platform:
    (A) The price quoted on the trading platform when the order was 
placed, or, in the case of an option, the premium quoted;
    (B) The date and time the order was transmitted to the trading 
platform; and
    (C) The date and time the order was executed.
    (3) Price changes on a trading platform. If a trading platform is 
used, daily logs showing each price change on the platform, the time of 
the change to the nearest second, and the trading volume at that time 
and price.
    (4) Methods or algorithms. Any method or algorithm used to determine 
the bid or asked price for any retail forex transaction or the prices at 
which customers orders are executed, including, but not limited to, any 
mark-ups, fees, commissions or other items which affect the 
profitability or risk of loss of a retail forex customer's transaction.
    (5) Daily records which show for each business day complete details 
of:
    (i) All retail forex transactions that are futures transactions 
executed on that day, including the date, price, quantity, market, 
currency pair, delivery date, and the person for whom such transaction 
was made;
    (ii) All retail forex transactions that are option transactions 
executed on that day, including the date, whether the transaction 
involved a put or call, the expiration date, quantity, currency pair, 
delivery date, strike price, details of the purchase price of the 
option, including premium, mark-up, commission and fees, and the person 
for whom the transaction was made; and
    (iii) All other retail forex transactions executed on that day for 
such account, including the date, price, quantity, currency and the 
person for whom such transaction was made.
    (6) Other records. Written acknowledgements of receipt of the risk 
disclosure statement required by Sec. 240.6(b), offset instructions 
pursuant to Sec. 240.5(c), records required under paragraphs (b) through 
(f) of this section, trading cards, signature cards, street books, 
journals, ledgers, payment records, copies of statements of purchase, 
and all other records, data and

[[Page 201]]

memoranda that have been prepared in the course of the banking 
institution's retail forex business.
    (b) Ratio of profitable accounts. (1) With respect to its active 
retail forex customer accounts over which it did not exercise investment 
discretion and that are not retail forex proprietary accounts open for 
any period of time during the quarter, a banking institution shall 
prepare and maintain on a quarterly basis (calendar quarter):
    (i) A calculation of the percentage of such accounts that were 
profitable;
    (ii) A calculation of the percentage of such accounts that were not 
profitable; and
    (iii) Data supporting the calculations described in paragraphs 
(b)(1)(i) and (b)(1)(ii) of this section.
    (2) In calculating whether a retail forex account was profitable or 
not profitable during the quarter, the banking institution shall compute 
the realized and unrealized gains or losses on all retail forex 
transactions carried in the retail forex account at any time during the 
quarter, and subtract all fees, commissions, and any other charges 
posted to the retail forex account during the quarter, and add any 
interest income and other income or rebates credited to the retail forex 
account during the quarter. All deposits and withdrawals of funds made 
by the retail forex customer during the quarter must be excluded from 
the computation of whether the retail forex account was profitable or 
not profitable during the quarter. Computations that result in a zero or 
negative number shall be considered a retail forex account that was not 
profitable. Computations that result in a positive number shall be 
considered a retail forex account that was profitable.
    (3) A retail forex account shall be considered ``active'' for 
purposes of paragraph (b)(1) of this section if and only if, for the 
relevant calendar quarter, a retail forex transaction was executed in 
that account or the retail forex account contained an open position 
resulting from a retail forex transaction.
    (c) Records related to possible violations of law. A banking 
institution engaging in retail forex transactions shall make a record of 
all communications received by the banking institution or its related 
persons concerning facts giving rise to possible violations of law 
related to the banking institution's retail forex business. The record 
shall contain: the name of the complainant, if provided; the date of the 
communication; the relevant agreement, contract, or transaction; the 
substance of the communication; and the name of the person who received 
the communication and the final disposition of the matter.
    (d) Records for noncash margin. A banking institution shall maintain 
a record of all noncash margin collected pursuant to Sec. 240.9. The 
record shall show separately for each retail forex customer:
    (1) A description of the securities or property received;
    (2) The name and address of such retail forex customer;
    (3) The dates when the securities or property were received;
    (4) The identity of the depositories or other places where such 
securities or property are segregated or held, if applicable;
    (5) The dates on which the banking institution placed or removed 
such securities or property into or from such depositories; and
    (6) The dates of return of such securities or property to such 
retail forex customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition.
    (e) Order tickets. (1) Except as provided in paragraph (e)(2) of 
this section, immediately upon the receipt of a retail forex transaction 
order, a banking institution shall prepare an order ticket for the order 
(whether unfulfilled, executed or canceled). The order ticket shall 
include:
    (i) Account identification (account or customer name with which the 
retail forex transaction was effected);
    (ii) Order number;
    (iii) Type of order (market order, limit order, or subject to 
special instructions);
    (iv) Date and time, to the nearest minute, the retail forex 
transaction order was received (as evidenced by timestamp or other 
timing device);

[[Page 202]]

    (v) Time, to the nearest minute, the retail forex transaction order 
was executed; and
    (vi) Price at which the retail forex transaction was executed.
    (2) Post-execution allocation of bunched orders. Specific 
identifiers for retail forex accounts included in bunched orders need 
not be recorded at time of order placement or upon report of execution 
as required under paragraph (e)(1) of this section if the following 
requirements are met:
    (i) The banking institution placing and directing the allocation of 
an order eligible for post-execution allocation has been granted written 
investment discretion with regard to participating customer accounts and 
makes the following information available to customers upon request:
    (A) The general nature of the post-execution allocation methodology 
the banking institution will use;
    (B) Whether the banking institution has any interest in accounts 
which may be included with customer accounts in bunched orders eligible 
for post-execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare the customer's results with those of other comparable customers 
and, if applicable, any account in which the banking institution has an 
interest.
    (ii) Post-execution allocations are made as soon as practicable 
after the entire transaction is executed;
    (iii) Post-execution allocations are fair and equitable, with no 
account or group of accounts receiving consistently favorable or 
unfavorable treatment; and
    (iv) The post-execution allocation methodology is sufficiently 
objective and specific to permit the Board to verify fairness of the 
allocations using that methodology.
    (f) Record of monthly statements and confirmations. A banking 
institution shall retain a copy of each monthly statement and 
confirmation required by Sec. 240.10.
    (g) Form of record and manner of maintenance. The records required 
by this section must clearly and accurately reflect the information 
required and provide an adequate basis for the audit of the information. 
A banking institution must create and maintain audio recordings of oral 
orders and oral offset instructions. Record maintenance may include the 
use of automated or electronic records provided that the records are 
easily retrievable, and readily available for inspection.
    (h) Length of maintenance. A banking institution shall keep each 
record required by this section for at least five years from the date 
the record is created.



Sec. 240.8  Capital requirements.

    (a) Capital required for a state member bank. A banking institution 
defined in section 240.2(b)(1) offering or entering into retail forex 
transactions must be well-capitalized as defined in section 208.43 of 
Regulation H (12 CFR 208.43).
    (b) Capital required for an uninsured state-licensed branch of a 
foreign bank. A banking institution defined in Sec. 240.2(b)(2) offering 
or entering into retail forex transactions must be well-capitalized 
under the capital rules made applicable to it pursuant to 
Sec. 225.2(r)(3) of Regulation Y (12 CFR 225.2(r)(3)).
    (c) Capital required for financial holding companies and bank 
holding companies. A banking institution defined in Sec. 240.2(b)(3) or 
(4) offering or entering into retail forex transactions must be well-
capitalized as defined in Sec. 225.2(r) of Regulation Y (12 CFR 
225.2(r)).
    (d) Capital required for savings and loan holding companies. A 
banking institution defined in Sec. 240.2(b)(5) offering or entering 
into retail forex transactions must be well-capitalized as defined in 
Sec. 238.2(s) of Regulation LL (12 CFR 238.2(s)).
    (e) Capital required for an agreement corporation or Edge Act 
corporation. A banking institution defined in Sec. 240.2(b)(6) or (7) 
offering or entering into retail forex transactions must maintain 
capital in compliance with the capital adequacy guidelines that are made 
applicable to an Edge corporation engaged in banking pursuant to 
Sec. 211.12 (c)(2) of Regulation K (12 CFR 211.12(c)(2)).



Sec. 240.9  Margin requirements

    (a) Margin required. A banking institution engaging, or offering to 
engage,

[[Page 203]]

in retail forex transactions must collect from each retail forex 
customer an amount of margin not less than:
    (1) Two percent of the notional value of the retail forex 
transaction for major currency pairs and 5 percent of the notional value 
of the retail forex transaction for all other currency pairs;
    (2) For short options, 2 percent for major currency pairs and 5 
percent for all other currency pairs of the notional value of the retail 
forex transaction, plus the premium received by the retail forex 
customer; or
    (3) For long options, the full premium charged and received by the 
banking institution.
    (b)(1) Form of margin. Margin collected under paragraph (a) of this 
section or pledged by a retail forex customer for retail forex 
transactions in excess of the requirements of paragraph (a) of this 
section must be in the form of cash or the following financial 
instruments:
    (i) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States;
    (ii) General obligations of any State or of any political 
subdivision thereof;
    (iii) General obligations issued or guaranteed by any enterprise, as 
defined in 12 U.S.C. 4502(10);
    (iv) Certificates of deposit issued by an insured depository 
institution, as defined in section 3(c)(2) of the Federal Deposit 
Insurance Act (12 U.S.C. 1813(c)(2));
    (v) Commercial paper;
    (vi) Corporate notes or bonds;
    (vii) General obligations of a sovereign nation;
    (viii) Interests in money market mutual funds; and
    (ix) Such other financial instruments as the Board deems 
appropriate.
    (2) Haircuts. A banking institution shall establish written policies 
and procedures that include:
    (i) Haircuts for noncash margin collected under this section; and
    (ii) Annual evaluation, and, if appropriate, modification of the 
haircuts.
    (c) Major currencies. (1) for the purposes of paragraphs (a)(1) and 
(a)(2) of this section, major currency means:
    (i) United States Dollar (USD)
    (ii) Canadian Dollar (CAD)
    (iii) Euro (EUR)
    (iv) United Kingdom Pound (GBP)
    (v) Japanese Yen (JPY)
    (vi) Swiss Franc (CHF)
    (vii) New Zealand Dollar (NZD)
    (viii) Australian Dollar (AUD)
    (ix) Swedish Kronor (SEK)
    (x) Danish Kroner (DKK)
    (xi) Norwegian Krone (NOK), and
    (xii) Any other currency as determined by the Board.
    (d) Margin calls; liquidation of position. For each retail forex 
customer, at least once per day, a banking institution shall:
    (1) Mark the value of the retail forex customer's open retail forex 
positions to market;
    (2) Mark the value of the margin collected under this section from 
the retail forex customer to market;
    (3) Determine whether, based on the marks in paragraphs (d)(1) and 
(d)(2) of this section, the banking institution has collected margin 
from the retail forex customer sufficient to satisfy the requirements of 
this section; and
    (4) If, pursuant to paragraph (d)(3) of this section, the banking 
institution determines that it has not collected margin from the retail 
forex customer sufficient to satisfy the requirements of this section 
then, within a reasonable period of time, the banking institution shall 
either:
    (i) Collect margin from the retail forex customer sufficient to 
satisfy the requirements of this section; or
    (ii) Liquidate the retail forex customer's retail forex 
transactions.



Sec. 240.10  Required reporting to customers.

    (a) Monthly statements. Each banking institution must promptly 
furnish to each retail forex customer, as of the close of the last 
business day of each month or as of any regular monthly date selected, 
except for accounts in which there are neither open positions at the end 
of the statement period nor any changes to the account balance since the 
prior statement period, but in any event not less frequently than once 
every three months, a statement that clearly shows:
    (1) For each retail forex customer:

[[Page 204]]

    (i) The open retail forex transactions with prices at which 
acquired;
    (ii) The net unrealized profits or losses in all open retail forex 
transactions marked to the market;
    (iii) Any money, securities or other property held as margin for 
retail forex transactions; and
    (iv) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period, including: money, securities, or property received 
from or disbursed to such customer; realized profits and losses; and 
fees, charges, and commissions.
    (2) For each retail forex customer engaging in retail forex 
transactions that are options:
    (i) All such options purchased, sold, exercised, or expired during 
the monthly reporting period, identified by underlying retail forex 
transaction or underlying currency, strike price, transaction date, and 
expiration date;
    (ii) The open option positions carried for such customer and arising 
as of the end of the monthly reporting period, identified by underlying 
retail forex transaction or underlying currency, strike price, 
transaction date, and expiration date;
    (iii) All such option positions marked to the market and the amount 
each position is in the money, if any;
    (iv) Any money, securities or other property held as margin for 
retail forex transactions; and
    (v) A detailed accounting of all financial charges and credits to 
the retail forex customer's retail forex accounts during the monthly 
reporting period, including: money, securities, or property received 
from or disbursed to such customer; realized profits and losses; 
premiums and mark-ups; and fees, charges, and commissions.
    (b) Confirmation statement. Each banking institution must, not later 
than the next business day after any retail forex transaction, send:
    (1) To each retail forex customer, a written confirmation of each 
retail forex transaction caused to be executed by it for the customer, 
including offsetting transactions executed during the same business day 
and the rollover of an open retail forex transaction to the next 
business day;
    (2) To each retail forex customer engaging in forex option 
transactions, a written confirmation of each forex option transaction, 
containing at least the following information:
    (i) The retail forex customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the forex 
option transaction;
    (iii) The strike price;
    (iv) The underlying retail forex transaction or underlying currency;
    (v) The final exercise date of the forex option purchased or sold; 
and
    (vi) The date the forex option transaction was executed.
    (3) To each retail forex customer engaging in forex option 
transactions, upon the expiration or exercise of any option, a written 
confirmation statement thereof, which statement shall include the date 
of such occurrence, a description of the option involved, and, in the 
case of exercise, the details of the retail forex or physical currency 
position which resulted therefrom including, if applicable, the final 
trading date of the retail forex transaction underlying the option.
    (c) Notwithstanding the provisions of paragraphs (b)(1) through (3) 
of this section, a retail forex transaction that is caused to be 
executed for a pooled investment vehicle that engages in retail forex 
transactions need be confirmed only to the operator of such pooled 
investment vehicle.
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the retail forex customer for whom such account is 
carried, each banking institution shall promptly furnish in writing to 
such other person the information required by paragraphs (a) and (b) of 
this section.
    (e) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the banking institution was introduced by an introducing 
broker and the name of the introducing broker.

[[Page 205]]



Sec. 240.11  Unlawful representations.

    (a) No implication or representation of limiting losses. No banking 
institution engaged in retail foreign exchange transactions or its 
related persons may imply or represent that it will, with respect to any 
retail customer forex account, for or on behalf of any person:
    (1) Guarantee such person or account against loss;
    (2) Limit the loss of such person or account; or
    (3) Not call for or attempt to collect margin as established for 
retail forex customers.
    (b) No implication of representation of engaging in prohibited acts. 
No banking institution or its related persons may in any way imply or 
represent that it will engage in any of the acts or practices described 
in paragraph (a) of this section.
    (c) No Federal government endorsement. No banking institution or its 
related persons may represent or imply in any manner whatsoever that any 
retail forex transaction or retail forex product has been sponsored, 
recommended, or approved by the Board, the Federal government, or any 
agency thereof.
    (d) Assuming or sharing of liability from bank error. This section 
shall not be construed to prevent a banking institution from assuming or 
sharing in the losses resulting from the banking institution's error or 
mishandling of a retail forex transaction.
    (e) Certain guaranties unaffected. This section shall not affect any 
guarantee entered into prior to the effective date of this part, but 
this section shall apply to any extension, modification or renewal 
thereof entered into after such date.



Sec. 240.12  Authorization to trade.

    (a) Specific authorization required. No banking institution may 
directly or indirectly effect a retail forex transaction for the account 
of any retail forex customer unless, before the transaction occurs, the 
retail forex customer specifically authorized the banking institution to 
effect the retail forex transaction.
    (b) A retail forex transaction is ``specifically authorized'' for 
purposes of this section if the retail forex customer specifies:
    (1) The precise retail forex transaction to be effected;
    (2) The exact amount of the foreign currency to be purchased or 
sold; and
    (3) In the case of an option, the identity of the foreign currency 
or contract that underlies the option.



Sec. 240.13  Trading and operational standards.

    (a) Internal rules, procedures, and controls required. A banking 
institution engaging in retail forex transactions shall establish and 
implement internal rules, procedures, and controls designed, at a 
minimum, to:
    (1) Ensure, to the extent reasonable, that each order received from 
a retail forex customer that is executable at or near the price that the 
banking institution has quoted to the customer is entered for execution 
before any order in any retail forex transaction for:
    (i) A proprietary account;
    (ii) An account in which a related person has an interest, or any 
account for which such a related person may originate orders without the 
prior specific consent of the account owner, if the related person has 
gained knowledge of the retail forex customer's order prior to the 
transmission of an order for a proprietary account;
    (iii) An account in which a related person has an interest, if the 
related person has gained knowledge of the retail forex customer's order 
prior to the transmission of an order for a proprietary account; or
    (iv) An account in which a related person may originate orders 
without the prior specific consent of the account owner, if the related 
person has gained knowledge of the retail forex customer's order prior 
to the transmission of an order for a proprietary account;
    (2) Prevent banking institution related persons from placing orders, 
directly or indirectly, with another person in a manner designed to 
circumvent the provisions of paragraph (a)(1) of this section; and
    (3) Fairly and objectively establish settlement prices for retail 
forex transactions.
    (b) Disclosure of retail forex transactions. No banking institution 
engaging in retail forex transactions may

[[Page 206]]

disclose that an order of another person is being held by the banking 
institution, unless the disclosure is necessary to the effective 
execution of such order or the disclosure is made at the request of the 
Board.
    (c) Handling of retail forex accounts of related persons of retail 
forex counterparties. No banking institution engaging in retail forex 
transactions shall knowingly handle the retail forex account of any 
related person of another retail forex counterparty unless the banking 
institution:
    (1) Receives written authorization from a person designated by such 
other retail forex counterparty with responsibility for the surveillance 
over such account;
    (2) Prepares immediately upon receipt of an order for the account a 
written record of the order, including the account identification and 
order number, and records thereon to the nearest minute, by time-stamp 
or other timing device, the date and time the order is received; and
    (3) Transmits on a regular basis to the other retail forex 
counterparty copies of all statements for the account and of all written 
records prepared upon the receipt of orders for the account pursuant to 
paragraph (c)(2) of this section.
    (d) Related person of banking institution establishing account at 
another retail forex counterparty. No related person of a banking 
institution working in the banking institution's retail forex business 
may have an account, directly or indirectly, with another retail forex 
counterparty unless the other retail forex counterparty:
    (1) Receives written authorization to open and maintain the account 
from a person designated by the banking institution of which it is a 
related person with responsibility for the surveillance over the account 
pursuant to paragraph (a)(2) of this section;
    (2) Prepares immediately upon receipt of an order for the account a 
written record of the order, including the account identification and 
order number, and records thereon to the nearest minute, by time-stamp 
or other timing device, the date and time the order is received; and
    (3) Transmits on a regular basis to the banking institution copies 
of all statements for the account and of all written records prepared by 
the other retail forex counterparty upon receipt of orders for such 
account pursuant to paragraph (d)(2) of this section.
    (e) Prohibited trading practices. No banking institution engaging in 
retail forex transactions may:
    (1) Enter into a retail forex transaction, to be executed pursuant 
to a market or limit order at a price that is not at or near the price 
at which other retail forex customers, during that same time period, 
have executed retail forex transactions with the banking institution;
    (2) Adjust or alter prices for a retail forex transaction after the 
transaction has been confirmed to the retail forex customer;
    (3) Provide a retail forex customer a new bid price for a retail 
forex transaction that is higher than its previous bid without providing 
a new asked price that is also higher than its previous asked price by a 
similar amount;
    (4) Provide a retail forex customer a new bid price for a retail 
forex transaction that is lower than its previous bid without providing 
a new asked price that is also lower than its previous asked price by a 
similar amount; or
    (5) Establish a new position for a retail forex customer (except one 
that offsets an existing position for that retail forex customer) where 
the banking institution holds outstanding orders of other retail forex 
customers for the same currency pair at a comparable price.



Sec. 240.14  Supervision.

    (a) Supervision by the banking institution. A banking institution 
engaging in retail forex transactions shall diligently supervise the 
handling by its officers, employees, and agents (or persons occupying a 
similar status or performing a similar function) of all retail forex 
accounts carried, operated, or advised by the banking institution and 
all activities of its officers, employees, and agents (or persons 
occupying a similar status or performing a similar function) relating to 
its retail forex business.

[[Page 207]]

    (b) Supervision by officers, employees, or agents. An officer, 
employee, or agent of a banking institution must diligently supervise 
his or her subordinates' handling of all retail forex accounts at the 
banking institution and all the subordinates' activities relating to the 
banking institution's retail forex business.



Sec. 240.15  Notice of transfers.

    (a) Prior notice generally required. Except as provided in paragraph 
(b) of this section, a banking institution must provide a retail forex 
customer with 30 days' prior notice of any assignment of any position or 
transfer of any account of the retail forex customer. The notice must 
include a statement that the retail forex customer is not required to 
accept the proposed assignment or transfer and may direct the banking 
institution to liquidate the positions of the retail forex customer or 
transfer the account to a retail forex counterparty of the retail forex 
customer's selection.
    (b) Exceptions. The requirements of paragraph (a) of this section 
shall not apply to transfers:
    (1) Requested by the retail forex customer;
    (2) Made by the Federal Deposit Insurance Corporation as receiver or 
conservator under the Federal Deposit Insurance Act or other law; or
    (3) Otherwise authorized by applicable law.
    (c) Obligations of transferee banking institution. A banking 
institution to which retail forex accounts or positions are assigned or 
transferred under paragraph (a) of this section must provide to the 
affected retail forex customers the risk disclosure statements and forms 
of acknowledgment required by this part and receive the required signed 
acknowledgments within sixty days of such assignments or transfers. This 
requirement shall not apply if the banking institution has clear written 
evidence that the retail forex customer has received and acknowledged 
receipt of the required disclosure statements.



Sec. 240.16  Customer dispute resolution.

    (a) No banking institution shall enter into any agreement or 
understanding with a retail forex customer in which the customer agrees, 
prior to the time a claim or grievance arises, to submit any claim or 
grievance regarding any retail forex transaction or disclosure to any 
settlement procedure.
    (b) Election of forum. (1) Within 10 business days after the receipt 
of notice from the retail forex customer that the customer intends to 
submit a claim to arbitration, the banking institution shall provide the 
customer with a list of persons qualified in dispute resolution.
    (2) The customer must, within 45 days after receipt of such list, 
notify the banking institution of the person selected. The customer's 
failure to provide such notice shall give the banking institution the 
right to select a person from the list.
    (c) Enforceability. A dispute settlement procedure may require 
parties using the procedure to agree, under applicable state law, 
submission agreement, or otherwise, to be bound by an award rendered in 
the procedure if the agreement to submit the claim or grievance to the 
procedure was made after the claim or grievance arose. Any award so 
rendered by the procedure will be enforceable in accordance with 
applicable law.
    (d) Time limits for submission of claims. The dispute settlement 
procedure used by the parties may not include any unreasonably short 
limitation period foreclosing submission of a customer's claims or 
grievances or counterclaims.
    (e) Counterclaims. A procedure for the settlement of a retail forex 
customer's claims or grievances against a banking institution or 
employee thereof may permit the submission of a counterclaim in the 
procedure by a person against whom a claim or grievance is brought if 
the counterclaim:
    (1) Arises out of the transaction or occurrence that is the subject 
of the retail forex customer's claim or grievance; and
    (2) Does not require for adjudication the presence of essential 
witnesses, parties, or third persons over which the settlement process 
lacks jurisdiction.
    (f) Cross-border transactions. This section shall not apply to 
transactions within the scope of sections 202, 302, and 305 of the 
Federal Arbitration Act (9 U.S.C. 202, 302, and 305).

[[Page 208]]



Sec. 240.17  Reservation of authority.

    The Board may modify the disclosure, recordkeeping, capital and 
margin, reporting, business conduct, documentation, or other standards 
or requirements under this part for a specific retail forex transaction 
or a class of retail forex transactions if the Board determines that the 
modification is consistent with safety and soundness and the protection 
of retail forex customers.



PART 241_SECURITIES HOLDING COMPANIES (REGULATION OO)--Table of Contents



Sec.
241.1  Authority and purpose.
241.2  Definitions.
241.3  Registration as a supervised securities holding company.

    Authority: 12 U.S.C. 1850a.

    Source: 77 FR 32884, June 5, 2012, unless otherwise noted.



Sec. 241.1  Authority and purpose.

    (a) Authority. This part is issued by the Board pursuant to section 
618 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 1850a).
    (b) Purpose. This part establishes the procedures by which a 
securities holding company may elect to register to be supervised by the 
Board.



Sec. 241.2  Definitions.

    Except as defined below, terms used in this part have the same 
meaning given them in 12 CFR 225.2.
    (a) Securities holding company. (1) A securities holding company 
means--
    (i) Any company that directly or indirectly owns or controls, is 
controlled by, or is under common control with, one or more brokers or 
dealers registered with the Securities and Exchange Commission; and
    (ii) Is required by a foreign regulator or provision of foreign law 
to be subject to comprehensive consolidated supervision.
    (2) A securities holding company does not include a company that 
is--
    (i) A nonbank financial company supervised by the Board pursuant to 
title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(12 U.S.C. 5301 et seq.);
    (ii) An insured bank (other than an institution described in 
subparagraphs (D), (F), or (H) of section 2(c)(2) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1841(c)(2))) or a savings association;
    (iii) An affiliate of an insured bank (other than an institution 
described in subparagraphs (D), (F), or (H) of section 2(c)(2) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2))) or an affiliate 
of a savings association;
    (iv) A foreign bank, foreign company, or company that is described 
in section 8(a) of the International Banking Act of 1978 (12 U.S.C. 
3106(a));
    (v) A foreign bank that controls, directly or indirectly, a 
corporation chartered under section 25A of the Federal Reserve Act (12 
U.S.C. 611 et seq.); or
    (vi) Currently subject to comprehensive consolidated supervision by 
a foreign regulator.
    (b) Supervised securities holding company means a securities holding 
company that is supervised by the Board pursuant to this part.



Sec. 241.3  Registration as a supervised securities holding company.

    (a) Registration--(1) Filing requirement. A securities holding 
company may elect to register to become a supervised securities holding 
company by filing the appropriate form with the responsible Reserve 
Bank. The responsible Reserve Bank is determined by the Director of 
Banking Supervision and Regulation at the Board, or the Director's 
delegee.
    (2) Request for additional information. The Board may, at any time, 
request additional information that it believes is necessary to complete 
the registration.
    (3) Complete filing. A registration by a securities holding company 
is considered to be filed on the date that all information required on 
the appropriate form is received.
    (b) Effective date of registration--(1) In general. A registration 
filed by a securities holding company under paragraph (a) of this 
section is effective on the 45th calendar day after the date that a

[[Page 209]]

complete filing is received by the responsible Reserve Bank.
    (2) Earlier notification that a registration is effective. The Board 
may notify a securities holding company that its registration to become 
a supervised securities holding company is effective prior to the 45th 
calendar day after the date that a complete filing is received by the 
responsible Reserve Bank. Such a notification must be in writing.
    (3) Supervision and regulation of securities holding companies. (i) 
Upon an effective registration and except as otherwise provided by order 
of the Board, a supervised securities holding company shall be treated, 
and shall be subject to supervision and regulation by the Board, as if 
it were a bank holding company, or as otherwise appropriate to protect 
the safety and soundness of the supervised securities holding company 
and address the risks posed by such company to financial stability.
    (ii) The provisions of section 4 of the Bank Holding Company Act of 
1956 (12 U.S.C. 1841 et seq.) do not apply to a supervised securities 
holding company.



PART 242_DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT 
(REGULATION PP)--Table of Contents



Sec.
242.1  Authority and purpose.
242.2  Definitions.
242.3  Nonbank companies ``predominantly engaged'' in financial 
          activities.
242.4  Significant nonbank financial companies and significant bank 
          holding companies.

Appendix A to Part 242--Financial Activities for Purposes of Title I of 
          the Dodd-Frank Act

    Authority: 12 U.S.C. 5311.

    Source: 78 FR 20776, Apr. 5, 2013, unless otherwise noted..



Sec. 242.1  Authority and purpose.

    (a) Authority. This part is issued by the Board pursuant to sections 
102(a)(7) and (b) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) (12 U.S.C. 5311(a)(7) and (b)).
    (b) Purpose. (1) This part establishes the criteria for determining 
if a company is ``predominantly engaged in financial activities'' as 
required under section 102(b) of the Dodd-Frank Act (12 U.S.C. 5311(b)) 
for purposes of Title I of the Dodd-Frank Act.
    (2) This part defines the terms ``significant nonbank financial 
company'' and ``significant bank holding company'' as provided in 
section 102(a)(6) of the Dodd-Frank Act for purposes of--
    (i) Section 113 of the Dodd-Frank Act (12 U.S.C. 5323) relating to 
the designation of nonbank financial companies by the Financial 
Stability Oversight Council (Council) for supervision by the Board; and
    (ii) Section 165(d)(2) of the Dodd-Frank Act (12 U.S.C. 5365(d)(2)) 
relating to the credit exposure reports required to be filed by--
    (A) A nonbank financial company supervised by the Board; and
    (B) A bank holding company or foreign bank subject to the Bank 
Holding Company Act (BHC Act) (12 U.S.C. 1841 et seq.) that has $50 
billion or more in total consolidated assets.



Sec. 242.2  Definitions.

    For purposes of this part, the following definitions shall apply:
    Applicable accounting standards. The term ``applicable accounting 
standards'' with respect to a company means:
    (1) U.S. generally accepted accounting principles (GAAP), if the 
company uses GAAP in the ordinary course of its business in preparing 
its consolidated financial statements;
    (2) International Financial Reporting Standards (IFRS), if the 
company uses IFRS in the ordinary course of its business in preparing 
its consolidated financial statements, or
    (3) Such other accounting standards that the Council, with respect 
to the definition of a nonbank financial company for purposes of Title I 
of the Dodd-Frank Act (other than with respect to the definition of a 
significant nonbank financial company), or the Board, with respect to 
the definition of a significant nonbank financial company, determines 
are appropriate on a case-by-case basis.
    Foreign nonbank financial company. The term ``foreign nonbank 
financial company'' means a company (other than a company that is, or is 
treated in

[[Page 210]]

the United States, as a bank holding company) that is--
    (1) Incorporated or organized in a country other than the United 
States; and
    (2) Predominantly engaged in (including through a branch in the 
United States) financial activities as defined in Sec. 242.3 of this 
part.
    Nonbank financial company. The term ``nonbank financial company'' 
means a U.S. nonbank financial company and a foreign nonbank financial 
company.
    Nonbank financial company supervised by the Board. The term 
``nonbank financial company supervised by the Board'' means a nonbank 
financial company or other company that the Council has determined under 
section 113 of the Dodd-Frank Act (12 U.S.C. 5323) should be supervised 
by the Board and for which such determination is still in effect.
    State. The term ``State'' includes any State, commonwealth, 
territory, or possession of the United States, the District of Columbia, 
the Commonwealth of Puerto Rico, the Commonwealth of the Northern 
Mariana Islands, American Samoa, Guam, and the United States Virgin 
Islands.
    U.S. nonbank financial company. The term ``U.S. nonbank financial 
company'' means a company that--
    (1) Is incorporated or organized under the laws of the United States 
or any State;
    (2) Is predominantly engaged in financial activities as defined in 
Sec. 242.3 of this part; and
    (3) Is not--
    (i) A bank holding company;
    (ii) A Farm Credit System institution chartered and subject to the 
provisions of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
    (iii) A national securities exchange (or parent thereof), clearing 
agency (or parent thereof, unless the parent is a bank holding company), 
security-based swap execution facility, or security-based swap data 
repository that, in each case, is registered with the Securities and 
Exchange Commission as such; or
    (iv) A board of trade designated as a contract market (or parent 
thereof), a derivatives clearing organization (or parent thereof, unless 
the parent is a bank holding company), a swap execution facility, or a 
swap data repository that, in each case, is registered with the 
Commodity Futures Trading Commission as such.



Sec. 242.3  Nonbank companies ``predominantly engaged'' in financial 
activities.

    (a) In general. A company is ``predominantly engaged in financial 
activities'' for purposes of this section if--
    (1) The consolidated annual gross financial revenues of the company 
in either of its two most recently completed fiscal years represent 85 
percent or more of the company's consolidated annual gross revenues (as 
determined in accordance with applicable accounting standards) in that 
fiscal year;
    (2) The consolidated total financial assets of the company as of the 
end of either of its two most recently completed fiscal years represent 
85 percent or more of the company's consolidated total assets (as 
determined in accordance with applicable accounting standards) as of the 
end of that fiscal year; or
    (3) The Council, with respect to the definition of a nonbank 
financial company for purposes of Title I of the Dodd-Frank Act (other 
than with respect to the definition of a significant nonbank financial 
company), or the Board, with respect to the definition of a significant 
nonbank financial company, determines, based on all the facts and 
circumstances, that--
    (i) The consolidated annual gross financial revenues of the company 
represent 85 percent or more of the company's consolidated annual gross 
revenues; or
    (ii) The consolidated total financial assets of the company 
represent 85 percent or more of the company's consolidated total assets.
    (b) Consolidated annual gross financial revenues. For purposes of 
this section, the ``consolidated annual gross financial revenues'' of a 
company means that portion of the consolidated annual gross revenues of 
the company (as determined in accordance with applicable accounting 
standards) that are derived, directly or indirectly, by the company or 
any of its subsidiaries from--

[[Page 211]]

    (1) Activities that are financial in nature; or
    (2) The ownership, control, or activities of an insured depository 
institution or any subsidiary of an insured depository institution.
    (c) Consolidated total financial assets. For purposes of this 
section, the ``consolidated total financial assets'' of a company means 
that portion of the consolidated total assets of the company (as 
determined in accordance with applicable accounting standards) that are 
related to--
    (1) Activities that are financial in nature; or
    (2) The ownership, control, or activities of an insured depository 
institution or any subsidiary of an insured depository institution.
    (d) Activities that are financial in nature--(1) In general. For 
purposes of determining whether a company is predominantly engaged in 
financial activities under this section, activities that are financial 
in nature are set forth in the appendix to this part. Nothing in this 
part limits the authority of the Board under any other provision of law 
or regulation to modify the activities determined to be financial in 
nature for purposes of this section or for purposes of the BHC Act or to 
provide interpretations of section 4(k) of the BHC Act.
    (2) Effect of other authority. Any activity described in the 
appendix is financial in nature for purposes of this part regardless of 
whether--
    (i) A bank holding company (including a financial holding company or 
a company that is, or is treated in the United States as, a bank holding 
company) may be authorized to engage in the activity, or own or control 
shares of a company engaged in such activity, under any other provisions 
of the BHC Act or other Federal law including, but not limited to, 
section 4(a)(2), section 4(c)(5), section 4(c)(6), section 4(c)(7), 
section 4(c)(9), or section 4(c)(13) of the BHC Act (12 U.S.C. 
1843(a)(2), (c)(5), (c)(6), (c)(7), (c)(9), or (c)(13)) and the Board's 
implementing regulations; or
    (ii) Other provisions of Federal or state law or regulations 
prohibit, restrict, or otherwise place conditions on the conduct of the 
activity by a bank holding company (including a financial holding 
company or a company that is, or is treated in the United States, as a 
bank holding company) or bank holding companies generally.
    (e) Rules of construction. For purposes of determining whether a 
company is predominantly engaged in financial activities under this 
section--
    (1) Unconsolidated investments. (i) Unless otherwise determined by 
the Council or the Board in accordance with paragraph (e)(1)(ii) of this 
section, revenues derived from, and assets related to, an investment by 
the company in an entity whose financial statements are not consolidated 
with those of the company are presumed to be financial in nature.
    (ii) A company may seek to rebut the presumption described in 
paragraph (e)(1)(i) of this section by providing evidence to the 
Council, with respect to the definition of a nonbank financial company 
for purposes of Title I of the Dodd-Frank Act (other than with respect 
to the definition of a significant nonbank financial company), or the 
Board, with respect to the definition of a significant nonbank financial 
company, that the shares or ownership interests are not held in 
connection with a bona fide merchant or investment banking activity, are 
not held in connection with the activity of investing for others, do not 
represent an investment in an entity engaged in activities that are 
financial in nature as defined in the appendix, or are not otherwise 
related to a financial activity.
    (2) Accounts receivable. (i) Unless otherwise determined by the 
Council or the Board in accordance with paragraph (e)(2)(ii) of this 
section, an account receivable is presumed to be an asset related to the 
financial activity of extending credit.
    (ii) A company may seek to rebut the presumption described in 
paragraph (e)(2)(i) of this section by providing evidence to the 
Council, with respect to the definition of a nonbank financial company 
for purposes of Title I of the Dodd-Frank Act (other than with respect 
to the definition of a significant nonbank financial company), or the 
Board, with respect to the definition of a significant nonbank financial 
company, that the account receivable is not related to a financial 
activity.

[[Page 212]]

    (3) Goodwill. Goodwill is excluded from a company's consolidated 
total assets and consolidated total financial assets.
    (4) Cash and cash equivalents. (i) Cash is excluded from a company's 
consolidated total assets and consolidated total financial assets.
    (ii) Cash equivalents are assets related to a financial activity.
    (5) Intangible assets. Intangible assets are treated in the same 
manner as the transaction or asset that gives rise to the intangible 
asset.



Sec. 242.4  Significant nonbank financial companies and significant bank 
holding companies.

    For purposes of Title I of the Dodd-Frank Act, the following 
definitions shall apply:
    (a) Significant nonbank financial company. A ``significant nonbank 
financial company'' means--
    (1) Any nonbank financial company supervised by the Board; and
    (2) Any other nonbank financial company that had $50 billion or more 
in total consolidated assets (as determined in accordance with 
applicable accounting standards) as of the end of its most recently 
completed fiscal year.
    (b) Significant bank holding company. A ``significant bank holding 
company'' means any bank holding company or company that is, or is 
treated in the United States as, a bank holding company, that had $50 
billion or more in total consolidated assets as of the end of the most 
recently completed calendar year, as reported on either the Federal 
Reserve's FR Y-9C (Consolidated Financial Statement for Bank Holding 
Companies), or any successor form thereto, or the Federal Reserve's Form 
FR Y-7Q (Capital and Asset Report for Foreign Banking Organizations), or 
any successor form thereto.



Sec. Appendix A to Part 242--Financial Activities for Purposes of Title 
                         I of the Dodd-Frank Act

    (a) Lending, exchanging, transferring, investing for others, or 
safeguarding money or securities.
    (b) Insuring, guaranteeing, or indemnifying against loss, harm, 
damage, illness, disability, or death, or providing and issuing 
annuities, and acting as principal, agent, or broker for purposes of the 
foregoing, in any state.
    (c) Providing financial, investment, or economic advisory services, 
including advising an investment company (as defined in section 3 of the 
Investment Company Act of 1940).
    (d) Issuing or selling instruments representing interests in pools 
of assets permissible for a bank to hold directly.
    (e) Underwriting, dealing in, or making a market in securities.
    (f) Engaging in any activity that the Board has determined to be so 
closely related to banking or managing or controlling banks as to be a 
proper incident thereto, which include--
    (1) Extending credit and servicing loans. Making, acquiring, 
brokering, or servicing loans or other extensions of credit (including 
factoring, issuing letters of credit and accepting drafts) for the 
company's account or for the account of others.
    (2) Activities related to extending credit. Any activity usual in 
connection with making, acquiring, brokering or servicing loans or other 
extensions of credit, including the following activities:
    (i) Real estate and personal property appraising. Performing 
appraisals of real estate and tangible and intangible personal property, 
including securities.
    (ii) Arranging commercial real estate equity financing. Acting as 
intermediary for the financing of commercial or industrial income-
producing real estate by arranging for the transfer of the title, 
control, and risk of such a real estate project to one or more 
investors.
    (iii) Check-guaranty services. Authorizing a subscribing merchant to 
accept personal checks tendered by the merchant's customers in payment 
for goods and services, and purchasing from the merchant validly 
authorized checks that are subsequently dishonored.
    (iv) Collection agency services. Collecting overdue accounts 
receivable, either retail or commercial.
    (v) Credit bureau services. Maintaining information related to the 
credit history of consumers and providing the information to a credit 
grantor who is considering a borrower's application for credit or who 
has extended credit to the borrower.
    (vi) Asset management, servicing, and collection activities. 
Engaging under contract with a third party in asset management, 
servicing, and collection \1\ of assets of a type that

[[Page 213]]

an insured depository institution may originate and own.
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    \1\ Asset management services include acting as agent in the 
liquidation or sale of loans and collateral for loans, including real 
estate and other assets acquired through foreclosure or in satisfaction 
of debts previously contracted.
---------------------------------------------------------------------------

    (vii) Acquiring debt in default. Acquiring debt that is in default 
at the time of acquisition.
    (viii) Real estate settlement servicing. Providing real estate 
settlement services.\2\
---------------------------------------------------------------------------

    \2\ For purposes of this section, real estate settlement services do 
not include providing title insurance as principal, agent, or broker.
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    (3) Leasing personal or real property. Leasing personal or real 
property or acting as agent, broker, or adviser in leasing such property 
if:
    (i) The lease is on a nonoperating basis; \3\
---------------------------------------------------------------------------

    \3\ The requirement that the lease is on a nonoperating basis means 
that the company does not, directly or indirectly, engage in operating, 
servicing, maintaining, or repairing leased property during the lease 
term. For purposes of the leasing of automobiles, the requirement that 
the lease is on a nonoperating basis means that the company does not, 
directly or indirectly: (1) Provide servicing, repair, or maintenance of 
the leased vehicle during the lease term; (2) purchase parts and 
accessories in bulk or for an individual vehicle after the lessee has 
taken delivery of the vehicle; (3) provide the loan of an automobile 
during servicing of the leased vehicle; (4) purchase insurance for the 
lessee; or (5) provide for the renewal of the vehicle's license merely 
as a service to the lessee where the lessee could renew the license 
without authorization from the lessor.
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    (ii) The initial term of the lease is at least 90 days; and
    (iii) In the case of leases involving real property:
    (A) At the inception of the initial lease, the effect of the 
transaction will yield a return that will compensate the lessor for not 
less than the lessor's full investment in the property plus the 
estimated total cost of financing the property over the term of the 
lease from rental payments, estimated tax benefits, and the estimated 
residual value of the property at the expiration of the initial lease; 
and
    (B) The estimated residual value of property for purposes of 
paragraph (f)(3)(iii)(A) of this section shall not exceed 25 percent of 
the acquisition cost of the property to the lessor.
    (4) Operating nonbank depository institutions.
    (i) Industrial banking. Owning, controlling, or operating an 
industrial bank, Morris Plan bank, or industrial loan company that is 
not a bank for purposes of the BHC Act.
    (ii) Operating savings associations. Owning, controlling, or 
operating a savings association.
    (5) Trust company functions. Performing functions or activities that 
may be performed by a trust company (including activities of a 
fiduciary, agency, or custodial nature), in the manner authorized by 
federal or state law that is not a bank for purposes of section 2(c) of 
the Bank Holding Company Act.
    (6) Financial and investment advisory activities. Acting as 
investment or financial advisor to any person, including (without, in 
any way, limiting the foregoing):
    (i) Serving as investment adviser (as defined in section 2(a)(20) of 
the Investment Company Act of 1940, 15 U.S.C. 80a-2(a)(20)), to an 
investment company registered under that act, including sponsoring, 
organizing, and managing a closed-end investment company;
    (ii) Furnishing general economic information and advice, general 
economic statistical forecasting services, and industry studies;
    (iii) Providing advice in connection with mergers, acquisitions, 
divestitures, investments, joint ventures, leveraged buyouts, 
recapitalizations, capital structurings, financing transactions and 
similar transactions, and conducting financial feasibility studies; \4\
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    \4\ Feasibility studies do not include assisting management with the 
planning or marketing for a given project or providing general 
operational or management advice.
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    (iv) Providing information, statistical forecasting, and advice with 
respect to any transaction in foreign exchange, swaps, and similar 
transactions, commodities, and any forward contract, option, future, 
option on a future, and similar instruments;
    (v) Providing educational courses, and instructional materials to 
consumers on individual financial management matters; and
    (vi) Providing tax-planning and tax-preparation services to any 
person.
    (7) Agency transactional services for customer investments.
    (i) Securities brokerage. Providing securities brokerage services 
(including securities clearing and/or securities execution services on 
an exchange), whether alone or in combination with investment advisory 
services, and incidental activities (including related securities credit 
activities and custodial services).
    (ii) Riskless principal transactions. Buying and selling in the 
secondary market all types of securities on the order of customers as a 
``riskless principal'' to the extent of engaging in a transaction in 
which the company, after receiving an order to buy (or sell) a security 
from a customer, purchases (or sells) the security for its own account 
to offset a contemporaneous sale to (or purchase from) the customer.
    (iii) Private placement services. Acting as agent for the private 
placement of securities in accordance with the requirements of the 
Securities Act of 1933 (1933 Act) and the rules of the Securities and 
Exchange Commission.

[[Page 214]]

    (iv) Futures commission merchant. Acting as a futures commission 
merchant for unaffiliated persons in the execution, clearance, or 
execution and clearance of any futures contract and option on a futures 
contract.
    (v) Other transactional services. Providing to customers as agent 
transactional services with respect to swaps and similar transactions, 
any transaction described in paragraph (f)(8) of this appendix, any 
transaction that is permissible for a state member bank, and any other 
transaction involving a forward contract, option, futures, option on a 
futures or similar contract (whether traded on an exchange or not) 
relating to a commodity that is traded on an exchange.
    (8) Investment transactions as principal.
    (i) Underwriting and dealing in government obligations and money 
market instruments. Underwriting and dealing in obligations of the 
United States, general obligations of states and their political 
subdivisions, and other obligations that state member banks of the 
Federal Reserve System may be authorized to underwrite and deal in under 
12 U.S.C. 24 and 335, including banker's acceptances and certificates of 
deposit.
    (ii) Investing and trading activities. Engaging as principal in:
    (A) Foreign exchange;
    (B) Forward contracts, options, futures, options on futures, swaps, 
and similar contracts, whether traded on exchanges or not, based on any 
rate, price, financial asset (including gold, silver, platinum, 
palladium, copper, or any other metal), nonfinancial asset, or group of 
assets, other than a bank-ineligible security,\5\ if--
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    \5\ A bank-ineligible security is any security that a state member 
bank is not permitted to underwrite or deal in under 12 U.S.C. 24 and 
335.
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    (1) A state member bank is authorized to invest in the asset 
underlying the contract;
    (2) The contract requires cash settlement;
    (3) The contract allows for assignment, termination, or offset prior 
to delivery or expiration, and the company--
    (i) Makes every reasonable effort to avoid taking or making delivery 
of the asset underlying the contract; or
    (ii) Receives and instantaneously transfers title to the underlying 
asset, by operation of contract and without taking or making physical 
delivery of the asset; or
    (4) The contract does not allow for assignment, termination, or 
offset prior to delivery or expiration and is based on an asset for 
which futures contracts or options on futures contracts have been 
approved for trading on a U.S. contract market by the Commodity Futures 
Trading Commission, and the company--
    (i) Makes every reasonable effort to avoid taking or making delivery 
of the asset underlying the contract; or
    (ii) Receives and instantaneously transfers title to the underlying 
asset, by operation of contract and without taking or making physical 
delivery of the asset.
    (C) Forward contracts, options,\6\ futures, options on futures, 
swaps, and similar contracts, whether traded on exchanges or not, based 
on an index of a rate, a price, or the value of any financial asset, 
nonfinancial asset, or group of assets, if the contract requires cash 
settlement.
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    \6\ This reference does not include acting as a dealer in options 
based on indices of bank-ineligible securities when the options are 
traded on securities exchanges. These options are securities for 
purposes of the federal securities laws and bank-ineligible securities 
for purposes of section 20 of the Glass-Steagall Act, 12 U.S.C. 337. 
Similarly, this reference does not include acting as a dealer in any 
other instrument that is a bank-ineligible security for purposes of 
section 20. Bank holding companies that deal in these instruments must 
do so in accordance with the Board's orders on dealing in bank-
ineligible securities.
---------------------------------------------------------------------------

    (iii) Buying and selling bullion, and related activities. Buying, 
selling and storing bars, rounds, bullion, and coins of gold, silver, 
platinum, palladium, copper, and any other metal for the company's own 
account and the account of others, and providing incidental services 
such as arranging for storage, safe custody, assaying, and shipment.
    (9) Management consulting and counseling activities.
    (i) Management consulting. (A) Providing management consulting 
advice: \7\
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    \7\ In performing this activity, companies are not authorized to 
perform tasks or operations or provide services to client institutions 
either on a daily or continuing basis, except as necessary to instruct 
the client institution on how to perform such services for itself. See 
also the Board's interpretation of bank management consulting advice (12 
CFR 225.131).
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    (1) On any matter to unaffiliated depository institutions, including 
commercial banks, savings and loan associations, savings banks, credit 
unions, industrial banks, Morris Plan banks, cooperative banks, 
industrial loan companies, trust companies, and branches or agencies of 
foreign banks;
    (2) On any financial, economic, accounting, or audit matter to any 
other company.
    (B) Revenues derived from, or assets related to, a company's 
management consulting activities under this subparagraph will not be 
considered to be financial if the company:
    (1) Owns or controls, directly or indirectly, more than 5 percent of 
the voting securities of the client institution; or

[[Page 215]]

    (2) Allows a management official, as defined in 12 CFR 212.2(h), of 
the company or any of its affiliates to serve as a management official 
of the client institution, except where such interlocking relationship 
is permitted pursuant to an exemption permitted by the Board.
    (C) Up to 30 percent of a nonbank company's assets or revenues 
related to management consulting services provided to customers not 
described in paragraph (f)(9)(i)(A)(1) or regarding matters not 
described in paragraph (f)(9)(i)(A)(2) of this appendix will be included 
in the company's financial assets or revenues.
    (ii) Employee benefits consulting services. Providing consulting 
services to employee benefit, compensation and insurance plans, 
including designing plans, assisting in the implementation of plans, 
providing administrative services to plans, and developing employee 
communication programs for plans.
    (iii) Career counseling services. Providing career counseling 
services to:
    (A) A financial organization \8\ and individuals currently employed 
by, or recently displaced from, a financial organization;
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    \8\ Financial organization refers to insured depository institution 
holding companies and their subsidiaries, other than nonbanking 
affiliates of diversified savings and loan holding companies that engage 
in activities not permissible under section 4(c)(8) of the Bank Holding 
Company Act (12 U.S.C. 1842(c)(8)).
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    (B) Individuals who are seeking employment at a financial 
organization; and
    (C) Individuals who are currently employed in or who seek positions 
in the finance, accounting, and audit departments of any company.
    (10) Support services.
    (i) Courier services. Providing courier services for:
    (A) Checks, commercial papers, documents, and written instruments 
(excluding currency or bearer-type negotiable instruments) that are 
exchanged among banks and financial institutions; and
    (B) Audit and accounting media of a banking or financial nature and 
other business records and documents used in processing such media.\9\
---------------------------------------------------------------------------

    \9\ See also the Board's interpretation on courier activities (12 
CFR 225.129), which sets forth conditions for company entry into the 
activity.
---------------------------------------------------------------------------

    (ii) Printing and selling MICR-encoded items. Printing and selling 
checks and related documents, including corporate image checks, cash 
tickets, voucher checks, deposit slips, savings withdrawal packages, and 
other forms that require Magnetic Ink Character Recognition (MICR) 
encoding.
    (11) Insurance agency and underwriting.
    (i) Credit insurance. Acting as principal, agent, or broker for 
insurance (including home mortgage redemption insurance) that is:
    (A) Directly related to an extension of credit by the company or any 
of its subsidiaries; and
    (B) Limited to ensuring the repayment of the outstanding balance due 
on the extension of credit \10\ in the event of the death, disability, 
or involuntary unemployment of the debtor.
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    \10\ Extension of credit includes direct loans to borrowers, loans 
purchased from other lenders, and leases of real or personal property so 
long as the leases are nonoperating and full-payout leases that meet the 
requirements of paragraph (f)(3) of this appendix.
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    (ii) Finance company subsidiary. Acting as agent or broker for 
insurance directly related to an extension of credit by a finance 
company \11\ that is a subsidiary of a company, if:
---------------------------------------------------------------------------

    \11\ Finance company includes all non-deposit-taking financial 
institutions that engage in a significant degree of consumer lending 
(excluding lending secured by first mortgages) and all financial 
institutions specifically defined by individual states as finance 
companies and that engage in a significant degree of consumer lending.
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    (A) The insurance is limited to ensuring repayment of the 
outstanding balance on such extension of credit in the event of loss or 
damage to any property used as collateral for the extension of credit; 
and
    (B) The extension of credit is not more than $10,000, or $25,000 if 
it is to finance the purchase of a residential manufactured home \12\ 
and the credit is secured by the home; and
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    \12\ These limitations increase at the end of each calendar year, 
beginning with 1982, by the percentage increase in the Consumer Price 
Index for Urban Wage Earners and Clerical Workers published by the 
Bureau of Labor Statistics.
---------------------------------------------------------------------------

    (C) The applicant commits to notify borrowers in writing that:
    (1) They are not required to purchase such insurance from the 
applicant;
    (2) Such insurance does not insure any interest of the borrower in 
the collateral; and
    (3) The applicant will accept more comprehensive property insurance 
in place of such single-interest insurance.
    (iii) Insurance in small towns. Engaging in any insurance agency 
activity in a place where the company or a subsidiary has a lending 
office and that:
    (A) Has a population not exceeding 5,000 (as shown in the preceding 
decennial census); or
    (B) Has inadequate insurance agency facilities, as determined by the 
Board, after notice and opportunity for hearing.

[[Page 216]]

    (iv) Insurance-agency activities conducted on May 1, 1982. Engaging 
in any specific insurance-agency activity \13\ if the company, or 
subsidiary conducting the specific activity, conducted such activity on 
May 1, 1982, or received Board approval to conduct such activity on or 
before May 1, 1982.\14\ Revenues derived from, or assets related to, a 
company's specific insurance agency activity under this clause will be 
considered financial only if the company:
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    \13\ Nothing contained in this provision precludes a subsidiary that 
is authorized to engage in a specific insurance-agency activity under 
this clause from continuing to engage in the particular activity after 
merger with an affiliate, if the merger is for legitimate business 
purposes.
    \14\ For the purposes of this paragraph, activities engaged in on 
May 1, 1982, include activities carried on subsequently as the result of 
an application to engage in such activities pending before the Board on 
May 1, 1982, and approved subsequently by the Board or as the result of 
the acquisition by such company pursuant to a binding written contract 
entered into on or before May 1, 1982, of another company engaged in 
such activities at the time of the acquisition.
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    (A) Engages in such specific insurance agency activity only at 
locations:
    (1) In the state in which the company has its principal place of 
business (as defined in 12 U.S.C. 1842(d));
    (2) In any state or states immediately adjacent to such state; and
    (3) In any state in which the specific insurance-agency activity was 
conducted (or was approved to be conducted) by such company or 
subsidiary thereof or by any other subsidiary of such company on May 1, 
1982; and
    (B) Provides other insurance coverages that may become available 
after May 1, 1982, so long as those coverages insure against the types 
of risks as (or are otherwise functionally equivalent to) coverages sold 
or approved to be sold on May 1, 1982, by the company or subsidiary.
    (v) Supervision of retail insurance agents. Supervising on behalf of 
insurance underwriters the activities of retail insurance agents who 
sell:
    (A) Fidelity insurance and property and casualty insurance on the 
real and personal property used in the operations of the company or its 
subsidiaries; and
    (B) Group insurance that protects the employees of the company or 
its subsidiaries.
    (vi) Small companies. Engaging in any insurance-agency activity if 
the company has total consolidated assets of $50 million or less. 
Revenues derived from, or assets related to, a company's insurance-
agency activities under this paragraph will be considered financial only 
if the company does not engage in the sale of life insurance or 
annuities except as provided in paragraphs (f)(11) (i) and (iii) of this 
appendix, and does not continue to engage in insurance-agency activities 
pursuant to this provision more than 90 days after the end of the 
quarterly reporting period in which total assets of the company and its 
subsidiaries exceed $50 million.
    (vii) Insurance-agency activities conducted before 1971. Engaging in 
any insurance-agency activity performed at any location in the United 
States directly or indirectly by a company that was engaged in 
insurance-agency activities prior to January 1, 1971, as a consequence 
of approval by the Board prior to January 1, 1971.
    (12) Community development activities.
    (i) Financing and investment activities. Making equity and debt 
investments in corporations or projects designed primarily to promote 
community welfare, such as the economic rehabilitation and development 
of low-income areas by providing housing, services, or jobs for 
residents.
    (ii) Advisory activities. Providing advisory and related services 
for programs designed primarily to promote community welfare.
    (13) Money orders, savings bonds, and traveler's checks. The 
issuance and sale at retail of money orders and similar consumer-type 
payment instruments; the sale of U.S. savings bonds; and the issuance 
and sale of traveler's checks.
    (14) Data processing.
    (i) Providing data processing, data storage and data transmission 
services, facilities (including data processing, data storage and data 
transmission hardware, software, documentation, or operating personnel), 
databases, advice, and access to such services, facilities, or data-
bases by any technological means, if the data to be processed, stored or 
furnished are financial, banking or economic.
    (ii) Up to 30 percent of a nonbank company's assets or revenues 
related to providing general purpose hardware in connection with 
providing data processing products or services described in paragraph 
(f)(14)(i) of this appendix will be included in the company's financial 
assets or revenues.
    (15) Administrative services. Providing administrative and other 
services to mutual funds.
    (16) Securities exchange. Owning shares of a securities exchange.
    (17) Certification authority. Acting as a certification authority 
for digital signatures and authenticating the identity of persons 
conducting financial and nonfinancial transactions.
    (18) Employment histories. Providing employment histories to third 
parties for use in making credit decisions and to depository 
institutions and their affiliates for use in the ordinary course of 
business.

[[Page 217]]

    (19) Check cashing and wire transmission. Check cashing and wire 
transmission services.
    (20) Services offered in connection with banking services. In 
connection with offering banking services, providing notary public 
services, selling postage stamps and postage-paid envelopes, providing 
vehicle registration services, and selling public transportation tickets 
and tokens.
    (21) Real estate title abstracting.
    (g) Engaging, in the United States, in any activity that a bank 
holding company may engage in outside of the United States; and the 
Board has determined, under regulations prescribed or interpretations 
issued pursuant to section 4(c)(13) of the BHC Act (12 U.S.C. 
1843(c)(13)) to be usual in connection with the transaction of banking 
or other financial operations abroad. Those activities include--
    (1) Providing management consulting services, including to any 
person with respect to nonfinancial matters, so long as the management 
consulting services are advisory and do not allow the company to control 
the person to which the services are provided.
    (2) Operating a travel agency in connection with financial services.
    (3) Organizing, sponsoring, and managing a mutual fund.
    (4) Commercial banking and other banking activities.
    (h) Directly, or indirectly acquiring or controlling, whether as 
principal, on behalf of 1 or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust certificates, or other instruments 
representing ownership) of a company or other entity, whether or not 
constituting control of such company or entity, engaged in any activity 
not financial in nature as defined in this appendix if:
    (1) Such shares, assets, or ownership interests are acquired and 
held as part of a bona fide underwriting or merchant or investment 
banking activity, including investment activities engaged in for the 
purpose of appreciation and ultimate resale or disposition of the 
investment;
    (2) Such shares, assets, or ownership interests are held for a 
period of time to enable the sale or disposition thereof on a reasonable 
basis consistent with the financial viability of the activities 
described in paragraph (h)(1) of this appendix; and
    (3) During the period such shares, assets, or ownership interests 
are held, the company does not routinely manage or operate such company 
or entity except as may be necessary or required to obtain a reasonable 
return on investment upon resale or disposition.
    (i) Directly or indirectly acquiring or controlling, whether as 
principal, on behalf of 1 or more entities, or otherwise, shares, 
assets, or ownership interests (including debt or equity securities, 
partnership interests, trust certificates or other instruments 
representing ownership) of a company or other entity, whether or not 
constituting control of such company or entity, engaged in any activity 
not financial in nature as defined in this appendix if--
    (1) Such shares, assets, or ownership interests are acquired and 
held by an insurance company that is predominantly engaged in 
underwriting life, accident and health, or property and casualty 
insurance (other than credit-related insurance) or providing and issuing 
annuities;
    (2) Such shares, assets, or ownership interests represent an 
investment made in the ordinary course of business of such insurance 
company in accordance with relevant state law governing such 
investments; and
    (3) During the period such shares, assets, or ownership interests 
are held, the company does not routinely manage or operate such company 
except as may be necessary or required to obtain a reasonable return on 
investment.
    (j) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities.
    (k) Providing any device or other instrumentality for transferring 
money or other financial assets.
    (l) Arranging, effecting, or facilitating financial transactions for 
the account of third parties.



PART 243_RESOLUTION PLANS--Table of Contents



Sec.
243.1  Authority and scope.
243.2  Definitions.
243.3  Resolution plan required.
243.4  Informational content of a resolution plan.
243.5  Review of resolution plans; resubmission of deficient resolution 
          plans.
243.6  Failure to cure deficiencies on resubmission of a resolution 
          plan.
243.7  Consultation.
243.8  No limiting effect or private right of action; confidentiality of 
          resolution plans.
243.9  Enforcement.

    Authority: 12 U.S.C. 5365.

    Source: 76 FR 67340, Nov. 1, 2011, unless otherwise noted.



Sec. 243.1  Authority and scope.

    (a) Authority. This part is issued pursuant to section 165(d)(8) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1426-1427), 12 U.S.C. 
5365(d)(8), which requires the Board of Governors of the

[[Page 218]]

Federal Reserve System (Board) and the Federal Deposit Insurance 
Corporation (Corporation) to jointly issue rules implementing the 
provisions of section 165(d) of the Dodd-Frank Act.
    (b) Scope. This part applies to each covered company and establishes 
rules and requirements regarding the submission and content of a 
resolution plan, as well as procedures for review by the Board and 
Corporation of a resolution plan.



Sec. 243.2  Definitions.

    For purposes of this part:
    (a) Bankruptcy Code means title 11 of the United States Code.
    (b) Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose entity, 
association, or similar organization, but does not include any 
organization, the majority of the voting securities of which are owned 
by the United States.
    (c) Control. A company controls another company when the first 
company, directly or indirectly, owns, or holds with power to vote, 25 
percent or more of any class of the second company's outstanding voting 
securities.
    (d) Core business lines means those business lines of the covered 
company, including associated operations, services, functions and 
support, that, in the view of the covered company, upon failure would 
result in a material loss of revenue, profit, or franchise value.
    (e) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (f) Covered company--(1) In general. A ``covered company'' means:
    (i) Any nonbank financial company supervised by the Board;
    (ii) Any bank holding company, as that term is defined in section 2 
of the Bank Holding Company Act, as amended (12 U.S.C. 1841), and the 
Board's Regulation Y (12 CFR part 225), that has $50 billion or more in 
total consolidated assets, as determined based on the average of the 
company's four most recent Consolidated Financial Statements for Bank 
Holding Companies as reported on the Federal Reserve's Form FR Y-9C 
(``FR Y-9C''); and
    (iii) Any foreign bank or company that is a bank holding company or 
is treated as a bank holding company under section 8(a) of the 
International Banking Act of 1978 (12 U.S.C. 3106(a)), and that has $50 
billion or more in total consolidated assets, as determined based on the 
foreign bank's or company's most recent annual or, as applicable, the 
average of the four most recent quarterly Capital and Asset Reports for 
Foreign Banking Organizations as reported on the Federal Reserve's Form 
FR Y-7Q (``FR Y-7Q'').
    (2) Once a covered company meets the requirements described in 
paragraph (f)(1)(ii) or (iii) of this section, the company shall remain 
a covered company for purposes of this part unless and until the company 
has less than $45 billion in total consolidated assets, as determined 
based on the--
    (i) Average total consolidated assets as reported on the company's 
four most recent FR Y-9Cs, in the case of a covered company described in 
paragraph (f)(1)(ii) of this section; or
    (ii) Total consolidated assets as reported on the company's most 
recent annual FR Y-7Q, or, as applicable, average total consolidated 
assets as reported on the company's four most recent quarterly FR Y-7Qs, 
in the case of a covered company described in paragraph (f)(1)(iii) of 
this section.
    Nothing in this paragraph (f)(2) shall preclude a company from 
becoming a covered company pursuant to paragraph (f)(1) of this section.
    (3) Multi-tiered holding company. In a multi-tiered holding company 
structure, covered company means the top-tier of the multi-tiered 
holding company only.
    (4) Asset threshold for bank holding companies and foreign banking 
organizations. The Board may, pursuant to a recommendation of the 
Council, raise any asset threshold specified in paragraph (f)(1)(ii) or 
(iii) of this section.
    (5) Exclusion. A bridge financial company chartered pursuant to 12 
U.S.C. 5390(h) shall not be deemed to be a covered company hereunder.
    (g) Critical operations means those operations of the covered 
company, including associated services, functions

[[Page 219]]

and support, the failure or discontinuance of which, in the view of the 
covered company or as jointly directed by the Board and the Corporation, 
would pose a threat to the financial stability of the United States.
    (h) Depository institution has the same meaning as in section 
3(c)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(1)) and 
includes a state-licensed uninsured branch, agency, or commercial 
lending subsidiary of a foreign bank.
    (i) Foreign banking organization means--
    (1) A foreign bank, as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)), that:
    (i) Operates a branch, agency, or commercial lending company 
subsidiary in the United States;
    (ii) Controls a bank in the United States; or
    (iii) Controls an Edge corporation acquired after March 5, 1987; and
    (2) Any company of which the foreign bank is a subsidiary.
    (j) Foreign-based company means any covered company that is not 
incorporated or organized under the laws of the United States.
    (k) Functionally regulated subsidiary has the same meaning as in 
section 5(c)(5) of the Bank Holding Company Act, as amended (12 U.S.C. 
1844(c)(5)).
    (l) Material entity means a subsidiary or foreign office of the 
covered company that is significant to the activities of a critical 
operation or core business line (as defined in this part).
    (m) Material financial distress with regard to a covered company 
means that:
    (1) The covered company has incurred, or is likely to incur, losses 
that will deplete all or substantially all of its capital, and there is 
no reasonable prospect for the company to avoid such depletion;
    (2) The assets of the covered company are, or are likely to be, less 
than its obligations to creditors and others; or
    (3) The covered company is, or is likely to be, unable to pay its 
obligations (other than those subject to a bona fide dispute) in the 
normal course of business.
    (n) Nonbank financial company supervised by the Board means a 
nonbank financial company or other company that the Council has 
determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) 
shall be supervised by the Board and for which such determination is 
still in effect.
    (o) Rapid and orderly resolution means a reorganization or 
liquidation of the covered company (or, in the case of a covered company 
that is incorporated or organized in a jurisdiction other than the 
United States, the subsidiaries and operations of such foreign company 
that are domiciled in the United States) under the Bankruptcy Code that 
can be accomplished within a reasonable period of time and in a manner 
that substantially mitigates the risk that the failure of the covered 
company would have serious adverse effects on financial stability in the 
United States.
    (p) Subsidiary means a company that is controlled by another 
company, and an indirect subsidiary is a company that is controlled by a 
subsidiary of a company.
    (q) United States means the United States and includes any state of 
the United States, the District of Columbia, any territory of the United 
States, Puerto Rico, Guam, American Samoa, and the Virgin Islands.



Sec. 243.3  Resolution plan required.

    (a) Initial and annual resolution plans required. (1) Each covered 
company shall submit its initial resolution plan to the Board and the 
Corporation on or before the date set forth below (``Initial Submission 
Date''):
    (i) July 1, 2012, with respect to any covered company that, as of 
the effective date of this part, had $250 billion or more in total 
nonbank assets (or, in the case of a covered company that is a foreign-
based company, in total U.S. nonbank assets);
    (ii) July 1, 2013, with respect to any covered company that is not 
described in paragraph (a)(1)(i) of this section, and that, as of the 
effective date of this part had $100 billion or more in total nonbank 
assets (or, in the case of a covered company that is a foreign-based 
company, in total U.S. nonbank assets); and
    (iii) December 31, 2013, with respect to any other covered company 
that is a covered company as of the effective

[[Page 220]]

date of this part but that is not described in paragraph (a)(1)(i) or 
(ii) of this section.
    (2) A company that becomes a covered company after the effective 
date of this part shall submit its initial resolution plan no later than 
the next July 1 following the date the company becomes a covered 
company, provided such date occurs no earlier than 270 days after the 
date on which the company became a covered company.
    (3) After filing its initial resolution plan pursuant to paragraph 
(a)(1) or (2) of this section, each covered company shall annually 
submit a resolution plan to the Board and the Corporation on or before 
each anniversary date of its Initial Submission Date.
    (4) Notwithstanding anything to the contrary in this paragraph (a), 
the Board and Corporation may jointly determine that a covered company 
shall file its initial or annual resolution plan by a date other than as 
provided in this paragraph (a). The Board and the Corporation shall 
provide a covered company with written notice of a determination under 
this paragraph (a)(4) no later than 180 days prior to the date on which 
the Board and Corporation jointly determined to require the covered 
company to submit its resolution plan.
    (b) Authority to require interim updates and notice of material 
events--(1) In general. The Board and the Corporation may jointly 
require that a covered company file an update to a resolution plan 
submitted under paragraph (a) of this section, within a reasonable 
amount of time, as jointly determined by the Board and Corporation. The 
Board and the Corporation shall make a request pursuant to this 
paragraph (b)(1) in writing, and shall specify the portions or aspects 
of the resolution plan the covered company shall update.
    (2) Notice of material events. Each covered company shall provide 
the Board and the Corporation with a notice no later than 45 days after 
any event, occurrence, change in conditions or circumstances, or other 
change that results in, or could reasonably be foreseen to have, a 
material effect on the resolution plan of the covered company. Such 
notice should describe the event, occurrence or change and explain why 
the event, occurrence or change may require changes to the resolution 
plan. The covered company shall address any event, occurrence or change 
with respect to which it has provided notice pursuant to this paragraph 
(b)(2) in the following resolution plan submitted by the covered 
company.
    (3) Exception. A covered company shall not be required to file a 
notice under paragraph (b)(2) of this section if the date on which the 
covered company would be required to submit the notice under paragraph 
(b)(2) would be within 90 days prior to the date on which the covered 
company is required to file an annual resolution plan under paragraph 
(a) of this section.
    (c) Authority to require more frequent submissions or extend time 
period. The Board and Corporation may jointly:
    (1) Require that a covered company submit a resolution plan more 
frequently than required pursuant to paragraph (a) of this section; and
    (2) Extend the time period that a covered company has to submit a 
resolution plan or a notice following material events under paragraphs 
(a) and (b) of this section.
    (d) Access to information. In order to allow evaluation of the 
resolution plan, each covered company must provide the Board and the 
Corporation such information and access to personnel of the covered 
company as the Board and the Corporation jointly determine during the 
period for reviewing the resolution plan is necessary to assess the 
credibility of the resolution plan and the ability of the covered 
company to implement the resolution plan. The Board and the Corporation 
will rely to the fullest extent possible on examinations conducted by or 
on behalf of the appropriate Federal banking agency for the relevant 
company.
    (e) Board of directors approval of resolution plan. Prior to 
submission of a resolution plan under paragraph (a) of this section, the 
resolution plan of a covered company shall be approved by:
    (1) The board of directors of the covered company and noted in the 
minutes; or
    (2) In the case of a foreign-based covered company only, a delegee 
acting under the express authority of the

[[Page 221]]

board of directors of the covered company to approve the resolution 
plan.
    (f) Resolution plans provided to the Council. The Board shall make 
the resolution plans and updates submitted by the covered company 
pursuant to this section available to the Council upon request.



Sec. 243.4  Informational content of a resolution plan.

    (a) In general--(1) Domestic covered companies. Except as otherwise 
provided in paragraph (a)(3) of this section, the resolution plan of a 
covered company that is organized or incorporated in the United States 
shall include the information specified in paragraphs (b) through (i) of 
this section with respect to the subsidiaries and operations that are 
domiciled in the United States as well as the foreign subsidiaries, 
offices, and operations of the covered company.
    (2) Foreign-based covered companies. Except as otherwise provided in 
paragraph (a)(3) of the section, the resolution plan of a covered 
company that is organized or incorporated in a jurisdiction other than 
the United States (other than a bank holding company) or that is a 
foreign banking organization shall include:
    (i) The information specified in paragraphs (b) through (i) of this 
section with respect to the subsidiaries, branches and agencies, and 
critical operations and core business lines, as applicable, that are 
domiciled in the United States or conducted in whole or material part in 
the United States. With respect to the information specified in 
paragraph (g) of this section, the resolution plan of a foreign-based 
covered company shall also identify, describe in detail, and map to 
legal entity the interconnections and interdependencies among the U.S. 
subsidiaries, branches and agencies, and critical operations and core 
business lines of the foreign-based covered company and any foreign-
based affiliate; and
    (ii) A detailed explanation of how resolution planning for the 
subsidiaries, branches and agencies, and critical operations and core 
business lines of the foreign-based covered company that are domiciled 
in the United States or conducted in whole or material part in the 
United States is integrated into the foreign-based covered company's 
overall resolution or other contingency planning process.
    (3) Tailored resolution plan--(i) Eligible covered company. 
Paragraph (a)(3)(ii) of this section applies to any covered company that 
as of December 31 of the calendar year prior to the date its resolution 
plan is required to be submitted under this part--
    (A) Has less than $100 billion in total nonbank assets (or, in the 
case of a covered company that is a foreign-based company, in total U.S. 
nonbank assets); and
    (B) The total insured depository institution assets of which 
comprise 85 percent or more of the covered company's total consolidated 
assets (or, in the case of a covered company that is a foreign-based 
company, the assets of the U.S. insured depository institution 
operations, branches, and agencies of which comprise 85 percent or more 
of such covered company's U.S. total consolidated assets).
    (ii) Tailored resolution plan elements. A covered company described 
in paragraph (a)(3)(i) of this section may file a resolution plan that 
is limited to the following items--
    (A) An executive summary, as specified in paragraph (b) of this 
section;
    (B) The information specified in paragraphs (c) through (f) and 
paragraph (h) of this section, but only with respect to the covered 
company and its nonbanking material entities and operations;
    (C) The information specified in paragraphs (g) and (i) of this 
section with respect to the covered company and all of its insured 
depository institutions (or, in the case of a covered company that is a 
foreign-based company, the U.S. insured depository institutions, 
branches, and agencies) and nonbank material entities and operations. 
The interconnections and interdependencies identified pursuant to (g) of 
this section shall be included in the analysis provided pursuant to 
paragraph (c) of this section.
    (iii) Notice. A covered company that meets the requirements of 
paragraph (a)(3)(i) of this section and that intends to submit a 
resolution plan pursuant to this paragraph (a)(3), shall provide the

[[Page 222]]

Board and Corporation with written notice of such intent and its 
eligibility under paragraph (a)(3)(i) no later than 270 days prior to 
the date on which the covered company is required to submit its 
resolution plan. Within 90 of receiving such notice, the Board and 
Corporation may jointly determine that the covered company must submit a 
resolution plan that meets some or all of the requirements as set forth 
in paragraph (a)(1) or (2) of this section, as applicable.
    (4) Required and prohibited assumptions. In preparing its plan for 
rapid and orderly resolution in the event of material financial distress 
or failure required by this part, a covered company shall:
    (i) Take into account that such material financial distress or 
failure of the covered company may occur under the baseline, adverse and 
severely adverse economic conditions provided to the covered company by 
the Board pursuant to 12 U.S.C. 5365(i)(1)(B); provided, however, a 
covered company may submit its initial resolution plan assuming the 
baseline conditions only, or, if a baseline scenario is not then 
available, a reasonable substitute developed by the covered company; and
    (ii) Not rely on the provision of extraordinary support by the 
United States or any other government to the covered company or its 
subsidiaries to prevent the failure of the covered company.
    (b) Executive summary. Each resolution plan of a covered company 
shall include an executive summary describing:
    (1) The key elements of the covered company's strategic plan for 
rapid and orderly resolution in the event of material financial distress 
at or failure of the covered company.
    (2) Material changes to the covered company's resolution plan from 
the company's most recently filed resolution plan (including any notices 
following a material event or updates to the resolution plan).
    (3) Any actions taken by the covered company since filing of the 
previous resolution plan to improve the effectiveness of the covered 
company's resolution plan or remediate or otherwise mitigate any 
material weaknesses or impediments to effective and timely execution of 
the resolution plan.
    (c) Strategic analysis. Each resolution plan shall include a 
strategic analysis describing the covered company's plan for rapid and 
orderly resolution in the event of material financial distress or 
failure of the covered company. Such analysis shall--
    (1) Include detailed descriptions of the--
    (i) Key assumptions and supporting analysis underlying the covered 
company's resolution plan, including any assumptions made concerning the 
economic or financial conditions that would be present at the time the 
covered company sought to implement such plan;
    (ii) Range of specific actions to be taken by the covered company to 
facilitate a rapid and orderly resolution of the covered company, its 
material entities, and its critical operations and core business lines 
in the event of material financial distress or failure of the covered 
company;
    (iii) Funding, liquidity and capital needs of, and resources 
available to, the covered company and its material entities, which shall 
be mapped to its critical operations and core business lines, in the 
ordinary course of business and in the event of material financial 
distress at or failure of the covered company;
    (iv) Covered company's strategy for maintaining operations of, and 
funding for, the covered company and its material entities, which shall 
be mapped to its critical operations and core business lines;
    (v) Covered company's strategy in the event of a failure or 
discontinuation of a material entity, core business line or critical 
operation, and the actions that will be taken by the covered company to 
prevent or mitigate any adverse effects of such failure or 
discontinuation on the financial stability of the United States; 
provided, however, if any such material entity is subject to an 
insolvency regime other than the Bankruptcy Code, a covered company may 
exclude that entity from its strategic analysis unless that entity 
either has $50 billion or more in total assets or conducts a critical 
operation; and

[[Page 223]]

    (vi) Covered company's strategy for ensuring that any insured 
depository institution subsidiary of the covered company will be 
adequately protected from risks arising from the activities of any 
nonbank subsidiaries of the covered company (other than those that are 
subsidiaries of an insured depository institution);
    (2) Identify the time period(s) the covered company expects would be 
needed for the covered company to successfully execute each material 
aspect and step of the covered company's plan;
    (3) Identify and describe any potential material weaknesses or 
impediments to effective and timely execution of the covered company's 
plan;
    (4) Discuss the actions and steps the covered company has taken or 
proposes to take to remediate or otherwise mitigate the weaknesses or 
impediments identified by the covered company, including a timeline for 
the remedial or other mitigatory action; and
    (5) Provide a detailed description of the processes the covered 
company employs for:
    (i) Determining the current market values and marketability of the 
core business lines, critical operations, and material asset holdings of 
the covered company;
    (ii) Assessing the feasibility of the covered company's plans 
(including timeframes) for executing any sales, divestitures, 
restructurings, recapitalizations, or other similar actions contemplated 
in the covered company's resolution plan; and
    (iii) Assessing the impact of any sales, divestitures, 
restructurings, recapitalizations, or other similar actions on the 
value, funding, and operations of the covered company, its material 
entities, critical operations and core business lines.
    (d) Corporate governance relating to resolution planning. Each 
resolution plan shall:
    (1) Include a detailed description of:
    (i) How resolution planning is integrated into the corporate 
governance structure and processes of the covered company;
    (ii) The covered company's policies, procedures, and internal 
controls governing preparation and approval of the covered company's 
resolution plan;
    (iii) The identity and position of the senior management official(s) 
of the covered company that is primarily responsible for overseeing the 
development, maintenance, implementation, and filing of the covered 
company's resolution plan and for the covered company's compliance with 
this part; and
    (iv) The nature, extent, and frequency of reporting to senior 
executive officers and the board of directors of the covered company 
regarding the development, maintenance, and implementation of the 
covered company's resolution plan;
    (2) Describe the nature, extent, and results of any contingency 
planning or similar exercise conducted by the covered company since the 
date of the covered company's most recently filed resolution plan to 
assess the viability of or improve the resolution plan of the covered 
company; and
    (3) Identify and describe the relevant risk measures used by the 
covered company to report credit risk exposures both internally to its 
senior management and board of directors, as well as any relevant risk 
measures reported externally to investors or to the covered company's 
appropriate Federal regulator.
    (e) Organizational structure and related information. Each 
resolution plan shall--
    (1) Provide a detailed description of the covered company's 
organizational structure, including:
    (i) A hierarchical list of all material entities within the covered 
company's organization (including legal entities that directly or 
indirectly hold such material entities) that:
    (A) Identifies the direct holder and the percentage of voting and 
nonvoting equity of each legal entity and foreign office listed; and
    (B) The location, jurisdiction of incorporation, licensing, and key 
management associated with each material legal entity and foreign office 
identified;
    (ii) A mapping of the covered company's critical operations and core 
business lines, including material asset holdings and liabilities 
related to such

[[Page 224]]

critical operations and core business lines, to material entities;
    (2) Provide an unconsolidated balance sheet for the covered company 
and a consolidating schedule for all material entities that are subject 
to consolidation by the covered company;
    (3) Include a description of the material components of the 
liabilities of the covered company, its material entities, critical 
operations and core business lines that, at a minimum, separately 
identifies types and amounts of the short-term and long-term 
liabilities, the secured and unsecured liabilities, and subordinated 
liabilities;
    (4) Identify and describe the processes used by the covered company 
to:
    (i) Determine to whom the covered company has pledged collateral;
    (ii) Identify the person or entity that holds such collateral; and
    (iii) Identify the jurisdiction in which the collateral is located, 
and, if different, the jurisdiction in which the security interest in 
the collateral is enforceable against the covered company;
    (5) Describe any material off-balance sheet exposures (including 
guarantees and contractual obligations) of the covered company and its 
material entities, including a mapping to its critical operations and 
core business lines;
    (6) Describe the practices of the covered company, its material 
entities and its core business lines related to the booking of trading 
and derivatives activities;
    (7) Identify material hedges of the covered company, its material 
entities, and its core business lines related to trading and derivative 
activities, including a mapping to legal entity;
    (8) Describe the hedging strategies of the covered company;
    (9) Describe the process undertaken by the covered company to 
establish exposure limits;
    (10) Identify the major counterparties of the covered company and 
describe the interconnections, interdependencies and relationships with 
such major counterparties;
    (11) Analyze whether the failure of each major counterparty would 
likely have an adverse impact on or result in the material financial 
distress or failure of the covered company; and
    (12) Identify each trading, payment, clearing, or settlement system 
of which the covered company, directly or indirectly, is a member and on 
which the covered company conducts a material number or value amount of 
trades or transactions. Map membership in each such system to the 
covered company's material entities, critical operations and core 
business lines.
    (f) Management information systems--(1) Each resolution plan shall 
include--
    (i) A detailed inventory and description of the key management 
information systems and applications, including systems and applications 
for risk management, accounting, and financial and regulatory reporting, 
used by the covered company and its material entities. The description 
of each system or application provided shall identify the legal owner or 
licensor, the use or function of the system or application, service 
level agreements related thereto, any software and system licenses, and 
any intellectual property associated therewith;
    (ii) A mapping of the key management information systems and 
applications to the material entities, critical operations and core 
business lines of the covered company that use or rely on such systems 
and applications;
    (iii) An identification of the scope, content, and frequency of the 
key internal reports that senior management of the covered company, its 
material entities, critical operations and core business lines use to 
monitor the financial health, risks, and operation of the covered 
company, its material entities, critical operations and core business 
lines; and
    (iv) A description of the process for the appropriate supervisory or 
regulatory agencies to access the management information systems and 
applications identified in paragraph (f) of this section; and
    (v) A description and analysis of--
    (A) The capabilities of the covered company's management information 
systems to collect, maintain, and report, in a timely manner to 
management of the covered company, and to the Board, the information and 
data underlying the resolution plan; and

[[Page 225]]

    (B) Any deficiencies, gaps or weaknesses in such capabilities, and a 
description of the actions the covered company intends to take to 
promptly address such deficiencies, gaps, or weaknesses, and the time 
frame for implementing such actions.
    (2) The Board will use its examination authority to review the 
demonstrated capabilities of each covered company to satisfy the 
requirements of paragraph (f)(1)(v) of this section. The Board will 
share with the Corporation information regarding the capabilities of the 
covered company to collect, maintain, and report in a timely manner 
information and data underlying the resolution plan.
    (g) Interconnections and interdependencies. To the extent not 
elsewhere provided, identify and map to the material entities the 
interconnections and interdependencies among the covered company and its 
material entities, and among the critical operations and core business 
lines of the covered company that, if disrupted, would materially affect 
the funding or operations of the covered company, its material entities, 
or its critical operations or core business lines. Such interconnections 
and interdependencies may include:
    (1) Common or shared personnel, facilities, or systems (including 
information technology platforms, management information systems, risk 
management systems, and accounting and recordkeeping systems);
    (2) Capital, funding, or liquidity arrangements;
    (3) Existing or contingent credit exposures;
    (4) Cross-guarantee arrangements, cross-collateral arrangements, 
cross-default provisions, and cross-affiliate netting agreements;
    (5) Risk transfers; and
    (6) Service level agreements.
    (h) Supervisory and regulatory information. Each resolution plan 
shall--
    (1) Identify any:
    (i) Federal, state, or foreign agency or authority (other than a 
Federal banking agency) with supervisory authority or responsibility for 
ensuring the safety and soundness of the covered company, its material 
entities, critical operations and core business lines; and
    (ii) Other Federal, state, or foreign agency or authority (other 
than a Federal banking agency) with significant supervisory or 
regulatory authority over the covered company, and its material entities 
and critical operations and core business lines.
    (2) Identify any foreign agency or authority responsible for 
resolving a foreign-based material entity and critical operations or 
core business lines of the covered company; and
    (3) Include contact information for each agency identified in 
paragraphs (h)(1) and (2) of this section.
    (i) Contact information. Each resolution plan shall identify a 
senior management official at the covered company responsible for 
serving as a point of contact regarding the resolution plan of the 
covered company, and include contact information (including phone 
number, email address, and physical address) for a senior management 
official of the material entities of the covered company.
    (j) Inclusion of previously submitted resolution plan informational 
elements by reference. An annual submission of or update to a resolution 
plan submitted by a covered company may include by reference 
informational elements (but not strategic analysis or executive summary 
elements) from a resolution plan previously submitted by the covered 
company to the Board and the Corporation, provided that:
    (1) The resolution plan seeking to include informational elements by 
reference clearly indicates:
    (i) The informational element the covered company is including by 
reference; and
    (ii) Which of the covered company's previously submitted resolution 
plan(s) originally contained the information the covered company is 
including by reference; and
    (2) The covered company certifies that the information the covered 
company is including by reference remains accurate.
    (k) Exemptions. The Board and the Corporation may jointly exempt a 
covered company from one or more of the requirements of this section.

[[Page 226]]



Sec. 243.5  Review of resolution plans; resubmission of deficient 
resolution plans.

    (a) Acceptance of submission and review. (1) The Board and 
Corporation shall review a resolution plan submitted under section this 
subpart within 60 days.
    (2) If the Board and Corporation jointly determine within the time 
described in paragraph (a)(1) of this section that a resolution plan is 
informationally incomplete or that substantial additional information is 
necessary to facilitate review of the resolution plan:
    (i) The Board and Corporation shall jointly inform the covered 
company in writing of the area(s) in which the resolution plan is 
informationally incomplete or with respect to which additional 
information is required; and
    (ii) The covered company shall resubmit an informationally complete 
resolution plan or such additional information as jointly requested to 
facilitate review of the resolution plan no later than 30 days after 
receiving the notice described in paragraph (a)(2)(i) of this section, 
or such other time period as the Board and Corporation may jointly 
determine.
    (b) Joint determination regarding deficient resolution plans. If the 
Board and Corporation jointly determine that the resolution plan of a 
covered company submitted under Sec. 243.3(a) is not credible or would 
not facilitate an orderly resolution of the covered company under the 
Bankruptcy Code, the Board and Corporation shall jointly notify the 
covered company in writing of such determination. Any joint notice 
provided under this paragraph shall identify the aspects of the 
resolution plan that the Board and Corporation jointly determined to be 
deficient.
    (c) Resubmission of a resolution plan. Within 90 days of receiving a 
notice of deficiencies issued pursuant to paragraph (b) of this section, 
or such shorter or longer period as the Board and Corporation may 
jointly determine, a covered company shall submit a revised resolution 
plan to the Board and Corporation that addresses the deficiencies 
jointly identified by the Board and Corporation, and that discusses in 
detail:
    (1) The revisions made by the covered company to address the 
deficiencies jointly identified by the Board and the Corporation;
    (2) Any changes to the covered company's business operations and 
corporate structure that the covered company proposes to undertake to 
facilitate implementation of the revised resolution plan (including a 
timeline for the execution of such planned changes); and
    (3) Why the covered company believes that the revised resolution 
plan is credible and would result in an orderly resolution of the 
covered company under the Bankruptcy Code.
    (d) Extensions of time. Upon their own initiative or a written 
request by a covered company, the Board and Corporation may jointly 
extend any time period under this section. Each extension request shall 
be supported by a written statement of the covered company describing 
the basis and justification for the request.



Sec. 243.6  Failure to cure deficiencies on resubmission of a resolution plan.

    (a) In general. The Board and Corporation may jointly determine that 
a covered company or any subsidiary of a covered company shall be 
subject to more stringent capital, leverage, or liquidity requirements, 
or restrictions on the growth, activities, or operations of the covered 
company or the subsidiary if:
    (1) The covered company fails to submit a revised resolution plan 
under Sec. 243.5(c) within the required time period; or
    (2) The Board and the Corporation jointly determine that a revised 
resolution plan submitted under Sec. 243.5(c) does not adequately remedy 
the deficiencies jointly identified by the Board and the Corporation 
under Sec. 243.5(b).
    (b) Duration of requirements or restrictions. Any requirements or 
restrictions imposed on a covered company or a subsidiary thereof 
pursuant to paragraph (a) of this section shall cease to apply to the 
covered company or subsidiary, respectively, on the date that the Board 
and the Corporation jointly determine the covered company has submitted 
a revised resolution plan

[[Page 227]]

that adequately remedies the deficiencies jointly identified by the 
Board and the Corporation under Sec. 243.5(b).
    (c) Divestiture. The Board and Corporation, in consultation with the 
Council, may jointly, by order, direct the covered company to divest 
such assets or operations as are jointly identified by the Board and 
Corporation if:
    (1) The Board and Corporation have jointly determined that the 
covered company or a subsidiary thereof shall be subject to requirements 
or restrictions pursuant to paragraph (a) of this section; and
    (2) The covered company has failed, within the 2-year period 
beginning on the date on which the determination to impose such 
requirements or restrictions under paragraph (a) of this section was 
made, to submit a revised resolution plan that adequately remedies the 
deficiencies jointly identified by the Board and the Corporation under 
Sec. 243.5(b); and
    (3) The Board and Corporation jointly determine that the divestiture 
of such assets or operations is necessary to facilitate an orderly 
resolution of the covered company under the Bankruptcy Code in the event 
the company was to fail.



Sec. 243.7  Consultation.

    Prior to issuing any notice of deficiencies under Sec. 243.5(b), 
determining to impose requirements or restrictions under Sec. 243.6(a), 
or issuing a divestiture order pursuant to Sec. 243.6(c) with respect to 
a covered company that is likely to have a significant impact on a 
functionally regulated subsidiary or a depository institution subsidiary 
of the covered company, the Board--
    (a) Shall consult with each Council member that primarily supervises 
any such subsidiary; and
    (b) May consult with any other Federal, state, or foreign supervisor 
as the Board considers appropriate.



Sec. 243.8  No limiting effect or private right of action; confidentiality 
of resolution plans.

    (a) No limiting effect on bankruptcy or other resolution 
proceedings. A resolution plan submitted pursuant to this part shall not 
have any binding effect on:
    (1) A court or trustee in a proceeding commenced under the 
Bankruptcy Code;
    (2) A receiver appointed under title II of the Dodd-Frank Act (12 
U.S.C. 5381 et seq.);
    (3) A bridge financial company chartered pursuant to 12 U.S.C. 
5390(h); or
    (4) Any other authority that is authorized or required to resolve a 
covered company (including any subsidiary or affiliate thereof) under 
any other provision of Federal, state, or foreign law.
    (b) No private right of action. Nothing in this part creates or is 
intended to create a private right of action based on a resolution plan 
prepared or submitted under this part or based on any action taken by 
the Board or the Corporation with respect to any resolution plan 
submitted under this part.
    (c) Form of resolution plans. Each resolution plan of a covered 
company shall be divided into a public section and a confidential 
section. Each covered company shall segregate and separately identify 
the public section from the confidential section. The public section 
shall consist of an executive summary of the resolution plan that 
describes the business of the covered company and includes, to the 
extent material to an understanding of the covered company:
    (1) The names of material entities;
    (2) A description of core business lines;
    (3) Consolidated or segment financial information regarding assets, 
liabilities, capital and major funding sources;
    (4) A description of derivative activities and hedging activities;
    (5) A list of memberships in material payment, clearing and 
settlement systems;
    (6) A description of foreign operations;
    (7) The identities of material supervisory authorities;
    (8) The identities of the principal officers;
    (9) A description of the corporate governance structure and 
processes related to resolution planning;
    (10) A description of material management information systems; and

[[Page 228]]

    (11) A description, at a high level, of the covered company's 
resolution strategy, covering such items as the range of potential 
purchasers of the covered company, its material entities and core 
business lines.
    (d) Confidential treatment of resolution plans. (1) The 
confidentiality of resolution plans and related materials shall be 
determined in accordance with applicable exemptions under the Freedom of 
Information Act (5 U.S.C. 552(b)) and the Board's Rules Regarding 
Availability of Information (12 CFR part 261), and the Corporation's 
Disclosure of Information Rules (12 CFR part 309).
    (2) Any covered company submitting a resolution plan or related 
materials pursuant to this part that desires confidential treatment of 
the information under 5 U.S.C. 552(b)(4), the Board's Rules Regarding 
Availability of Information (12 CFR part 261), and the Corporation's 
Disclosure of Information Rules (12 CFR part 309) may file a request for 
confidential treatment in accordance with those rules.
    (3) To the extent permitted by law, information comprising the 
Confidential Section of a resolution plan will be treated as 
confidential.
    (4) To the extent permitted by law, the submission of any nonpublic 
data or information under this part shall not constitute a waiver of, or 
otherwise affect, any privilege arising under Federal or state law 
(including the rules of any Federal or state court) to which the data or 
information is otherwise subject. Privileges that apply to resolution 
plans and related materials are protected pursuant to Section 18(x) of 
the FDI Act, 12 U.S.C. 1828(x).



Sec. 243.9  Enforcement.

    The Board and Corporation may jointly enforce an order jointly 
issued by the Board and Corporation under Secs. 243.6(a) or 243.6(c) of 
this part. The Board, in consultation with the Corporation, may take any 
action to address any violation of this part by a covered company under 
section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818).



PART 244_CREDIT RISK RETENTION (REGULATION RR)--Table of Contents



           Subpart A_Authority, Purpose, Scope and Definitions

Sec.
244.1  Authority, purpose, and scope.
244.2  Definitions.

                     Subpart B_Credit Risk Retention

244.3  Base risk retention requirement.
244.4  Standard risk retention.
244.5  Revolving pool securitizations.
244.6  Eligible ABCP conduits.
244.7  Commercial mortgage-backed securities.
244.8  Federal National Mortgage Association and Federal Home Loan 
          Mortgage Corporation ABS.
244.9  Open market CLOs.
244.10  Qualified tender option bonds.

                  Subpart C_Transfer of Risk Retention

244.11  Allocation of risk retention to an originator.
244.12  Hedging, transfer and financing prohibitions.

                   Subpart D_Exceptions and Exemptions

244.13  Exemption for qualified residential mortgages.
244.14  Definitions applicable to qualifying commercial loans, 
          qualifying commercial real estate loans, and qualifying 
          automobile loans.
244.15  Qualifying commercial loans, commercial real estate loans, and 
          automobile loans.
244.16  Underwriting standards for qualifying commercial loans.
244.17  Underwriting standards for qualifying CRE loans.
244.18  Underwriting standards for qualifying automobile loans.
244.19  General exemptions.
244.20  Safe harbor for certain foreign-related transactions.
244.21  Additional exemptions.
244.22  Periodic review of the QRM definition, exempted three-to-four 
          unit residential mortgage loans, and community-focused 
          residential mortgage exemption.

    Authority: 12 U.S.C. 221 et seq., 1461 et seq., 1818, 1841 et seq., 
3103 et seq., and 15 U.S.C. 78o-11.

    Source: 79 FR 77740, 77764, Dec. 24, 2014, unless otherwise noted.

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           Subpart A_Authority, Purpose, Scope and Definitions



Sec. 244.1  Authority, purpose, and scope.

    (a) Authority--(1) In general. This part (Regulation RR) is issued 
by the Board of Governors of the Federal Reserve System under section 
15G of the Securities Exchange Act of 1934, as amended (Exchange Act) 
(15 U.S.C. 78o-11), as well as under the Federal Reserve Act, as amended 
(12 U.S.C. 221 et seq.); section 8 of the Federal Deposit Insurance Act 
(FDI Act), as amended (12 U.S.C. 1818); the Bank Holding Company Act of 
1956, as amended (BHC Act) (12 U.S.C. 1841 et seq.); the Home Owners' 
Loan Act of 1933 (HOLA) (12 U.S.C. 1461 et seq.); section 165 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act) (12 U.S.C. 5365); and the International Banking Act of 1978, as 
amended (12 U.S.C. 3101 et seq.).
    (2) Nothing in this part shall be read to limit the authority of the 
Board to take action under provisions of law other than 15 U.S.C. 78o-
11, including action to address unsafe or unsound practices or 
conditions, or violations of law or regulation, under section 8 of the 
FDI Act.
    (b) Purpose. This part requires any securitizer to retain an 
economic interest in a portion of the credit risk for any asset that the 
securitizer, through the issuance of an asset-backed security, 
transfers, sells, or conveys to a third party in a transaction within 
the scope of section 15G of the Exchange Act. This part specifies the 
permissible types, forms, and amounts of credit risk retention, and 
establishes certain exemptions for securitizations collateralized by 
assets that meet specified underwriting standards or that otherwise 
qualify for an exemption.
    (c) Scope. (1) This part applies to any securitizer that is:
    (i) A state member bank (as defined in 12 CFR 208.2(g)); or
    (ii) Any subsidiary of a state member bank.
    (2) Section 15G of the Exchange Act and the rules issued thereunder 
apply to any securitizer that is:
    (i) A bank holding company (as defined in 12 U.S.C. 1842);
    (ii) A foreign banking organization (as defined in 12 CFR 
211.21(o));
    (iii) An Edge or agreement corporation (as defined in 12 CFR 
211.1(c)(2) and (3));
    (iv) A nonbank financial company that the Financial Stability 
Oversight Council has determined under section 113 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (12 
U.S.C. 5323) shall be supervised by the Board and for which such 
determination is still in effect; or
    (v) A savings and loan holding company (as defined in 12 U.S.C. 
1467a); and
    (vi) Any subsidiary of the foregoing.
    (3) Compliance with this part is required:
    (i) With respect to any securitization transaction collateralized by 
residential mortgages on December 24, 2015; and
    (ii) With respect to any other securitization transaction on 
December 24, 2016.

[79 FR 77764, Dec. 24, 2014]



Sec. 244.2  Definitions.

    For purposes of this part, the following definitions apply:
    ABS interest means:
    (1) Any type of interest or obligation issued by an issuing entity, 
whether or not in certificated form, including a security, obligation, 
beneficial interest or residual interest (other than an uncertificated 
regular interest in a REMIC that is held by another REMIC, where both 
REMICs are part of the same structure and a single REMIC in that 
structure issues ABS interests to investors, or a non-economic residual 
interest issued by a REMIC), payments on which are primarily dependent 
on the cash flows of the collateral owned or held by the issuing entity; 
and
    (2) Does not include common or preferred stock, limited liability 
interests, partnership interests, trust certificates, or similar 
interests that:
    (i) Are issued primarily to evidence ownership of the issuing 
entity; and
    (ii) The payments, if any, on which are not primarily dependent on 
the cash flows of the collateral held by the issuing entity; and
    (3) Does not include the right to receive payments for services 
provided

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by the holder of such right, including servicing, trustee services and 
custodial services.
    Affiliate of, or a person affiliated with, a specified person means 
a person that directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the person specified.
    Appropriate Federal banking agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Asset means a self-liquidating financial asset (including but not 
limited to a loan, lease, mortgage, or receivable).
    Asset-backed security has the same meaning as in section 3(a)(79) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(79)).
    Collateral means, with respect to any issuance of ABS interests, the 
assets that provide the cash flow and the servicing assets that support 
such cash flow for the ABS interests irrespective of the legal structure 
of issuance, including security interests in assets or other property of 
the issuing entity, fractional undivided property interests in the 
assets or other property of the issuing entity, or any other property 
interest in or rights to cash flow from such assets and related 
servicing assets. Assets or other property collateralize an issuance of 
ABS interests if the assets or property serve as collateral for such 
issuance.
    Commercial real estate loan has the same meaning as in Sec. 244.14.
    Commission means the Securities and Exchange Commission.
    Control including the terms ``controlling,'' ``controlled by'' and 
``under common control with'':
    (1) Means the possession, direct or indirect, of the power to direct 
or cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.
    (2) Without limiting the foregoing, a person shall be considered to 
control another person if the first person:
    (i) Owns, controls or holds with power to vote 25 percent or more of 
any class of voting securities of the other person; or
    (ii) Controls in any manner the election of a majority of the 
directors, trustees or persons performing similar functions of the other 
person.
    Credit risk means:
    (1) The risk of loss that could result from the failure of the 
borrower in the case of a securitized asset, or the issuing entity in 
the case of an ABS interest in the issuing entity, to make required 
payments of principal or interest on the asset or ABS interest on a 
timely basis;
    (2) The risk of loss that could result from bankruptcy, insolvency, 
or a similar proceeding with respect to the borrower or issuing entity, 
as appropriate; or
    (3) The effect that significant changes in the underlying credit 
quality of the asset or ABS interest may have on the market value of the 
asset or ABS interest.
    Creditor has the same meaning as in 15 U.S.C. 1602(g).
    Depositor means:
    (1) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity;
    (2) The sponsor, in the case of a securitization transaction where 
there is not an intermediate transfer of the assets from the sponsor to 
the issuing entity; or
    (3) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity in the case of a securitization 
transaction where the person transferring or selling the securitized 
assets directly to the issuing entity is itself a trust.
    Eligible horizontal residual interest means, with respect to any 
securitization transaction, an ABS interest in the issuing entity:
    (1) That is an interest in a single class or multiple classes in the 
issuing entity, provided that each interest meets, individually or in 
the aggregate, all of the requirements of this definition;
    (2) With respect to which, on any payment date or allocation date on 
which the issuing entity has insufficient funds to satisfy its 
obligation to pay all contractual interest or principal due, any 
resulting shortfall will reduce amounts payable to the eligible 
horizontal residual interest prior to any reduction in the amounts 
payable to any other ABS interest, whether

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through loss allocation, operation of the priority of payments, or any 
other governing contractual provision (until the amount of such ABS 
interest is reduced to zero); and
    (3) That, with the exception of any non-economic REMIC residual 
interest, has the most subordinated claim to payments of both principal 
and interest by the issuing entity.
    Eligible horizontal cash reserve account means an account meeting 
the requirements of Sec. 244.4(b).
    Eligible vertical interest means, with respect to any securitization 
transaction, a single vertical security or an interest in each class of 
ABS interests in the issuing entity issued as part of the securitization 
transaction that constitutes the same proportion of each such class.
    Federal banking agencies means the Office of the Comptroller of the 
Currency, the Board of Governors of the Federal Reserve System, and the 
Federal Deposit Insurance Corporation.
    GAAP means generally accepted accounting principles as used in the 
United States.
    Issuing entity means, with respect to a securitization transaction, 
the trust or other entity:
    (1) That owns or holds the pool of assets to be securitized; and
    (2) In whose name the asset-backed securities are issued.
    Majority-owned affiliate of a person means an entity (other than the 
issuing entity) that, directly or indirectly, majority controls, is 
majority controlled by or is under common majority control with, such 
person. For purposes of this definition, majority control means 
ownership of more than 50 percent of the equity of an entity, or 
ownership of any other controlling financial interest in the entity, as 
determined under GAAP.
    Originator means a person who:
    (1) Through an extension of credit or otherwise, creates an asset 
that collateralizes an asset-backed security; and
    (2) Sells the asset directly or indirectly to a securitizer or 
issuing entity.
    REMIC has the same meaning as in 26 U.S.C. 860D.
    Residential mortgage means:
    (1) A transaction that is a covered transaction as defined in 
Sec. 1026.43(b) of Regulation Z (12 CFR 1026.43(b)(1));
    (2) Any transaction that is exempt from the definition of ``covered 
transaction'' under Sec. 1026.43(a) of Regulation Z (12 CFR 1026.43(a)); 
and
    (3) Any other loan secured by a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property, including an individual condominium or cooperative unit and, 
if used as a residence, a mobile home or trailer.
    Retaining sponsor means, with respect to a securitization 
transaction, the sponsor that has retained or caused to be retained an 
economic interest in the credit risk of the securitized assets pursuant 
to subpart B of this part.
    Securitization transaction means a transaction involving the offer 
and sale of asset-backed securities by an issuing entity.
    Securitized asset means an asset that:
    (1) Is transferred, sold, or conveyed to an issuing entity; and
    (2) Collateralizes the ABS interests issued by the issuing entity.
    Securitizer means, with respect to a securitization transaction, 
either:
    (1) The depositor of the asset-backed securities (if the depositor 
is not the sponsor); or
    (2) The sponsor of the asset-backed securities.
    Servicer means any person responsible for the management or 
collection of the securitized assets or making allocations or 
distributions to holders of the ABS interests, but does not include a 
trustee for the issuing entity or the asset-backed securities that makes 
allocations or distributions to holders of the ABS interests if the 
trustee receives such allocations or distributions from a servicer and 
the trustee does not otherwise perform the functions of a servicer.
    Servicing assets means rights or other assets designed to assure the 
servicing or timely distribution of proceeds to ABS interest holders and 
rights or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the issuing entity's securitized assets. 
Servicing assets include amounts received by the issuing entity as 
proceeds of securitized assets,

[[Page 232]]

including proceeds of rights or other assets, whether as remittances by 
obligors or as other recoveries.
    Single vertical security means, with respect to any securitization 
transaction, an ABS interest entitling the sponsor to a specified 
percentage of the amounts paid on each class of ABS interests in the 
issuing entity (other than such single vertical security).
    Sponsor means a person who organizes and initiates a securitization 
transaction by selling or transferring assets, either directly or 
indirectly, including through an affiliate, to the issuing entity.
    State has the same meaning as in Section 3(a)(16) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(16)).
    United States or U.S. means the United States of America, including 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    Wholly-owned affiliate means a person (other than an issuing entity) 
that, directly or indirectly, wholly controls, is wholly controlled by, 
or is wholly under common control with, another person. For purposes of 
this definition, ``wholly controls'' means ownership of 100 percent of 
the equity of an entity.



                     Subpart B_Credit Risk Retention



Sec. 244.3  Base risk retention requirement.

    (a) Base risk retention requirement. Except as otherwise provided in 
this part, the sponsor of a securitization transaction (or majority-
owned affiliate of the sponsor) shall retain an economic interest in the 
credit risk of the securitized assets in accordance with any one of 
Secs. 244.4 through 244.10. Credit risk in securitized assets required 
to be retained and held by any person for purposes of compliance with 
this part, whether a sponsor, an originator, an originator-seller, or a 
third-party purchaser, except as otherwise provided in this part, may be 
acquired and held by any of such person's majority-owned affiliates 
(other than an issuing entity).
    (b) Multiple sponsors. If there is more than one sponsor of a 
securitization transaction, it shall be the responsibility of each 
sponsor to ensure that at least one of the sponsors of the 
securitization transaction (or at least one of their majority-owned or 
wholly-owned affiliates, as applicable) retains an economic interest in 
the credit risk of the securitized assets in accordance with any one of 
Sec. 244.4, Sec. 244.5, Sec. 244.8, Sec. 244.9, or Sec. 244.10.



Sec. 244.4  Standard risk retention.

    (a) General requirement. Except as provided in Secs. 244.5 through 
244.10, the sponsor of a securitization transaction must retain an 
eligible vertical interest or eligible horizontal residual interest, or 
any combination thereof, in accordance with the requirements of this 
section.
    (1) If the sponsor retains only an eligible vertical interest as its 
required risk retention, the sponsor must retain an eligible vertical 
interest in a percentage of not less than 5 percent.
    (2) If the sponsor retains only an eligible horizontal residual 
interest as its required risk retention, the amount of the interest must 
equal at least 5 percent of the fair value of all ABS interests in the 
issuing entity issued as a part of the securitization transaction, 
determined using a fair value measurement framework under GAAP.
    (3) If the sponsor retains both an eligible vertical interest and an 
eligible horizontal residual interest as its required risk retention, 
the percentage of the fair value of the eligible horizontal residual 
interest and the percentage of the eligible vertical interest must equal 
at least five.
    (4) The percentage of the eligible vertical interest, eligible 
horizontal residual interest, or combination thereof retained by the 
sponsor must be determined as of the closing date of the securitization 
transaction.
    (b) Option to hold base amount in eligible horizontal cash reserve 
account. In lieu of retaining all or any part of an eligible horizontal 
residual interest under paragraph (a) of this section, the sponsor may, 
at closing of the securitization transaction, cause to be established 
and funded, in cash, an eligible horizontal cash reserve account in the 
amount equal to the fair value of such eligible horizontal residual 
interest or part thereof, provided that the

[[Page 233]]

account meets all of the following conditions:
    (1) The account is held by the trustee (or person performing similar 
functions) in the name and for the benefit of the issuing entity;
    (2) Amounts in the account are invested only in cash and cash 
equivalents; and
    (3) Until all ABS interests in the issuing entity are paid in full, 
or the issuing entity is dissolved:
    (i) Amounts in the account shall be released only to:
    (A) Satisfy payments on ABS interests in the issuing entity on any 
payment date on which the issuing entity has insufficient funds from any 
source to satisfy an amount due on any ABS interest; or
    (B) Pay critical expenses of the trust unrelated to credit risk on 
any payment date on which the issuing entity has insufficient funds from 
any source to pay such expenses and:
    (1) Such expenses, in the absence of available funds in the eligible 
horizontal cash reserve account, would be paid prior to any payments to 
holders of ABS interests; and
    (2) Such payments are made to parties that are not affiliated with 
the sponsor; and
    (ii) Interest (or other earnings) on investments made in accordance 
with paragraph (b)(2) of this section may be released once received by 
the account.
    (c) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors, under the caption ``Credit 
Risk Retention'', a reasonable period of time prior to the sale of the 
asset-backed securities in the securitization transaction the following 
disclosures in written form and within the time frames set forth in this 
paragraph (c):
    (1) Horizontal interest. With respect to any eligible horizontal 
residual interest held under paragraph (a) of this section, a sponsor 
must disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that the sponsor expects to retain at the closing of 
the securitization transaction. If the specific prices, sizes, or rates 
of interest of each tranche of the securitization are not available, the 
sponsor must disclose a range of fair values (expressed as a percentage 
of the fair value of all of the ABS interests issued in the 
securitization transaction and dollar amount (or corresponding amount in 
the foreign currency in which the ABS interests are issued, as 
applicable)) of the eligible horizontal residual interest that the 
sponsor expects to retain at the close of the securitization transaction 
based on a range of bona fide estimates or specified prices, sizes, or 
rates of interest of each tranche of the securitization. A sponsor 
disclosing a range of fair values based on a range of bona fide 
estimates or specified prices, sizes or rates of interest of each 
tranche of the securitization must also disclose the method by which it 
determined any range of prices, tranche sizes, or rates of interest.
    (B) A description of the material terms of the eligible horizontal 
residual interest to be retained by the sponsor;
    (C) A description of the valuation methodology used to calculate the 
fair values or range of fair values of all classes of ABS interests, 
including any portion of the eligible horizontal residual interest 
retained by the sponsor;
    (D) All key inputs and assumptions or a comprehensive description of 
such key inputs and assumptions that were used in measuring the 
estimated total fair value or range of fair values of all classes of ABS 
interests, including the eligible horizontal residual interest to be 
retained by the sponsor.
    (E) To the extent applicable to the valuation methodology used, the 
disclosure required in paragraph (c)(1)(i)(D) of this section shall 
include, but should not be limited to, quantitative information about 
each of the following:
    (1) Discount rates;
    (2) Loss given default (recovery);
    (3) Prepayment rates;

[[Page 234]]

    (4) Default rates;
    (5) Lag time between default and recovery; and
    (6) The basis of forward interest rates used.
    (F) The disclosure required in paragraphs (c)(1)(i)(C) and (D) of 
this section shall include, at a minimum, descriptions of all inputs and 
assumptions that either could have a material impact on the fair value 
calculation or would be material to a prospective investor's ability to 
evaluate the sponsor's fair value calculations. To the extent the 
disclosure required in this paragraph (c)(1) includes a description of a 
curve or curves, the description shall include a description of the 
methodology that was used to derive each curve and a description of any 
aspects or features of each curve that could materially impact the fair 
value calculation or the ability of a prospective investor to evaluate 
the sponsor's fair value calculation. To the extent a sponsor uses 
information about the securitized assets in its calculation of fair 
value, such information shall not be as of a date more than 60 days 
prior to the date of first use with investors; provided that for a 
subsequent issuance of ABS interests by the same issuing entity with the 
same sponsor for which the securitization transaction distributes 
amounts to investors on a quarterly or less frequent basis, such 
information shall not be as of a date more than 135 days prior to the 
date of first use with investors; provided further, that the balance or 
value (in accordance with the transaction documents) of the securitized 
assets may be increased or decreased to reflect anticipated additions or 
removals of assets the sponsor makes or expects to make between the cut-
off date or similar date for establishing the composition of the asset 
pool collateralizing such asset-backed security and the closing date of 
the securitization.
    (G) A summary description of the reference data set or other 
historical information used to develop the key inputs and assumptions 
referenced in paragraph (c)(1)(i)(D) of this section, including loss 
given default and default rates;
    (ii) A reasonable time after the closing of the securitization 
transaction:
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest the sponsor retained at the closing of the securitization 
transaction, based on actual sale prices and finalized tranche sizes;
    (B) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest that the sponsor is required to retain under this section; and
    (C) To the extent the valuation methodology or any of the key inputs 
and assumptions that were used in calculating the fair value or range of 
fair values disclosed prior to sale and required under paragraph 
(c)(1)(i) of this section materially differs from the methodology or key 
inputs and assumptions used to calculate the fair value at the time of 
closing, descriptions of those material differences.
    (iii) If the sponsor retains risk through the funding of an eligible 
horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in 
the eligible horizontal cash reserve account at closing, and the fair 
value (expressed as a percentage of the fair value of all of the ABS 
interests issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor is required to fund through the eligible horizontal 
cash reserve account in order for such account, together with other 
retained interests, to satisfy the sponsor's risk retention requirement;
    (B) A description of the material terms of the eligible horizontal 
cash reserve account; and
    (C) The disclosures required in paragraphs (c)(1)(i) and (ii) of 
this section.

[[Page 235]]

    (2) Vertical interest. With respect to any eligible vertical 
interest retained under paragraph (a) of this section, the sponsor must 
disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The form of the eligible vertical interest;
    (B) The percentage that the sponsor is required to retain as a 
vertical interest under this section; and
    (C) A description of the material terms of the vertical interest and 
the amount that the sponsor expects to retain at the closing of the 
securitization transaction.
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of the vertical interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (c)(2)(i) of this section.
    (d) Record maintenance. A sponsor must retain the certifications and 
disclosures required in paragraphs (a) and (c) of this section in its 
records and must provide the disclosure upon request to the Commission 
and its appropriate Federal banking agency, if any, until three years 
after all ABS interests are no longer outstanding.



Sec. 244.5  Revolving pool securitizations.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Revolving pool securitization means an issuing entity that is 
established to issue on multiple issuance dates more than one series, 
class, subclass, or tranche of asset-backed securities that are 
collateralized by a common pool of securitized assets that will change 
in composition over time, and that does not monetize excess interest and 
fees from its securitized assets.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by the securitized assets and servicing assets 
owned or held by the issuing entity, other than the following that are 
not considered a component of seller's interest:
    (i) Servicing assets that have been allocated as collateral only for 
a specific series in connection with administering the revolving pool 
securitization, such as a principal accumulation or interest reserve 
account; and
    (ii) Assets that are not eligible under the terms of the 
securitization transaction to be included when determining whether the 
revolving pool securitization holds aggregate securitized assets in 
specified proportions to aggregate outstanding investor ABS interests 
issued; and
    (2) That is pari passu with each series of investor ABS interests 
issued, or partially or fully subordinated to one or more series in 
identical or varying amounts, with respect to the allocation of all 
distributions and losses with respect to the securitized assets prior to 
early amortization of the revolving securitization (as specified in the 
securitization transaction documents); and
    (3) That adjusts for fluctuations in the outstanding principal 
balance of the securitized assets in the pool.
    (b) General requirement. A sponsor satisfies the risk retention 
requirements of Sec. 244.3 with respect to a securitization transaction 
for which the issuing entity is a revolving pool securitization if the 
sponsor maintains a seller's interest of not less than 5 percent of the 
aggregate unpaid principal balance of all outstanding investor ABS 
interests in the issuing entity.
    (c) Measuring the seller's interest. In measuring the seller's 
interest for purposes of meeting the requirements of paragraph (b) of 
this section:
    (1) The unpaid principal balance of the securitized assets for the 
numerator of the 5 percent ratio shall not include assets of the types 
excluded from the definition of seller's interest in paragraph (a) of 
this section;
    (2) The aggregate unpaid principal balance of outstanding investor 
ABS interests in the denominator of the 5 percent ratio may be reduced 
by the amount of funds held in a segregated principal accumulation 
account for the repayment of outstanding investor ABS interests, if:
    (i) The terms of the securitization transaction documents prevent 
funds in the principal accumulation account from being applied for any 
purpose

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other than the repayment of the unpaid principal of outstanding investor 
ABS interests; and
    (ii) Funds in that account are invested only in the types of assets 
in which funds held in an eligible horizontal cash reserve account 
pursuant to Sec. 244.4 are permitted to be invested;
    (3) If the terms of the securitization transaction documents set 
minimum required seller's interest as a proportion of the unpaid 
principal balance of outstanding investor ABS interests for one or more 
series issued, rather than as a proportion of the aggregate outstanding 
investor ABS interests in all outstanding series combined, the 
percentage of the seller's interest for each such series must, when 
combined with the percentage of any minimum seller's interest set by 
reference to the aggregate outstanding investor ABS interests, equal at 
least 5 percent;
    (4) The 5 percent test must be determined and satisfied at the 
closing of each issuance of ABS interests to investors by the issuing 
entity, and
    (i) At least monthly at a seller's interest measurement date 
specified under the securitization transaction documents, until no ABS 
interest in the issuing entity is held by any person not a wholly-owned 
affiliate of the sponsor; or
    (ii) If the revolving pool securitization fails to meet the 5 
percent test as of any date described in paragraph (c)(4)(i) of this 
section, and the securitization transaction documents specify a cure 
period, the 5 percent test must be determined and satisfied within the 
earlier of the cure period, or one month after the date described in 
paragraph (c)(4)(i).
    (d) Measuring outstanding investor ABS interests. In measuring the 
amount of outstanding investor ABS interests for purposes of this 
section, ABS interests held for the life of such ABS interests by the 
sponsor or its wholly-owned affiliates may be excluded.
    (e) Holding and retention of the seller's interest; legacy trusts. 
(1) Notwithstanding Sec. 244.12(a), the seller's interest, and any 
offsetting horizontal retention interest retained pursuant to paragraph 
(g) of this section, must be retained by the sponsor or by one or more 
wholly-owned affiliates of the sponsor, including one or more depositors 
of the revolving pool securitization.
    (2) If one revolving pool securitization issues collateral 
certificates representing a beneficial interest in all or a portion of 
the securitized assets held by that securitization to another revolving 
pool securitization, which in turn issues ABS interests for which the 
collateral certificates are all or a portion of the securitized assets, 
a sponsor may satisfy the requirements of paragraphs (b) and (c) of this 
section by retaining the seller's interest for the assets represented by 
the collateral certificates through either of the revolving pool 
securitizations, so long as both revolving pool securitizations are 
retained at the direction of the same sponsor or its wholly-owned 
affiliates.
    (3) If the sponsor retains the seller's interest associated with the 
collateral certificates at the level of the revolving pool 
securitization that issues those collateral certificates, the proportion 
of the seller's interest required by paragraph (b) of this section 
retained at that level must equal the proportion that the principal 
balance of the securitized assets represented by the collateral 
certificates bears to the principal balance of the securitized assets in 
the revolving pool securitization that issues the ABS interests, as of 
each measurement date required by paragraph (c) of this section.
    (f) Offset for pool-level excess funding account. The 5 percent 
seller's interest required on each measurement date by paragraph (c) of 
this section may be reduced on a dollar-for-dollar basis by the balance, 
as of such date, of an excess funding account in the form of a 
segregated account that:
    (1) Is funded in the event of a failure to meet the minimum seller's 
interest requirements or other requirement to maintain a minimum balance 
of securitized assets under the securitization transaction documents by 
distributions otherwise payable to the holder of the seller's interest;
    (2) Is invested only in the types of assets in which funds held in a 
horizontal cash reserve account pursuant to Sec. 244.4 are permitted to 
be invested; and

[[Page 237]]

    (3) In the event of an early amortization, makes payments of amounts 
held in the account to holders of investor ABS interests in the same 
manner as payments to holders of investor ABS interests of amounts 
received on securitized assets.
    (g) Combined seller's interests and horizontal interest retention. 
The 5 percent seller's interest required on each measurement date by 
paragraph (c) of this section may be reduced to a percentage lower than 
5 percent to the extent that, for all series of investor ABS interests 
issued after the applicable effective date of this Sec. 244.5, the 
sponsor, or notwithstanding Sec. 244.12(a) a wholly-owned affiliate of 
the sponsor, retains, at a minimum, a corresponding percentage of the 
fair value of ABS interests issued in each series, in the form of one or 
more of the horizontal residual interests meeting the requirements of 
paragraphs (h) or (i).
    (h) Residual ABS interests in excess interest and fees. The sponsor 
may take the offset described in paragraph (g) of this section for a 
residual ABS interest in excess interest and fees, whether certificated 
or uncertificated, in a single or multiple classes, subclasses, or 
tranches, that meets, individually or in the aggregate, the requirements 
of this paragraph (h);
    (1) Each series of the revolving pool securitization distinguishes 
between the series' share of the interest and fee cash flows and the 
series' share of the principal repayment cash flows from the securitized 
assets collateralizing the revolving pool securitization, which may 
according to the terms of the securitization transaction documents, 
include not only the series' ratable share of such cash flows but also 
excess cash flows available from other series;
    (2) The residual ABS interest's claim to any part of the series' 
share of the interest and fee cash flows for any interest payment period 
is subordinated to all accrued and payable interest due on the payment 
date to more senior ABS interests in the series for that period, and 
further reduced by the series' share of losses, including defaults on 
principal of the securitized assets collateralizing the revolving pool 
securitization (whether incurred in that period or carried over from 
prior periods) to the extent that such payments would have been included 
in amounts payable to more senior interests in the series;
    (3) The revolving pool securitization continues to revolve, with one 
or more series, classes, subclasses, or tranches of asset-backed 
securities that are collateralized by a common pool of assets that 
change in composition over time; and
    (4) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the residual ABS 
interest in excess interest and fees, and the fair value of the series 
of outstanding investor ABS interests to which it is subordinated and 
supports using the fair value measurement framework under GAAP, as of:
    (i) The closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) The seller's interest measurement dates described in paragraph 
(c)(4) of this section, except that for these periodic determinations 
the sponsor must update the fair value of the residual ABS interest in 
excess interest and fees for the numerator of the percentage ratio, but 
may at the sponsor's option continue to use the fair values determined 
in (h)(4)(i) for the outstanding investor ABS interests in the 
denominator.
    (i) Offsetting eligible horizontal residual interest. The sponsor 
may take the offset described in paragraph (g) of this section for ABS 
interests that would meet the definition of eligible horizontal residual 
interests in Sec. 244.2 but for the sponsor's simultaneous holding of 
subordinated seller's interests, residual ABS interests in excess 
interests and fees, or a combination of the two, if:
    (1) The sponsor complies with all requirements of paragraphs (b) 
through (e) of this section for its holdings of subordinated seller's 
interest, and paragraph (h) for its holdings of residual ABS interests 
in excess interests and fees, as applicable;
    (2) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the eligible 
horizontal residual

[[Page 238]]

interest as a percentage of the fair value of the outstanding investor 
ABS interests in the series supported by the eligible horizontal 
residual interest, determined using the fair value measurement framework 
under GAAP:
    (i) As of the closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) Without including in the numerator of the percentage ratio any 
fair value based on:
    (A) The subordinated seller's interest or residual ABS interest in 
excess interest and fees;
    (B) the interest payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of residual ABS 
interest in excess interest and fees pursuant to paragraph (h) of this 
section in taking the offset in paragraph (g) of this section; and,
    (C) the principal payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of the seller's 
interest pursuant to paragraphs (b) through (f) of this section and 
distributions on that seller's interest are available to reduce charge-
offs that would otherwise be allocated to reduce principal payable to 
the offset eligible horizontal residual interest.
    (j) Specified dates. A sponsor using data about the revolving pool 
securitization's collateral, or ABS interests previously issued, to 
determine the closing-date percentage of a seller's interest, residual 
ABS interest in excess interest and fees, or eligible horizontal 
residual interest pursuant to this Sec. 244.5 may use such data prepared 
as of specified dates if:
    (1) The sponsor describes the specified dates in the disclosures 
required by paragraph (k) of this section; and
    (2) The dates are no more than 60 days prior to the date of first 
use with investors of disclosures required for the interest by paragraph 
(k) of this section, or for revolving pool securitizations that make 
distributions to investors on a quarterly or less frequent basis, no 
more than 135 days prior to the date of first use with investors of such 
disclosures.
    (k) Disclosure and record maintenance--(1) Disclosure. A sponsor 
relying on this section shall provide, or cause to be provided, to 
potential investors, under the caption ``Credit Risk Retention'' the 
following disclosure in written form and within the time frames set 
forth in this paragraph (k):
    (i) A reasonable period of time prior to the sale of an asset-backed 
security, a description of the material terms of the seller's interest, 
and the percentage of the seller's interest that the sponsor expects to 
retain at the closing of the securitization transaction, measured in 
accordance with the requirements of this Sec. 244.5, as a percentage of 
the aggregate unpaid principal balance of all outstanding investor ABS 
interests issued, or as a percentage of the aggregate unpaid principal 
balance of outstanding investor ABS interests for one or more series 
issued, as required by the terms of the securitization transaction;
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of seller's interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (k)(1)(i) of this section; and
    (iii) A description of the material terms of any horizontal residual 
interests offsetting the seller's interest in accordance with paragraphs 
(g), (h), and (i) of this section; and
    (iv) Disclosure of the fair value of those horizontal residual 
interests retained by the sponsor for the series being offered to 
investors and described in the disclosures, as a percentage of the fair 
value of the outstanding investor ABS interests issued, described in the 
same manner and within the same timeframes required for disclosure of 
the fair values of eligible horizontal residual interests specified in 
Sec. 244.4(c).
    (2) Adjusted data. Disclosures required by this paragraph (k) to be 
made a reasonable period of time prior to the sale of an asset-backed 
security of the amount of seller's interest, residual ABS interest in 
excess interest and fees, or eligible horizontal residual interest may 
include adjustments to the amount of securitized assets for additions or 
removals the sponsor expects to make before the closing date and 
adjustments to the amount of outstanding investor ABS interests for 
expected increases and decreases of those

[[Page 239]]

interests under the control of the sponsor.
    (3) Record maintenance. A sponsor must retain the disclosures 
required in paragraph (k)(1) of this section in its records and must 
provide the disclosure upon request to the Commission and its 
appropriate Federal banking agency, if any, until three years after all 
ABS interests are no longer outstanding.
    (l) Early amortization of all outstanding series. A sponsor that 
organizes a revolving pool securitization that relies on this Sec. 244.5 
to satisfy the risk retention requirements of Sec. 244.3, does not 
violate the requirements of this part if its seller's interest falls 
below the level required by Sec. 244. 5 after the revolving pool 
securitization commences early amortization, pursuant to the terms of 
the securitization transaction documents, of all series of outstanding 
investor ABS interests, if:
    (1) The sponsor was in full compliance with the requirements of this 
section on all measurement dates specified in paragraph (c) of this 
section prior to the commencement of early amortization;
    (2) The terms of the seller's interest continue to make it pari 
passu with or subordinate in identical or varying amounts to each series 
of outstanding investor ABS interests issued with respect to the 
allocation of all distributions and losses with respect to the 
securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor 
pursuant to paragraph (g) to offset the minimum seller's interest amount 
continue to require the interests to absorb losses in accordance with 
the terms of paragraph (h) or (i) of this section, as applicable; and
    (4) The revolving pool securitization issues no additional ABS 
interests after early amortization is initiated to any person not a 
wholly-owned affiliate of the sponsor, either at the time of issuance or 
during the amortization period.



Sec. 244.6  Eligible ABCP conduits.

    (a) Definitions. For purposes of this section, the following 
additional definitions apply:
    100 percent liquidity coverage means an amount equal to the 
outstanding balance of all ABCP issued by the conduit plus any accrued 
and unpaid interest without regard to the performance of the ABS 
interests held by the ABCP conduit and without regard to any credit 
enhancement.
    ABCP means asset-backed commercial paper that has a maturity at the 
time of issuance not exceeding 397 days, exclusive of days of grace, or 
any renewal thereof the maturity of which is likewise limited.
    ABCP conduit means an issuing entity with respect to ABCP.
    Eligible ABCP conduit means an ABCP conduit, provided that:
    (1) The ABCP conduit is bankruptcy remote or otherwise isolated for 
insolvency purposes from the sponsor of the ABCP conduit and from any 
intermediate SPV;
    (2) The ABS interests acquired by the ABCP conduit are:
    (i) ABS interests collateralized solely by assets originated by an 
originator-seller and by servicing assets;
    (ii) Special units of beneficial interest (or similar ABS interests) 
in a trust or special purpose vehicle that retains legal title to leased 
property underlying leases originated by an originator-seller that were 
transferred to an intermediate SPV in connection with a securitization 
collateralized solely by such leases and by servicing assets;
    (iii) ABS interests in a revolving pool securitization 
collateralized solely by assets originated by an originator-seller and 
by servicing assets; or
    (iv) ABS interests described in paragraph (2)(i), (ii), or (iii) of 
this definition that are collateralized, in whole or in part, by assets 
acquired by an originator-seller in a business combination that 
qualifies for business combination accounting under GAAP, and, if 
collateralized in part, the remainder of such assets are assets 
described in paragraph (2)(i), (ii), or (iii) of this definition; and
    (v) Acquired by the ABCP conduit in an initial issuance by or on 
behalf of an intermediate SPV:
    (A) Directly from the intermediate SPV,

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    (B) From an underwriter of the ABS interests issued by the 
intermediate SPV, or
    (C) From another person who acquired the ABS interests directly from 
the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by ABS interests 
acquired from intermediate SPVs as described in paragraph (2) of this 
definition and servicing assets; and
    (4) A regulated liquidity provider has entered into a legally 
binding commitment to provide 100 percent liquidity coverage (in the 
form of a lending facility, an asset purchase agreement, a repurchase 
agreement, or other similar arrangement) to all the ABCP issued by the 
ABCP conduit by lending to, purchasing ABCP issued by, or purchasing 
assets from, the ABCP conduit in the event that funds are required to 
repay maturing ABCP issued by the ABCP conduit. With respect to the 100 
percent liquidity coverage, in the event that the ABCP conduit is unable 
for any reason to repay maturing ABCP issued by the issuing entity, the 
liquidity provider shall be obligated to pay an amount equal to any 
shortfall, and the total amount that may be due pursuant to the 100 
percent liquidity coverage shall be equal to 100 percent of the amount 
of the ABCP outstanding at any time plus accrued and unpaid interest 
(amounts due pursuant to the required liquidity coverage may not be 
subject to credit performance of the ABS interests held by the ABCP 
conduit or reduced by the amount of credit support provided to the ABCP 
conduit and liquidity support that only funds performing loans or 
receivables or performing ABS interests does not meet the requirements 
of this section).
    Intermediate SPV means a special purpose vehicle that:
    (1)(i) Is a direct or indirect wholly-owned affiliate of the 
originator-seller; or
    (ii) Has nominal equity owned by a trust or corporate service 
provider that specializes in providing independent ownership of special 
purpose vehicles, and such trust or corporate service provider is not 
affiliated with any other transaction parties;
    (2) Is bankruptcy remote or otherwise isolated for insolvency 
purposes from the eligible ABCP conduit and from each originator-seller 
and each majority-owned affiliate in each case that, directly or 
indirectly, sells or transfers assets to such intermediate SPV;
    (3) Acquires assets from the originator-seller that are originated 
by the originator-seller or acquired by the originator-seller in the 
acquisition of a business that qualifies for business combination 
accounting under GAAP or acquires ABS interests issued by another 
intermediate SPV of the originator-seller that are collateralized solely 
by such assets; and
    (4) Issues ABS interests collateralized solely by such assets, as 
applicable.
    Originator-seller means an entity that originates assets and sells 
or transfers those assets, directly or through a majority-owned 
affiliate, to an intermediate SPV, and includes (except for the purposes 
of identifying the sponsorship and affiliation of an intermediate SPV 
pursuant to this Sec. 244.6) any affiliate of the originator-seller 
that, directly or indirectly, majority controls, is majority controlled 
by or is under common majority control with, the originator-seller. For 
purposes of this definition, majority control means ownership of more 
than 50 percent of the equity of an entity, or ownership of any other 
controlling financial interest in the entity, as determined under GAAP.
    Regulated liquidity provider means:
    (1) A depository institution (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813));
    (2) A bank holding company (as defined in 12 U.S.C. 1841), or a 
subsidiary thereof;
    (3) A savings and loan holding company (as defined in 12 U.S.C. 
1467a), provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), or a subsidiary thereof; or
    (4) A foreign bank whose home country supervisor (as defined in 
Sec. 211.21 of the Federal Reserve Board's Regulation K (12 CFR 211.21)) 
has adopted capital standards consistent with the Capital Accord of the 
Basel Committee on Banking Supervision, as amended, and

[[Page 241]]

that is subject to such standards, or a subsidiary thereof.
    (b) In general. An ABCP conduit sponsor satisfies the risk retention 
requirement of Sec. 244.3 with respect to the issuance of ABCP by an 
eligible ABCP conduit in a securitization transaction if, for each ABS 
interest the ABCP conduit acquires from an intermediate SPV:
    (1) An originator-seller of the intermediate SPV retains an economic 
interest in the credit risk of the assets collateralizing the ABS 
interest acquired by the eligible ABCP conduit in the amount and manner 
required under Sec. 244.4 or Sec. 244.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller permitted to sell or transfer 
assets, directly or indirectly, to an intermediate SPV from which an 
eligible ABCP conduit acquires ABS interests;
    (ii) Approves each intermediate SPV from which an eligible ABCP 
conduit is permitted to acquire ABS interests;
    (iii) Establishes criteria governing the ABS interests, and the 
securitized assets underlying the ABS interests, acquired by the ABCP 
conduit;
    (iv) Administers the ABCP conduit by monitoring the ABS interests 
acquired by the ABCP conduit and the assets supporting those ABS 
interests, arranging for debt placement, compiling monthly reports, and 
ensuring compliance with the ABCP conduit documents and with the ABCP 
conduit's credit and investment policy; and
    (v) Maintains and adheres to policies and procedures for ensuring 
that the requirements in this paragraph (b) of this section have been 
met.
    (c) Originator-seller compliance with risk retention. The use of the 
risk retention option provided in this section by an ABCP conduit 
sponsor does not relieve the originator-seller that sponsors ABS 
interests acquired by an eligible ABCP conduit from such originator-
seller's obligation to comply with its own risk retention obligations 
under this part.
    (d) Disclosures--(1) Periodic disclosures to investors. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, to each purchaser of ABCP, before or contemporaneously with 
the first sale of ABCP to such purchaser and at least monthly 
thereafter, to each holder of commercial paper issued by the ABCP 
conduit, in writing, each of the following items of information, which 
shall be as of a date not more than 60 days prior to date of first use 
with investors:
    (i) The name and form of organization of the regulated liquidity 
provider that provides liquidity coverage to the eligible ABCP conduit, 
including a description of the material terms of such liquidity 
coverage, and notice of any failure to fund.
    (ii) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying 
securitized assets;
    (B) The standard industrial category code (SIC Code) for the 
originator-seller that will retain (or has retained) pursuant to this 
section an interest in the securitization transaction; and
    (C) A description of the percentage amount of risk retention 
pursuant to the rule by the originator-seller, and whether it is in the 
form of an eligible horizontal residual interest, vertical interest, or 
revolving pool securitization seller's interest, as applicable.
    (2) Disclosures to regulators regarding originator-sellers. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, upon request, to the Commission and its appropriate Federal 
banking agency, if any, in writing, all of the information required to 
be provided to investors in paragraph (d)(1) of this section, and the 
name and form of organization of each originator-seller that will retain 
(or has retained) pursuant to this section an interest in the 
securitization transaction.
    (e) Sale or transfer of ABS interests between eligible ABCP 
conduits. At any time, an eligible ABCP conduit that acquired an ABS 
interest in accordance with the requirements set forth in this section 
may transfer, and another eligible ABCP conduit may acquire, such ABS 
interest, if the following conditions are satisfied:
    (1) The sponsors of both eligible ABCP conduits are in compliance 
with this section; and

[[Page 242]]

    (2) The same regulated liquidity provider has entered into one or 
more legally binding commitments to provide 100 percent liquidity 
coverage to all the ABCP issued by both eligible ABCP conduits.
    (f) Duty to comply. (1) The ABCP conduit sponsor shall be 
responsible for compliance with this section.
    (2) An ABCP conduit sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor compliance by each originator-seller 
which is satisfying a risk retention obligation in respect of ABS 
interests acquired by an eligible ABCP conduit with the requirements of 
paragraph (b)(1) of this section; and
    (ii) In the event that the ABCP conduit sponsor determines that an 
originator-seller no longer complies with the requirements of paragraph 
(b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, and upon request, the 
Commission and its appropriate Federal banking agency, if any, in 
writing of:
    (1) The name and form of organization of any originator-seller that 
fails to retain risk in accordance with paragraph (b)(1) of this section 
and the amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit;
    (2) The name and form of organization of any originator-seller that 
hedges, directly or indirectly through an intermediate SPV, its risk 
retention in violation of paragraph (b)(1) of this section and the 
amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other 
party with respect to such ABS interests; and
    (B) Take other appropriate steps pursuant to the requirements of 
paragraphs (b)(2)(iv) and (v) of this section which may include, as 
appropriate, curing any breach of the requirements in this section, or 
removing from the eligible ABCP conduit any ABS interest that does not 
comply with the requirements in this section.



Sec. 244.7  Commercial mortgage-backed securities.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    Special servicer means, with respect to any securitization of 
commercial real estate loans, any servicer that, upon the occurrence of 
one or more specified conditions in the servicing agreement, has the 
right to service one or more assets in the transaction.
    (b) Third-party purchaser. A sponsor may satisfy some or all of its 
risk retention requirements under Sec. 244.3 with respect to a 
securitization transaction if a third party (or any majority-owned 
affiliate thereof) purchases and holds for its own account an eligible 
horizontal residual interest in the issuing entity in the same form, 
amount, and manner as would be held by the sponsor under Sec. 244.4 and 
all of the following conditions are met:
    (1) Number of third-party purchasers. At any time, there are no more 
than two third-party purchasers of an eligible horizontal residual 
interest. If there are two third-party purchasers, each third-party 
purchaser's interest must be pari passu with the other third-party 
purchaser's interest.
    (2) Composition of collateral. The securitization transaction is 
collateralized solely by commercial real estate loans and servicing 
assets.
    (3) Source of funds. (i) Each third-party purchaser pays for the 
eligible horizontal residual interest in cash at the closing of the 
securitization transaction.
    (ii) No third-party purchaser obtains financing, directly or 
indirectly, for the purchase of such interest from any other person that 
is a party to, or an affiliate of a party to, the securitization 
transaction (including, but not limited to, the sponsor, depositor, or 
servicer other than a special servicer affiliated with the third-party 
purchaser), other than a person that is a party to the transaction 
solely by reason of being an investor.
    (4) Third-party review. Each third-party purchaser conducts an 
independent review of the credit risk of each securitized asset prior to 
the sale of the asset-backed securities in the

[[Page 243]]

securitization transaction that includes, at a minimum, a review of the 
underwriting standards, collateral, and expected cash flows of each 
commercial real estate loan that is collateral for the asset-backed 
securities.
    (5) Affiliation and control rights. (i) Except as provided in 
paragraph (b)(5)(ii) of this section, no third-party purchaser is 
affiliated with any party to the securitization transaction (including, 
but not limited to, the sponsor, depositor, or servicer) other than 
investors in the securitization transaction.
    (ii) Notwithstanding paragraph (b)(5)(i) of this section, a third-
party purchaser may be affiliated with:
    (A) The special servicer for the securitization transaction; or
    (B) One or more originators of the securitized assets, as long as 
the assets originated by the affiliated originator or originators 
collectively comprise less than 10 percent of the unpaid principal 
balance of the securitized assets included in the securitization 
transaction at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (6) Operating Advisor. The underlying securitization transaction 
documents shall provide for the following:
    (i) The appointment of an operating advisor (the Operating Advisor) 
that:
    (A) Is not affiliated with other parties to the securitization 
transaction;
    (B) Does not directly or indirectly have any financial interest in 
the securitization transaction other than in fees from its role as 
Operating Advisor; and
    (C) Is required to act in the best interest of, and for the benefit 
of, investors as a collective whole;
    (ii) Standards with respect to the Operating Advisor's experience, 
expertise and financial strength to fulfill its duties and 
responsibilities under the applicable transaction documents over the 
life of the securitization transaction;
    (iii) The terms of the Operating Advisor's compensation with respect 
to the securitization transaction;
    (iv) When the eligible horizontal residual interest has been reduced 
by principal payments, realized losses, and appraisal reduction amounts 
(which reduction amounts are determined in accordance with the 
applicable transaction documents) to a principal balance of 25 percent 
or less of its initial principal balance, the special servicer for the 
securitized assets must consult with the Operating Advisor in connection 
with, and prior to, any material decision in connection with its 
servicing of the securitized assets, including, without limitation:
    (A) Any material modification of, or waiver with respect to, any 
provision of a loan agreement (including a mortgage, deed of trust, or 
other security agreement);
    (B) Foreclosure upon or comparable conversion of the ownership of a 
property; or
    (C) Any acquisition of a property.
    (v) The Operating Advisor shall have adequate and timely access to 
information and reports necessary to fulfill its duties under the 
transaction documents, including all reports made available to holders 
of ABS interests and third-party purchasers, and shall be responsible 
for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports provided by the special servicer to the 
issuing entity or any holder of ABS interests;
    (C) Reviewing for accuracy and consistency with the transaction 
documents calculations made by the special servicer; and
    (D) Issuing a report to investors (including any third-party 
purchasers) and the issuing entity on a periodic basis concerning:
    (1) Whether the Operating Advisor believes, in its sole discretion 
exercised in good faith, that the special servicer is operating in 
compliance with any standard required of the special servicer in the 
applicable transaction documents; and
    (2) Which, if any, standards the Operating Advisor believes, in its 
sole discretion exercised in good faith, the special servicer has failed 
to comply.
    (vi)(A) The Operating Advisor shall have the authority to recommend 
that the special servicer be replaced by a successor special servicer if 
the Operating Advisor determines, in its sole discretion exercised in 
good faith, that:

[[Page 244]]

    (1) The special servicer has failed to comply with a standard 
required of the special servicer in the applicable transaction 
documents; and
    (2) Such replacement would be in the best interest of the investors 
as a collective whole; and
    (B) If a recommendation described in paragraph (b)(6)(vi)(A) of this 
section is made, the special servicer shall be replaced upon the 
affirmative vote of a majority of the outstanding principal balance of 
all ABS interests voting on the matter, with a minimum of a quorum of 
ABS interests voting on the matter. For purposes of such vote, the 
applicable transaction documents shall specify the quorum and may not 
specify a quorum of more than the holders of 20 percent of the 
outstanding principal balance of all ABS interests in the issuing 
entity, with such quorum including at least three ABS interest holders 
that are not affiliated with each other.
    (7) Disclosures. The sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (i) The name and form of organization of each initial third-party 
purchaser that acquired an eligible horizontal residual interest at the 
closing of a securitization transaction;
    (ii) A description of each initial third-party purchaser's 
experience in investing in commercial mortgage-backed securities;
    (iii) Any other information regarding each initial third-party 
purchaser or each initial third-party purchaser's retention of the 
eligible horizontal residual interest that is material to investors in 
light of the circumstances of the particular securitization transaction;
    (iv) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that will be retained (or was retained) by each 
initial third-party purchaser, as well as the amount of the purchase 
price paid by each initial third-party purchaser for such interest;
    (v) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest in the securitization transaction that the sponsor 
would have retained pursuant to Sec. 244.4 if the sponsor had relied on 
retaining an eligible horizontal residual interest in that section to 
meet the requirements of Sec. 244.3 with respect to the transaction;
    (vi) A description of the material terms of the eligible horizontal 
residual interest retained by each initial third-party purchaser, 
including the same information as is required to be disclosed by 
sponsors retaining horizontal interests pursuant to Sec. 244.4;
    (vii) The material terms of the applicable transaction documents 
with respect to the Operating Advisor, including without limitation:
    (A) The name and form of organization of the Operating Advisor;
    (B) A description of any material conflict of interest or material 
potential conflict of interest between the Operating Advisor and any 
other party to the transaction;
    (C) The standards required by paragraph (b)(6)(ii) of this section 
and a description of how the Operating Advisor satisfies each of the 
standards; and
    (D) The terms of the Operating Advisor's compensation under 
paragraph (b)(6)(iii) of this section; and
    (viii) The representations and warranties concerning the securitized 
assets, a schedule of any securitized assets that are determined not to 
comply with such representations and warranties, and what factors were 
used to make the determination that such securitized assets should be 
included in the pool notwithstanding that the securitized assets did not 
comply with such representations and warranties,

[[Page 245]]

such as compensating factors or a determination that the exceptions were 
not material.
    (8) Hedging, transfer and pledging--(i) General rule. Except as set 
forth in paragraph (b)(8)(ii) of this section, each third-party 
purchaser and its affiliates must comply with the hedging and other 
restrictions in Sec. 244.12 as if it were the retaining sponsor with 
respect to the securitization transaction and had acquired the eligible 
horizontal residual interest pursuant to Sec. 244.4; provided that, the 
hedging and other restrictions in Sec. 244.12 shall not apply on or 
after the date that each CRE loan (as defined in Sec. 244.14) that 
serves as collateral for outstanding ABS interests has been defeased. 
For purposes of this section, a loan is deemed to be defeased if:
    (A) cash or cash equivalents of the types permitted for an eligible 
horizontal cash reserve account pursuant to Sec. 244.4 whose maturity 
corresponds to the remaining debt service obligations, have been pledged 
to the issuing entity as collateral for the loan and are in such amounts 
and payable at such times as necessary to timely generate cash 
sufficient to make all remaining debt service payments due on such loan; 
and
    (B) the issuing entity has an obligation to release its lien on the 
loan.
    (ii) Exceptions--(A) Transfer by initial third-party purchaser or 
sponsor. An initial third-party purchaser that acquired an eligible 
horizontal residual interest at the closing of a securitization 
transaction in accordance with this section, or a sponsor that acquired 
an eligible horizontal residual interest at the closing of a 
securitization transaction in accordance with this section, may, on or 
after the date that is five years after the date of the closing of the 
securitization transaction, transfer that interest to a subsequent 
third-party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The initial third-party purchaser shall provide the sponsor 
with complete identifying information for the subsequent third-party 
purchaser.
    (B) Transfer by subsequent third-party purchaser. At any time, a 
subsequent third-party purchaser that acquired an eligible horizontal 
residual interest pursuant to this section may transfer its interest to 
a different third-party purchaser that complies with paragraph 
(b)(8)(ii)(C) of this section. The transferring third-party purchaser 
shall provide the sponsor with complete identifying information for the 
acquiring third-party purchaser.
    (C) Requirements applicable to subsequent third-party purchasers. A 
subsequent third-party purchaser is subject to all of the requirements 
of paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section 
applicable to third-party purchasers, provided that obligations under 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section that 
apply to initial third-party purchasers at or before the time of closing 
of the securitization transaction shall apply to successor third-party 
purchasers at or before the time of the transfer of the eligible 
horizontal residual interest to the successor third-party purchaser.
    (c) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section by itself and for compliance by each 
initial or subsequent third-party purchaser that acquired an eligible 
horizontal residual interest in the securitization transaction.
    (2) A sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures to monitor 
each third-party purchaser's compliance with the requirements of 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section; and
    (ii) In the event that the sponsor determines that a third-party 
purchaser no longer complies with one or more of the requirements of 
paragraphs (b)(1), (b)(3) through (5), or (b)(8) of this section, shall 
promptly notify, or cause to be notified, the holders of the ABS 
interests issued in the securitization transaction of such noncompliance 
by such third-party purchaser.



Sec. 244.8  Federal National Mortgage Association and Federal Home Loan 
Mortgage Corporation ABS.

    (a) In general. A sponsor satisfies its risk retention requirement 
under this part if the sponsor fully guarantees the

[[Page 246]]

timely payment of principal and interest on all ABS interests issued by 
the issuing entity in the securitization transaction and is:
    (1) The Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation operating under the conservatorship or 
receivership of the Federal Housing Finance Agency pursuant to section 
1367 of the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992 (12 U.S.C. 4617) with capital support from the United 
States; or
    (2) Any limited-life regulated entity succeeding to the charter of 
either the Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation pursuant to section 1367(i) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4617(i)), provided that the entity is operating with capital 
support from the United States.
    (b) Certain provisions not applicable. The provisions of 
Sec. 244.12(b), (c), and (d) shall not apply to a sponsor described in 
paragraph (a)(1) or (2) of this section, its affiliates, or the issuing 
entity with respect to a securitization transaction for which the 
sponsor has retained credit risk in accordance with the requirements of 
this section.
    (c) Disclosure. A sponsor relying on this section shall provide to 
investors, in written form under the caption ``Credit Risk Retention'' 
and, upon request, to the Federal Housing Finance Agency and the 
Commission, a description of the manner in which it has met the credit 
risk retention requirements of this part.



Sec. 244.9  Open market CLOs.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    CLO means a special purpose entity that:
    (i) Issues debt and equity interests, and
    (ii) Whose assets consist primarily of loans that are securitized 
assets and servicing assets.
    CLO-eligible loan tranche means a term loan of a syndicated facility 
that meets the criteria set forth in paragraph (c) of this section.
    CLO manager means an entity that manages a CLO, which entity is 
registered as an investment adviser under the Investment Advisers Act of 
1940, as amended (15 U.S.C. 80b-1 et seq.), or is an affiliate of such a 
registered investment adviser and itself is managed by such registered 
investment adviser.
    Commercial borrower means an obligor under a corporate credit 
obligation (including a loan).
    Initial loan syndication transaction means a transaction in which a 
loan is syndicated to a group of lenders.
    Lead arranger means, with respect to a CLO-eligible loan tranche, an 
institution that:
    (i) Is active in the origination, structuring and syndication of 
commercial loan transactions (as defined in Sec. 244.14) and has played 
a primary role in the structuring, underwriting and distribution on the 
primary market of the CLO-eligible loan tranche.
    (ii) Has taken an allocation of the funded portion of the syndicated 
credit facility under the terms of the transaction that includes the 
CLO-eligible loan tranche of at least 20 percent of the aggregate 
principal balance at origination, and no other member (or members 
affiliated with each other) of the syndication group that funded at 
origination has taken a greater allocation; and
    (iii) Is identified in the applicable agreement governing the CLO-
eligible loan tranche; represents therein to the holders of the CLO-
eligible loan tranche and to any holders of participation interests in 
such CLO-eligible loan tranche that such lead arranger satisfies the 
requirements of paragraph (i) of this definition and, at the time of 
initial funding of the CLO-eligible tranche, will satisfy the 
requirements of paragraph (ii) of this definition; further represents 
therein (solely for the purpose of assisting such holders to determine 
the eligibility of such CLO-eligible loan tranche to be held by an open 
market CLO) that in the reasonable judgment of such lead arranger, the 
terms of such CLO-eligible loan tranche are consistent with the 
requirements of paragraphs (c)(2) and (3) of this section; and covenants 
therein to such holders that such lead arranger

[[Page 247]]

will fulfill the requirements of paragraph (c)(1) of this section.
    Open market CLO means a CLO:
    (i) Whose assets consist of senior, secured syndicated loans 
acquired by such CLO directly from the sellers thereof in open market 
transactions and of servicing assets,
    (ii) That is managed by a CLO manager, and
    (iii) That holds less than 50 percent of its assets, by aggregate 
outstanding principal amount, in loans syndicated by lead arrangers that 
are affiliates of the CLO or the CLO manager or originated by 
originators that are affiliates of the CLO or the CLO manager.
    Open market transaction means:
    (i) Either an initial loan syndication transaction or a secondary 
market transaction in which a seller offers senior, secured syndicated 
loans to prospective purchasers in the loan market on market terms on an 
arm's length basis, which prospective purchasers include, but are not 
limited to, entities that are not affiliated with the seller, or
    (ii) A reverse inquiry from a prospective purchaser of a senior, 
secured syndicated loan through a dealer in the loan market to purchase 
a senior, secured syndicated loan to be sourced by the dealer in the 
loan market.
    Secondary market transaction means a purchase of a senior, secured 
syndicated loan not in connection with an initial loan syndication 
transaction but in the secondary market.
    Senior, secured syndicated loan means a loan made to a commercial 
borrower that:
    (i) Is not subordinate in right of payment to any other obligation 
for borrowed money of the commercial borrower,
    (ii) Is secured by a valid first priority security interest or lien 
in or on specified collateral securing the commercial borrower's 
obligations under the loan, and
    (iii) The value of the collateral subject to such first priority 
security interest or lien, together with other attributes of the obligor 
(including, without limitation, its general financial condition, ability 
to generate cash flow available for debt service and other demands for 
that cash flow), is adequate (in the commercially reasonable judgment of 
the CLO manager exercised at the time of investment) to repay the loan 
and to repay all other indebtedness of equal seniority secured by such 
first priority security interest or lien in or on the same collateral, 
and the CLO manager certifies, on or prior to each date that it acquires 
a loan constituting part of a new CLO-eligible tranche, that it has 
policies and procedures to evaluate the likelihood of repayment of loans 
acquired by the CLO and it has followed such policies and procedures in 
evaluating each CLO-eligible loan tranche.
    (b) In general. A sponsor satisfies the risk retention requirements 
of Sec. 244.3 with respect to an open market CLO transaction if:
    (1) The open market CLO does not acquire or hold any assets other 
than CLO-eligible loan tranches that meet the requirements of paragraph 
(c) of this section and servicing assets;
    (2) The governing documents of such open market CLO require that, at 
all times, the assets of the open market CLO consist of senior, secured 
syndicated loans that are CLO-eligible loan tranches and servicing 
assets;
    (3) The open market CLO does not invest in ABS interests or in 
credit derivatives other than hedging transactions that are servicing 
assets to hedge risks of the open market CLO;
    (4) All purchases of CLO-eligible loan tranches and other assets by 
the open market CLO issuing entity or through a warehouse facility used 
to accumulate the loans prior to the issuance of the CLO's ABS interests 
are made in open market transactions on an arms-length basis;
    (5) The CLO manager of the open market CLO is not entitled to 
receive any management fee or gain on sale at the time the open market 
CLO issues its ABS interests.
    (c) CLO-eligible loan tranche. To qualify as a CLO-eligible loan 
tranche, a term loan of a syndicated credit facility to a commercial 
borrower must have the following features:
    (1) A minimum of 5 percent of the face amount of the CLO-eligible 
loan tranche is retained by the lead arranger thereof until the earliest 
of the repayment, maturity, involuntary and

[[Page 248]]

unscheduled acceleration, payment default, or bankruptcy default of such 
CLO-eligible loan tranche, provided that such lead arranger complies 
with limitations on hedging, transferring and pledging in Sec. 244.12 
with respect to the interest retained by the lead arranger.
    (2) Lender voting rights within the credit agreement and any 
intercreditor or other applicable agreements governing such CLO-eligible 
loan tranche are defined so as to give holders of the CLO-eligible loan 
tranche consent rights with respect to, at minimum, any material waivers 
and amendments of such applicable documents, including but not limited 
to, adverse changes to the calculation or payments of amounts due to the 
holders of the CLO-eligible tranche, alterations to pro rata provisions, 
changes to voting provisions, and waivers of conditions precedent; and
    (3) The pro rata provisions, voting provisions, and similar 
provisions applicable to the security associated with such CLO-eligible 
loan tranches under the CLO credit agreement and any intercreditor or 
other applicable agreements governing such CLO-eligible loan tranches 
are not materially less advantageous to the holder(s) of such CLO-
eligible tranche than the terms of other tranches of comparable 
seniority in the broader syndicated credit facility.
    (d) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors a reasonable period of time 
prior to the sale of the asset-backed securities in the securitization 
transaction and at least annually with respect to the information 
required by paragraph (d)(1) of this section and, upon request, to the 
Commission and its appropriate Federal banking agency, if any, the 
following disclosure in written form under the caption ``Credit Risk 
Retention'':
    (1) Open market CLOs. A complete list of every asset held by an open 
market CLO (or before the CLO's closing, in a warehouse facility in 
anticipation of transfer into the CLO at closing), including the 
following information:
    (i) The full legal name, Standard Industrial Classification (SIC) 
category code, and legal entity identifier (LEI) issued by a utility 
endorsed or otherwise governed by the Global LEI Regulatory Oversight 
Committee or the Global LEI Foundation (if an LEI has been obtained by 
the obligor) of the obligor of the loan or asset;
    (ii) The full name of the specific loan tranche held by the CLO;
    (iii) The face amount of the entire loan tranche held by the CLO, 
and the face amount of the portion thereof held by the CLO;
    (iv) The price at which the loan tranche was acquired by the CLO; 
and
    (v) For each loan tranche, the full legal name of the lead arranger 
subject to the sales and hedging restrictions of Sec. 244.12; and
    (2) CLO manager. The full legal name and form of organization of the 
CLO manager.



Sec. 244.10  Qualified tender option bonds.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Municipal security or municipal securities shall have the same 
meaning as the term ``municipal securities'' in Section 3(a)(29) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)) and any rules 
promulgated pursuant to such section.
    Qualified tender option bond entity means an issuing entity with 
respect to tender option bonds for which each of the following applies:
    (i) Such entity is collateralized solely by servicing assets and by 
municipal securities that have the same municipal issuer and the same 
underlying obligor or source of payment (determined without regard to 
any third-party credit enhancement), and such municipal securities are 
not subject to substitution.
    (ii) Such entity issues no securities other than:
    (A) A single class of tender option bonds with a preferred variable 
return payable out of capital that meets the requirements of paragraph 
(b) of this section, and
    (B) One or more residual equity interests that, in the aggregate, 
are entitled to all remaining income of the issuing entity.

[[Page 249]]

    (C) The types of securities referred to in paragraphs (ii)(A) and 
(B) of this definition must constitute asset-backed securities.
    (iii) The municipal securities held as assets by such entity are 
issued in compliance with Section 103 of the Internal Revenue Code of 
1986, as amended (the ``IRS Code'', 26 U.S.C. 103), such that the 
interest payments made on those securities are excludable from the gross 
income of the owners under Section 103 of the IRS Code.
    (iv) The terms of all of the securities issued by the entity are 
structured so that all holders of such securities who are eligible to 
exclude interest received on such securities will be able to exclude 
that interest from gross income pursuant to Section 103 of the IRS Code 
or as ``exempt-interest dividends'' pursuant to Section 852(b)(5) of the 
IRS Code (26 U.S.C. 852(b)(5)) in the case of regulated investment 
companies under the Investment Company Act of 1940, as amended.
    (v) Such entity has a legally binding commitment from a regulated 
liquidity provider as defined in Sec. 244.6(a), to provide a 100 percent 
guarantee or liquidity coverage with respect to all of the issuing 
entity's outstanding tender option bonds.
    (vi) Such entity qualifies for monthly closing elections pursuant to 
IRS Revenue Procedure 2003-84, as amended or supplemented from time to 
time.
    Tender option bond means a security which has features which entitle 
the holders to tender such bonds to the issuing entity for purchase at 
any time upon no more than 397 days' notice, for a purchase price equal 
to the approximate amortized cost of the security, plus accrued 
interest, if any, at the time of tender.
    (b) Risk retention options. Notwithstanding anything in this 
section, the sponsor with respect to an issuance of tender option bonds 
may retain an eligible vertical interest or eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec. 244.4. In order to satisfy its risk retention 
requirements under this section, the sponsor with respect to an issuance 
of tender option bonds by a qualified tender option bond entity may 
retain:
    (1) An eligible vertical interest or an eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec. 244.4; or
    (2) An interest that meets the requirements set forth in paragraph 
(c) of this section; or
    (3) A municipal security that meets the requirements set forth in 
paragraph (d) of this section; or
    (4) Any combination of interests and securities described in 
paragraphs (b)(1) through (b)(3) of this section such that the sum of 
the percentages held in each form equals at least five.
    (c) Tender option termination event. The sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
may retain an interest that upon issuance meets the requirements of an 
eligible horizontal residual interest but that upon the occurrence of a 
``tender option termination event'' as defined in Section 4.01(5) of IRS 
Revenue Procedure 2003-84, as amended or supplemented from time to time 
will meet the requirements of an eligible vertical interest.
    (d) Retention of a municipal security outside of the qualified 
tender option bond entity. The sponsor with respect to an issuance of 
tender option bonds by a qualified tender option bond entity may satisfy 
its risk retention requirements under this Section by holding municipal 
securities from the same issuance of municipal securities deposited in 
the qualified tender option bond entity, the face value of which 
retained municipal securities is equal to 5 percent of the face value of 
the municipal securities deposited in the qualified tender option bond 
entity.
    (e) Disclosures. The sponsor shall provide, or cause to be provided, 
to potential investors a reasonable period of time prior to the sale of 
the asset-backed securities as part of the securitization transaction 
and, upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (1) The name and form of organization of the qualified tender option 
bond entity;

[[Page 250]]

    (2) A description of the form and subordination features of such 
retained interest in accordance with the disclosure obligations in 
Sec. 244.4(c);
    (3) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible horizontal residual interest (including any 
interest held in compliance with Sec. 244.10(c)), the fair value of that 
interest (expressed as a percentage of the fair value of all of the ABS 
interests issued in the securitization transaction and as a dollar 
amount);
    (4) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible vertical interest (including any interest 
held in compliance with Sec. 244.10(c)), the percentage of ABS interests 
issued represented by the eligible vertical interest; and
    (5) To the extent any portion of the retained interest claimed by 
the sponsor is a municipal security held outside of the qualified tender 
option bond entity, the name and form of organization of the qualified 
tender option bond entity, the identity of the issuer of the municipal 
securities, the face value of the municipal securities deposited into 
the qualified tender option bond entity, and the face value of the 
municipal securities retained by the sponsor or its majority-owned 
affiliates and subject to the transfer and hedging prohibition.
    (f) Prohibitions on Hedging and Transfer. The prohibitions on 
transfer and hedging set forth in Sec. 244.12, apply to any interests or 
municipal securities retained by the sponsor with respect to an issuance 
of tender option bonds by a qualified tender option bond entity pursuant 
to of this section.



                  Subpart C_Transfer of Risk Retention



Sec. 244.11  Allocation of risk retention to an originator.

    (a) In general. A sponsor choosing to retain an eligible vertical 
interest or an eligible horizontal residual interest (including an 
eligible horizontal cash reserve account), or combination thereof under 
Sec. 244.4, with respect to a securitization transaction may offset the 
amount of its risk retention requirements under Sec. 244.4 by the amount 
of the eligible interests, respectively, acquired by an originator of 
one or more of the securitized assets if:
    (1) At the closing of the securitization transaction:
    (i) The originator acquires the eligible interest from the sponsor 
and retains such interest in the same manner and proportion (as between 
horizontal and vertical interests) as the sponsor under Sec. 244.4, as 
such interest was held prior to the acquisition by the originator;
    (ii) The ratio of the percentage of eligible interests acquired and 
retained by the originator to the percentage of eligible interests 
otherwise required to be retained by the sponsor pursuant to Sec. 244.4, 
does not exceed the ratio of:
    (A) The unpaid principal balance of all the securitized assets 
originated by the originator; to
    (B) The unpaid principal balance of all the securitized assets in 
the securitization transaction;
    (iii) The originator acquires and retains at least 20 percent of the 
aggregate risk retention amount otherwise required to be retained by the 
sponsor pursuant to Sec. 244.4; and
    (iv) The originator purchases the eligible interests from the 
sponsor at a price that is equal, on a dollar-for-dollar basis, to the 
amount by which the sponsor's required risk retention is reduced in 
accordance with this section, by payment to the sponsor in the form of:
    (A) Cash; or
    (B) A reduction in the price received by the originator from the 
sponsor or depositor for the assets sold by the originator to the 
sponsor or depositor for inclusion in the pool of securitized assets.
    (2) Disclosures. In addition to the disclosures required pursuant to 
Sec. 244.4(c), the sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, in written form under the caption ``Credit Risk 
Retention'', the name and form of organization of any originator that 
will acquire and retain

[[Page 251]]

(or has acquired and retained) an interest in the transaction pursuant 
to this section, including a description of the form and amount 
(expressed as a percentage and dollar amount (or corresponding amount in 
the foreign currency in which the ABS interests are issued, as 
applicable)) and nature (e.g., senior or subordinated) of the interest, 
as well as the method of payment for such interest under paragraph 
(a)(1)(iv) of this section.
    (3) Hedging, transferring and pledging. The originator and each of 
its affiliates complies with the hedging and other restrictions in 
Sec. 244.12 with respect to the interests retained by the originator 
pursuant to this section as if it were the retaining sponsor and was 
required to retain the interest under subpart B of this part.
    (b) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section.
    (2) A retaining sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor the compliance by each originator that is 
allocated a portion of the sponsor's risk retention obligations with the 
requirements in paragraphs (a)(1) and (3) of this section; and
    (ii) In the event the sponsor determines that any such originator no 
longer complies with any of the requirements in paragraphs (a)(1) and 
(3) of this section, shall promptly notify, or cause to be notified, the 
holders of the ABS interests issued in the securitization transaction of 
such noncompliance by such originator.



Sec. 244.12  Hedging, transfer and financing prohibitions.

    (a) Transfer. Except as permitted by Sec. 244.7(b)(8), and subject 
to Sec. 244.5, a retaining sponsor may not sell or otherwise transfer 
any interest or assets that the sponsor is required to retain pursuant 
to subpart B of this part to any person other than an entity that is and 
remains a majority-owned affiliate of the sponsor and each such 
majority-owned affiliate shall be subject to the same restrictions.
    (b) Prohibited hedging by sponsor and affiliates. A retaining 
sponsor and its affiliates may not purchase or sell a security, or other 
financial instrument, or enter into an agreement, derivative or other 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative, or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor (or any of its majority-owned affiliates) is required to retain 
with respect to a securitization transaction pursuant to subpart B of 
this part or one or more of the particular securitized assets that 
collateralize the asset-backed securities issued in the securitization 
transaction; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the sponsor (or any 
of its majority-owned affiliates) to the credit risk of one or more of 
the particular ABS interests that the retaining sponsor (or any of its 
majority-owned affiliates) is required to retain with respect to a 
securitization transaction pursuant to subpart B of this part or one or 
more of the particular securitized assets that collateralize the asset-
backed securities issued in the securitization transaction.
    (c) Prohibited hedging by issuing entity. The issuing entity in a 
securitization transaction may not purchase or sell a security or other 
financial instrument, or enter into an agreement, derivative or 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor for the transaction (or any of its majority-owned affiliates) is 
required to retain with respect to the securitization transaction 
pursuant to subpart B of this part; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the retaining 
sponsor (or any of its majority-owned affiliates) to the credit risk of 
one or more of the particular ABS interests that the sponsor

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(or any of its majority-owned affiliates) is required to retain pursuant 
to subpart B of this part.
    (d) Permitted hedging activities. The following activities shall not 
be considered prohibited hedging activities under paragraph (b) or (c) 
of this section:
    (1) Hedging the interest rate risk (which does not include the 
specific interest rate risk, known as spread risk, associated with the 
ABS interest that is otherwise considered part of the credit risk) or 
foreign exchange risk arising from one or more of the particular ABS 
interests required to be retained by the sponsor (or any of its 
majority-owned affiliates) under subpart B of this part or one or more 
of the particular securitized assets that underlie the asset-backed 
securities issued in the securitization transaction; or
    (2) Purchasing or selling a security or other financial instrument 
or entering into an agreement, derivative, or other position with any 
third party where payments on the security or other financial instrument 
or under the agreement, derivative, or position are based, directly or 
indirectly, on an index of instruments that includes asset-backed 
securities if:
    (i) Any class of ABS interests in the issuing entity that were 
issued in connection with the securitization transaction and that are 
included in the index represents no more than 10 percent of the dollar-
weighted average (or corresponding weighted average in the currency in 
which the ABS interests are issued, as applicable) of all instruments 
included in the index; and
    (ii) All classes of ABS interests in all issuing entities that were 
issued in connection with any securitization transaction in which the 
sponsor (or any of its majority-owned affiliates) is required to retain 
an interest pursuant to subpart B of this part and that are included in 
the index represent, in the aggregate, no more than 20 percent of the 
dollar-weighted average (or corresponding weighted average in the 
currency in which the ABS interests are issued, as applicable) of all 
instruments included in the index.
    (e) Prohibited non-recourse financing. Neither a retaining sponsor 
nor any of its affiliates may pledge as collateral for any obligation 
(including a loan, repurchase agreement, or other financing transaction) 
any ABS interest that the sponsor is required to retain with respect to 
a securitization transaction pursuant to subpart B of this part unless 
such obligation is with full recourse to the sponsor or affiliate, 
respectively.
    (f) Duration of the hedging and transfer restrictions--(1) General 
rule. Except as provided in paragraph (f)(2) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire on or after the date that is the latest of:
    (i) The date on which the total unpaid principal balance (if 
applicable) of the securitized assets that collateralize the 
securitization transaction has been reduced to 33 percent of the total 
unpaid principal balance of the securitized assets as of the cut-off 
date or similar date for establishing the composition of the securitized 
assets collateralizing the asset-backed securities issued pursuant to 
the securitization transaction;
    (ii) The date on which the total unpaid principal obligations under 
the ABS interests issued in the securitization transaction has been 
reduced to 33 percent of the total unpaid principal obligations of the 
ABS interests at closing of the securitization transaction; or
    (iii) Two years after the date of the closing of the securitization 
transaction.
    (2) Securitizations of residential mortgages. (i) If all of the 
assets that collateralize a securitization transaction subject to risk 
retention under this part are residential mortgages, the prohibitions on 
sale and hedging pursuant to paragraphs (a) and (b) of this section 
shall expire on or after the date that is the later of:
    (A) Five years after the date of the closing of the securitization 
transaction; or
    (B) The date on which the total unpaid principal balance of the 
residential mortgages that collateralize the securitization transaction 
has been reduced to 25 percent of the total unpaid principal balance of 
such residential

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mortgages at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire with respect to the sponsor of a 
securitization transaction described in paragraph (f)(2)(i) of this 
section on or after the date that is seven years after the date of the 
closing of the securitization transaction.
    (3) Conservatorship or receivership of sponsor. A conservator or 
receiver of the sponsor (or any other person holding risk retention 
pursuant to this part) of a securitization transaction is permitted to 
sell or hedge any economic interest in the securitization transaction if 
the conservator or receiver has been appointed pursuant to any provision 
of federal or State law (or regulation promulgated thereunder) that 
provides for the appointment of the Federal Deposit Insurance 
Corporation, or an agency or instrumentality of the United States or of 
a State as conservator or receiver, including without limitation any of 
the following authorities:
    (i) 12 U.S.C. 1811;
    (ii) 12 U.S.C. 1787;
    (iii) 12 U.S.C. 4617; or
    (iv) 12 U.S.C. 5382.
    (4) Revolving pool securitizations. The provisions of paragraphs 
(f)(1) and (2) are not available to sponsors of revolving pool 
securitizations with respect to the forms of risk retention specified in 
Sec. 244.5.



                   Subpart D_Exceptions and Exemptions



Sec. 244.13  Exemption for qualified residential mortgages.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Currently performing means the borrower in the mortgage transaction 
is not currently thirty (30) days or more past due, in whole or in part, 
on the mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as 
defined in section 129C of the Truth in Lending Act (15 U.S.C.1639c) and 
regulations issued thereunder, as amended from time to time.
    (b) Exemption. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction, if:
    (1) All of the assets that collateralize the asset-backed securities 
are qualified residential mortgages or servicing assets;
    (2) None of the assets that collateralize the asset-backed 
securities are asset-backed securities;
    (3) As of the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, each 
qualified residential mortgage collateralizing the asset-backed 
securities is currently performing; and
    (4)(i) The depositor with respect to the securitization transaction 
certifies that it has evaluated the effectiveness of its internal 
supervisory controls with respect to the process for ensuring that all 
assets that collateralize the asset-backed security are qualified 
residential mortgages or servicing assets and has concluded that its 
internal supervisory controls are effective; and
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls must be performed, for each issuance of an asset-
backed security in reliance on this section, as of a date within 60 days 
of the cut-off date or similar date for establishing the composition of 
the asset pool collateralizing such asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (b)(4)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to the 
Commission and its appropriate Federal banking agency, if any.
    (c) Repurchase of loans subsequently determined to be non-qualified 
after closing. A sponsor that has relied on the exemption provided in 
paragraph (b) of

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this section with respect to a securitization transaction shall not lose 
such exemption with respect to such transaction if, after closing of the 
securitization transaction, it is determined that one or more of the 
residential mortgage loans collateralizing the asset-backed securities 
does not meet all of the criteria to be a qualified residential mortgage 
provided that:
    (1) The depositor complied with the certification requirement set 
forth in paragraph (b)(4) of this section;
    (2) The sponsor repurchases the loan(s) from the issuing entity at a 
price at least equal to the remaining aggregate unpaid principal balance 
and accrued interest on the loan(s) no later than 90 days after the 
determination that the loans do not satisfy the requirements to be a 
qualified residential mortgage; and
    (3) The sponsor promptly notifies, or causes to be notified, the 
holders of the asset-backed securities issued in the securitization 
transaction of any loan(s) included in such securitization transaction 
that is (or are) required to be repurchased by the sponsor pursuant to 
paragraph (c)(2) of this section, including the amount of such 
repurchased loan(s) and the cause for such repurchase.



Sec. 244.14  Definitions applicable to qualifying commercial loans, 
qualifying commercial real estate loans, and qualifying automobile loans.

    The following definitions apply for purposes of Secs. 244.15 through 
244.18:
    Appraisal Standards Board means the board of the Appraisal 
Foundation that develops, interprets, and amends the Uniform Standards 
of Professional Appraisal Practice (USPAP), establishing generally 
accepted standards for the appraisal profession.
    Automobile loan:
    (1) Means any loan to an individual to finance the purchase of, and 
that is secured by a first lien on, a passenger car or other passenger 
vehicle, such as a minivan, van, sport-utility vehicle, pickup truck, or 
similar light truck for personal, family, or household use; and
    (2) Does not include any:
    (i) Loan to finance fleet sales;
    (ii) Personal cash loan secured by a previously purchased 
automobile;
    (iii) Loan to finance the purchase of a commercial vehicle or farm 
equipment that is not used for personal, family, or household purposes;
    (iv) Lease financing;
    (v) Loan to finance the purchase of a vehicle with a salvage title; 
or
    (vi) Loan to finance the purchase of a vehicle intended to be used 
for scrap or parts.
    Combined loan-to-value (CLTV) ratio means, at the time of 
origination, the sum of the principal balance of a first-lien mortgage 
loan on the property, plus the principal balance of any junior-lien 
mortgage loan that, to the creditor's knowledge, would exist at the 
closing of the transaction and that is secured by the same property, 
divided by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec. 244.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in 
Sec. 244.17(a)(2)(ii).
    Commercial loan means a secured or unsecured loan to a company or an 
individual for business purposes, other than any:
    (1) Loan to purchase or refinance a one-to-four family residential 
property;
    (2) Commercial real estate loan.
    Commercial real estate (CRE) loan means:
    (1) A loan secured by a property with five or more single family 
units, or by nonfarm nonresidential real property, the primary source 
(50 percent or more) of repayment for which is expected to be:
    (i) The proceeds of the sale, refinancing, or permanent financing of 
the property; or
    (ii) Rental income associated with the property;
    (2) Loans secured by improved land if the obligor owns the fee 
interest in the land and the land is leased to a third party who owns 
all improvements on the land, and the improvements are nonresidential or 
residential with five or more single family units; and

[[Page 255]]

    (3) Does not include:
    (i) A land development and construction loan (including 1- to 4-
family residential or commercial construction loans);
    (ii) Any other land loan; or
    (iii) An unsecured loan to a developer.
    Debt service coverage (DSC) ratio means:
    (1) For qualifying leased CRE loans, qualifying multi-family loans, 
and other CRE loans:
    (i) The annual NOI less the annual replacement reserve of the CRE 
property at the time of origination of the CRE loan(s) divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest (calculated at the fully-indexed rate) on any debt obligation.
    (2) For commercial loans:
    (i) The borrower's EBITDA as of the most recently completed fiscal 
year divided by
    (ii) The sum of the borrower's annual payments for principal and 
interest on all debt obligations.
    Debt to income (DTI) ratio means the borrower's total debt, 
including the monthly amount due on the automobile loan, divided by the 
borrower's monthly income.
    Earnings before interest, taxes, depreciation, and amortization 
(EBITDA) means the annual income of a business before expenses for 
interest, taxes, depreciation and amortization are deducted, as 
determined in accordance with GAAP.
    Environmental risk assessment means a process for determining 
whether a property is contaminated or exposed to any condition or 
substance that could result in contamination that has an adverse effect 
on the market value of the property or the realization of the collateral 
value.
    First lien means a lien or encumbrance on property that has priority 
over all other liens or encumbrances on the property.
    Junior lien means a lien or encumbrance on property that is lower in 
priority relative to other liens or encumbrances on the property.
    Leverage ratio means the borrower's total debt divided by the 
borrower's EBITDA.
    Loan-to-value (LTV) ratio means, at the time of origination, the 
principal balance of a first-lien mortgage loan on the property divided 
by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec. 244.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in 
Sec. 244.17(a)(2)(ii).
    Model year means the year determined by the manufacturer and 
reflected on the vehicle's Motor Vehicle Title as part of the vehicle 
description.
    Net operating income (NOI) refers to the income a CRE property 
generates for the owner after all expenses have been deducted for 
federal income tax purposes, except for depreciation, debt service 
expenses, and federal and state income taxes, and excluding any unusual 
and nonrecurring items of income.
    Operating affiliate means an affiliate of a borrower that is a 
lessor or similar party with respect to the commercial real estate 
securing the loan.
    Payments-in-kind means payments of accrued interest that are not 
paid in cash when due, and instead are paid by increasing the principal 
balance of the loan or by providing equity in the borrowing company.
    Purchase money security interest means a security interest in 
property that secures the obligation of the obligor incurred as all or 
part of the price of the property.
    Purchase price means the amount paid by the borrower for the vehicle 
net of any incentive payments or manufacturer cash rebates.
    Qualified tenant means:
    (1) A tenant with a lease who has satisfied all obligations with 
respect to the property in a timely manner; or
    (2) A tenant who originally had a lease that subsequently expired 
and currently is leasing the property on a month-to-month basis, has 
occupied the property for at least three years prior to the date of 
origination, and

[[Page 256]]

has satisfied all obligations with respect to the property in a timely 
manner.
    Qualifying leased CRE loan means a CRE loan secured by commercial 
nonfarm real property, other than a multi-family property or a hotel, 
inn, or similar property:
    (1) That is occupied by one or more qualified tenants pursuant to a 
lease agreement with a term of no less than one (1) month; and
    (2) Where no more than 20 percent of the aggregate gross revenue of 
the property is payable from one or more tenants who:
    (i) Are subject to a lease that will terminate within six months 
following the date of origination; or
    (ii) Are not qualified tenants.
    Qualifying multi-family loan means a CRE loan secured by any 
residential property (excluding a hotel, motel, inn, hospital, nursing 
home, or other similar facility where dwellings are not leased to 
residents):
    (1) That consists of five or more dwelling units (including 
apartment buildings, condominiums, cooperatives and other similar 
structures) primarily for residential use; and
    (2) Where at least 75 percent of the NOI is derived from residential 
rents and tenant amenities (including income from parking garages, 
health or swim clubs, and dry cleaning), and not from other commercial 
uses.
    Rental income means:
    (1) Income derived from a lease or other occupancy agreement between 
the borrower or an operating affiliate of the borrower and a party which 
is not an affiliate of the borrower for the use of real property or 
improvements serving as collateral for the applicable loan; and
    (2) Other income derived from hotel, motel, dormitory, nursing home, 
assisted living, mini-storage warehouse or similar properties that are 
used primarily by parties that are not affiliates or employees of the 
borrower or its affiliates.
    Replacement reserve means the monthly capital replacement or 
maintenance amount based on the property type, age, construction and 
condition of the property that is adequate to maintain the physical 
condition and NOI of the property.
    Salvage title means a form of vehicle title branding, which notes 
that the vehicle has been severely damaged and/or deemed a total loss 
and uneconomical to repair by an insurance company that paid a claim on 
the vehicle.
    Total debt, with respect to a borrower, means:
    (1) In the case of an automobile loan, the sum of:
    (i) All monthly housing payments (rent- or mortgage-related, 
including property taxes, insurance and home owners association fees); 
and
    (ii) Any of the following that is dependent upon the borrower's 
income for payment:
    (A) Monthly payments on other debt and lease obligations, such as 
credit card loans or installment loans, including the monthly amount due 
on the automobile loan;
    (B) Estimated monthly amortizing payments for any term debt, debts 
with other than monthly payments and debts not in repayment (such as 
deferred student loans, interest-only loans); and
    (C) Any required monthly alimony, child support or court-ordered 
payments; and
    (2) In the case of a commercial loan, the outstanding balance of all 
long-term debt (obligations that have a remaining maturity of more than 
one year) and the current portion of all debt that matures in one year 
or less.
    Total liabilities ratio means the borrower's total liabilities 
divided by the sum of the borrower's total liabilities and equity, less 
the borrower's intangible assets, with each component determined in 
accordance with GAAP.
    Trade-in allowance means the amount a vehicle purchaser is given as 
a credit at the purchase of a vehicle for the fair exchange of the 
borrower's existing vehicle to compensate the dealer for some portion of 
the vehicle purchase price, not to exceed the highest trade-in value of 
the existing vehicle, as determined by a nationally recognized 
automobile pricing agency and based on the manufacturer, year, model, 
features, mileage, and condition of the vehicle, less the payoff balance 
of any

[[Page 257]]

outstanding debt collateralized by the existing vehicle.
    Uniform Standards of Professional Appraisal Practice (USPAP) means 
generally accepted standards for professional appraisal practice issued 
by the Appraisal Standards Board of the Appraisal Foundation.



Sec. 244.15  Qualifying commercial loans, commercial real estate loans, 
and automobile loans.

    (a) General exception for qualifying assets. Commercial loans, 
commercial real estate loans, and automobile loans that are securitized 
through a securitization transaction shall be subject to a 0 percent 
risk retention requirement under subpart B, provided that the following 
conditions are met:
    (1) The assets meet the underwriting standards set forth in 
Sec. 244.16 (qualifying commercial loans), Sec. 244.17 (qualifying CRE 
loans), or Sec. 244.18 (qualifying automobile loans) of this part, as 
applicable;
    (2) The securitization transaction is collateralized solely by loans 
of the same asset class and by servicing assets;
    (3) The securitization transaction does not permit reinvestment 
periods; and
    (4) The sponsor provides, or causes to be provided, to potential 
investors a reasonable period of time prior to the sale of asset-backed 
securities of the issuing entity, and, upon request, to the Commission, 
and to its appropriate Federal banking agency, if any, in written form 
under the caption ``Credit Risk Retention'', a description of the manner 
in which the sponsor determined the aggregate risk retention requirement 
for the securitization transaction after including qualifying commercial 
loans, qualifying CRE loans, or qualifying automobile loans with 0 
percent risk retention.
    (b) Risk retention requirement. For any securitization transaction 
described in paragraph (a) of this section, the percentage of risk 
retention required under Sec. 244.3(a) is reduced by the percentage 
evidenced by the ratio of the unpaid principal balance of the qualifying 
commercial loans, qualifying CRE loans, or qualifying automobile loans 
(as applicable) to the total unpaid principal balance of commercial 
loans, CRE loans, or automobile loans (as applicable) that are included 
in the pool of assets collateralizing the asset-backed securities issued 
pursuant to the securitization transaction (the qualifying asset ratio); 
provided that:
    (1) The qualifying asset ratio is measured as of the cut-off date or 
similar date for establishing the composition of the securitized assets 
collateralizing the asset-backed securities issued pursuant to the 
securitization transaction;
    (2) If the qualifying asset ratio would exceed 50 percent, the 
qualifying asset ratio shall be deemed to be 50 percent; and
    (3) The disclosure required by paragraph (a)(4) of this section also 
includes descriptions of the qualifying commercial loans, qualifying CRE 
loans, and qualifying automobile loans (qualifying assets) and 
descriptions of the assets that are not qualifying assets, and the 
material differences between the group of qualifying assets and the 
group of assets that are not qualifying assets with respect to the 
composition of each group's loan balances, loan terms, interest rates, 
borrower credit information, and characteristics of any loan collateral.
    (c) Exception for securitizations of qualifying assets only. 
Notwithstanding other provisions of this section, the risk retention 
requirements of subpart B of this part shall not apply to securitization 
transactions where the transaction is collateralized solely by servicing 
assets and either qualifying commercial loans, qualifying CRE loans, or 
qualifying automobile loans.
    (d) Record maintenance. A sponsor must retain the disclosures 
required in paragraphs (a) and (b) of this section and the 
certifications required in Secs. 244.16(a)(8), 244.17(a)(10), and 
244.18(a)(8), as applicable, in its records until three years after all 
ABS interests issued in the securitization are no longer outstanding. 
The sponsor must provide the disclosures and certifications upon request 
to the Commission and the sponsor's appropriate Federal banking agency, 
if any.

[[Page 258]]



Sec. 244.16  Underwriting standards for qualifying commercial loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the commercial loan, the originator:
    (i) Verified and documented the financial condition of the borrower:
    (A) As of the end of the borrower's two most recently completed 
fiscal years; and
    (B) During the period, if any, since the end of its most recently 
completed fiscal year;
    (ii) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections;
    (iii) Determined that, based on the previous two years' actual 
performance, the borrower had:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater;
    (iv) Determined that, based on the two years of projections, which 
include the new debt obligation, following the closing date of the loan, 
the borrower will have:
    (A) A total liabilities ratio of 50 percent or less;
    (B) A leverage ratio of 3.0 or less; and
    (C) A DSC ratio of 1.5 or greater.
    (2) Prior to, upon or promptly following the inception of the loan, 
the originator:
    (i) If the loan is originated on a secured basis, obtains a 
perfected security interest (by filing, title notation or otherwise) or, 
in the case of real property, a recorded lien, on all of the property 
pledged to collateralize the loan; and
    (ii) If the loan documents indicate the purpose of the loan is to 
finance the purchase of tangible or intangible property, or to refinance 
such a loan, obtains a first lien on the property.
    (3) The loan documentation for the commercial loan includes 
covenants that:
    (i) Require the borrower to provide to the servicer of the 
commercial loan the borrower's financial statements and supporting 
schedules on an ongoing basis, but not less frequently than quarterly;
    (ii) Prohibit the borrower from retaining or entering into a debt 
arrangement that permits payments-in-kind;
    (iii) Impose limits on:
    (A) The creation or existence of any other security interest or lien 
with respect to any of the borrower's property that serves as collateral 
for the loan;
    (B) The transfer of any of the borrower's assets that serve as 
collateral for the loan; and
    (C) Any change to the name, location or organizational structure of 
the borrower, or any other party that pledges collateral for the loan;
    (iv) Require the borrower and any other party that pledges 
collateral for the loan to:
    (A) Maintain insurance that protects against loss on the collateral 
for the commercial loan at least up to the amount of the loan, and that 
names the originator or any subsequent holder of the loan as an 
additional insured or loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on any collateral;
    (C) Take any action required to perfect or protect the security 
interest and first lien (as applicable) of the originator or any 
subsequent holder of the loan in any collateral for the commercial loan 
or the priority thereof, and to defend any collateral against claims 
adverse to the lender's interest;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer of the loan, to inspect any collateral for the commercial 
loan and the books and records of the borrower; and
    (E) Maintain the physical condition of any collateral for the 
commercial loan.
    (4) Loan payments required under the loan agreement are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) that fully amortize the debt over a term that 
does not exceed five years from the date of origination; and
    (ii) To be made no less frequently than quarterly over a term that 
does not exceed five years.
    (5) The primary source of repayment for the loan is revenue from the 
business operations of the borrower.

[[Page 259]]

    (6) The loan was funded within the six (6) months prior to the cut-
off date or similar date for establishing the composition of the 
securitized assets collateralizing the asset-backed securities issued 
pursuant to the securitization transaction.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying commercial 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec. 244.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec. 244.15 with respect to a qualifying 
commercial loan and it is subsequently determined that the loan did not 
meet all of the requirements set forth in paragraphs (a)(1) through (7) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the commercial loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(8) of this section 
and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec. 244.17  Underwriting standards for qualifying CRE loans.

    (a) Underwriting, product and other standards. (1) The CRE loan must 
be secured by the following:
    (i) An enforceable first lien, documented and recorded appropriately 
pursuant to applicable law, on the commercial real estate and 
improvements;
    (ii)(A) An assignment of:
    (1) Leases and rents and other occupancy agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor or similar 
party and all payments under such leases and occupancy agreements; and
    (2) All franchise, license and concession agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor, licensor, 
concession granter or similar party and all payments under

[[Page 260]]

such other agreements, whether the assignments described in this 
paragraph (a)(1)(ii)(A)(2) are absolute or are stated to be made to the 
extent permitted by the agreements governing the applicable franchise, 
license or concession agreements;
    (B) An assignment of all other payments due to the borrower or due 
to any operating affiliate in connection with the operation of the 
property described in paragraph (a)(1)(i) of this section; and
    (C) The right to enforce the agreements described in paragraph 
(a)(1)(ii)(A) of this section and the agreements under which payments 
under paragraph (a)(1)(ii)(B) of this section are due against, and 
collect amounts due from, each lessee, occupant or other obligor whose 
payments were assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of 
this section upon a breach by the borrower of any of the terms of, or 
the occurrence of any other event of default (however denominated) 
under, the loan documents relating to such CRE loan; and
    (iii) A security interest:
    (A) In all interests of the borrower and any applicable operating 
affiliate in all tangible and intangible personal property of any kind, 
in or used in the operation of or in connection with, pertaining to, 
arising from, or constituting, any of the collateral described in 
paragraphs (a)(1)(i) or (ii) of this section; and
    (B) In the form of a perfected security interest if the security 
interest in such property can be perfected by the filing of a financing 
statement, fixture filing, or similar document pursuant to the law 
governing the perfection of such security interest;
    (2) Prior to origination of the CRE loan, the originator:
    (i) Verified and documented the current financial condition of the 
borrower and each operating affiliate;
    (ii) Obtained a written appraisal of the real property securing the 
loan that:
    (A) Had an effective date not more than six months prior to the 
origination date of the loan by a competent and appropriately State-
certified or State-licensed appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced 
by the USPAP and the appraisal requirements \1\ of the Federal banking 
agencies; and
---------------------------------------------------------------------------

    \1\ 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E, and 
12 CFR part 225, subpart G (Board); and 12 CFR part 323 (FDIC).
---------------------------------------------------------------------------

    (C) Provides an ``as is'' opinion of the market value of the real 
property, which includes an income approach; \2\
---------------------------------------------------------------------------

    \2\ See USPAP, Standard 1.
---------------------------------------------------------------------------

    (iii) Qualified the borrower for the CRE loan based on a monthly 
payment amount derived from level monthly payments consisting of both 
principal and interest (at the fully-indexed rate) over the term of the 
loan, not exceeding 25 years, or 30 years for a qualifying multi-family 
property;
    (iv) Conducted an environmental risk assessment to gain 
environmental information about the property securing the loan and took 
appropriate steps to mitigate any environmental liability determined to 
exist based on this assessment;
    (v) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections (including operating income projections for the property);
    (vi)(A) Determined that based on the two years' actual performance 
immediately preceding the origination of the loan, the borrower would 
have had:
    (1) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (2) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (3) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan;
    (B) If the borrower did not own the property for any part of the 
last two years prior to origination, the calculation of the DSC ratio, 
for purposes of paragraph (a)(2)(vi)(A) of this section, shall include 
the property's operating income for any portion of the two-year period 
during which the borrower did not own the property;
    (vii) Determined that, based on two years of projections, which 
include the new debt obligation, following the

[[Page 261]]

origination date of the loan, the borrower will have:
    (A) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (B) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (C) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan.
    (3) The loan documentation for the CRE loan includes covenants that:
    (i) Require the borrower to provide the borrower's financial 
statements and supporting schedules to the servicer on an ongoing basis, 
but not less frequently than quarterly, including information on 
existing, maturing and new leasing or rent-roll activity for the 
property securing the loan, as appropriate; and
    (ii) Impose prohibitions on:
    (A) The creation or existence of any other security interest with 
respect to the collateral for the CRE loan described in paragraphs 
(a)(1)(i) and (a)(1)(ii)(A) of this section, except as provided in 
paragraph (a)(4) of this section;
    (B) The transfer of any collateral for the CRE loan described in 
paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section or of any other 
collateral consisting of fixtures, furniture, furnishings, machinery or 
equipment other than any such fixture, furniture, furnishings, machinery 
or equipment that is obsolete or surplus; and
    (C) Any change to the name, location or organizational structure of 
any borrower, operating affiliate or other pledgor unless such borrower, 
operating affiliate or other pledgor shall have given the holder of the 
loan at least 30 days advance notice and, pursuant to applicable law 
governing perfection and priority, the holder of the loan is able to 
take all steps necessary to continue its perfection and priority during 
such 30-day period.
    (iii) Require each borrower and each operating affiliate to:
    (A) Maintain insurance that protects against loss on collateral for 
the CRE loan described in paragraph (a)(1)(i) of this section for an 
amount no less than the replacement cost of the property improvements, 
and names the originator or any subsequent holder of the loan as an 
additional insured or lender loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on collateral for the CRE loan described in 
paragraphs (a)(1)(i) and (ii) of this section;
    (C) Take any action required to:
    (1) Protect the security interest and the enforceability and 
priority thereof in the collateral described in paragraphs (a)(1)(i) and 
(a)(1)(ii)(A) of this section and defend such collateral against claims 
adverse to the originator's or any subsequent holder's interest; and
    (2) Perfect the security interest of the originator or any 
subsequent holder of the loan in any other collateral for the CRE loan 
to the extent that such security interest is required by this section to 
be perfected;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer, to inspect any collateral for the CRE loan and the books 
and records of the borrower or other party relating to any collateral 
for the CRE loan;
    (E) Maintain the physical condition of collateral for the CRE loan 
described in paragraph (a)(1)(i) of this section;
    (F) Comply with all environmental, zoning, building code, licensing 
and other laws, regulations, agreements, covenants, use restrictions, 
and proffers applicable to collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section;
    (G) Comply with leases, franchise agreements, condominium 
declarations, and other documents and agreements relating to the 
operation of collateral for the CRE loan described in paragraph 
(a)(1)(i) of this section, and to not modify any material terms and 
conditions of such agreements over the term of the loan without the 
consent of the originator or any subsequent holder of the loan, or the 
servicer; and
    (H) Not materially alter collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section without the consent of the 
originator or any subsequent holder of the loan, or the servicer.

[[Page 262]]

    (4) The loan documentation for the CRE loan prohibits the borrower 
and each operating affiliate from obtaining a loan secured by a junior 
lien on collateral for the CRE loan described in paragraph (a)(1)(i) or 
(a)(1)(ii)(A) of this section, unless:
    (i) The sum of the principal amount of such junior lien loan, plus 
the principal amount of all other loans secured by collateral described 
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not exceed 
the applicable CLTV ratio in paragraph (a)(5) of this section, based on 
the appraisal at origination of such junior lien loan; or
    (ii) Such loan is a purchase money obligation that financed the 
acquisition of machinery or equipment and the borrower or operating 
affiliate (as applicable) pledges such machinery and equipment as 
additional collateral for the CRE loan.
    (5) At origination, the applicable loan-to-value ratios for the loan 
are:
    (i) LTV less than or equal to 65 percent and CLTV less than or equal 
to 70 percent; or
    (ii) LTV less than or equal to 60 percent and CLTV less than or 
equal to 65 percent, if an appraisal used to meet the requirements set 
forth in paragraph (a)(2)(ii) of this section used a direct 
capitalization rate, and that rate is less than or equal to the sum of:
    (A) The 10-year swap rate, as reported in the Federal Reserve's H.15 
Report (or any successor report) as of the date concurrent with the 
effective date of such appraisal; and
    (B) 300 basis points.
    (iii) If the appraisal required under paragraph (a)(2)(ii) of this 
section included a direct capitalization method using an overall 
capitalization rate, that rate must be disclosed to potential investors 
in the securitization.
    (6) All loan payments required to be made under the loan agreement 
are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) to fully amortize the debt over a term that does 
not exceed 25 years, or 30 years for a qualifying multifamily loan; and
    (ii) To be made no less frequently than monthly over a term of at 
least ten years.
    (7) Under the terms of the loan agreement:
    (i) Any maturity of the note occurs no earlier than ten years 
following the date of origination;
    (ii) The borrower is not permitted to defer repayment of principal 
or payment of interest; and
    (iii) The interest rate on the loan is:
    (A) A fixed interest rate;
    (B) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that effectively results in a fixed interest rate; or
    (C) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that established a cap on the interest rate for the term of the loan, 
and the loan meets the underwriting criteria in paragraphs (a)(2)(vi) 
and (vii) of this section using the maximum interest rate allowable 
under the interest rate cap.
    (8) The originator does not establish an interest reserve at 
origination to fund all or part of a payment on the loan.
    (9) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (10)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying CRE loans 
that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec. 244.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (9) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(10)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security;

[[Page 263]]

    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(10)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any; and
    (11) Within two weeks of the closing of the CRE loan by its 
originator or, if sooner, prior to the transfer of such CRE loan to the 
issuing entity, the originator shall have obtained a UCC lien search 
from the jurisdiction of organization of the borrower and each operating 
affiliate, that does not report, as of the time that the security 
interest of the originator in the property described in paragraph 
(a)(1)(iii) of this section was perfected, other higher priority liens 
of record on any property described in paragraph (a)(1)(iii) of this 
section, other than purchase money security interests.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec. 244.15 with respect to a qualifying CRE loan 
and it is subsequently determined that the CRE loan did not meet all of 
the requirements set forth in paragraphs (a)(1) through (9) and (a)(11) 
of this section, the sponsor shall not lose the benefit of the exception 
with respect to the CRE loan if the depositor complied with the 
certification requirement set forth in paragraph (a)(10) of this 
section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (9) and (a)(11) of this section is 
not material; or;
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(9) or (a)(11) of this section, the sponsor:
    (i) Effectuates cure, restoring conformity of the loan to the unmet 
requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such repurchased loan(s) and the cause for such 
cure or repurchase.



Sec. 244.18  Underwriting standards for qualifying automobile loans.

    (a) Underwriting, product and other standards. (1) Prior to 
origination of the automobile loan, the originator:
    (i) Verified and documented that within 30 days of the date of 
origination:
    (A) The borrower was not currently 30 days or more past due, in 
whole or in part, on any debt obligation;
    (B) Within the previous 24 months, the borrower has not been 60 days 
or more past due, in whole or in part, on any debt obligation;
    (C) Within the previous 36 months, the borrower has not:
    (1) Been a debtor in a proceeding commenced under Chapter 7 
(Liquidation), Chapter 11 (Reorganization), Chapter 12 (Family Farmer or 
Family Fisherman plan), or Chapter 13 (Individual Debt Adjustment) of 
the U.S. Bankruptcy Code; or
    (2) Been the subject of any federal or State judicial judgment for 
the collection of any unpaid debt;
    (D) Within the previous 36 months, no one-to-four family property 
owned by the borrower has been the subject of any foreclosure, deed in 
lieu of foreclosure, or short sale; or
    (E) Within the previous 36 months, the borrower has not had any 
personal property repossessed;
    (ii) Determined and documented that the borrower has at least 24 
months of credit history; and
    (iii) Determined and documented that, upon the origination of the 
loan, the borrower's DTI ratio is less than or equal to 36 percent.
    (A) For the purpose of making the determination under paragraph 
(a)(1)(iii) of this section, the originator must:
    (1) Verify and document all income of the borrower that the 
originator includes in the borrower's effective

[[Page 264]]

monthly income (using payroll stubs, tax returns, profit and loss 
statements, or other similar documentation); and
    (2) On or after the date of the borrower's written application and 
prior to origination, obtain a credit report regarding the borrower from 
a consumer reporting agency that compiles and maintain files on 
consumers on a nationwide basis (within the meaning of 15 U.S.C. 
1681a(p)) and verify that all outstanding debts reported in the 
borrower's credit report are incorporated into the calculation of the 
borrower's DTI ratio under paragraph (a)(1)(iii) of this section;
    (2) An originator will be deemed to have met the requirements of 
paragraph (a)(1)(i) of this section if:
    (i) The originator, no more than 30 days before the closing of the 
loan, obtains a credit report regarding the borrower from a consumer 
reporting agency that compiles and maintains files on consumers on a 
nationwide basis (within the meaning of 15 U.S.C. 1681a(p));
    (ii) Based on the information in such credit report, the borrower 
meets all of the requirements of paragraph (a)(1)(i) of this section, 
and no information in a credit report subsequently obtained by the 
originator before the closing of the loan contains contrary information; 
and
    (iii) The originator obtains electronic or hard copies of the credit 
report.
    (3) At closing of the automobile loan, the borrower makes a down 
payment from the borrower's personal funds and trade-in allowance, if 
any, that is at least equal to the sum of:
    (i) The full cost of the vehicle title, tax, and registration fees;
    (ii) Any dealer-imposed fees;
    (iii) The full cost of any additional warranties, insurance or other 
products purchased in connection with the purchase of the vehicle; and
    (iv) 10 percent of the vehicle purchase price.
    (4) The originator records a first lien securing the loan on the 
purchased vehicle in accordance with State law.
    (5) The terms of the loan agreement provide a maturity date for the 
loan that does not exceed the lesser of:
    (i) Six years from the date of origination; or
    (ii) 10 years minus the difference between the current model year 
and the vehicle's model year.
    (6) The terms of the loan agreement:
    (i) Specify a fixed rate of interest for the life of the loan;
    (ii) Provide for a level monthly payment amount that fully amortizes 
the amount financed over the loan term;
    (iii) Do not permit the borrower to defer repayment of principal or 
payment of interest; and
    (iv) Require the borrower to make the first payment on the 
automobile loan within 45 days of the loan's contract date.
    (7) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current; and
    (8)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying automobile 
loans that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec. 244.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (7) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(8)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(8)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec. 244.15 with respect to a

[[Page 265]]

qualifying automobile loan and it is subsequently determined that the 
loan did not meet all of the requirements set forth in paragraphs (a)(1) 
through (7) of this section, the sponsor shall not lose the benefit of 
the exception with respect to the automobile loan if the depositor 
complied with the certification requirement set forth in paragraph 
(a)(8) of this section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (7) of this section is not material; 
or
    (2) No later than ninety (90) days after the determination that the 
loan does not meet one or more of the requirements of paragraphs (a)(1) 
through (7) of this section, the sponsor:
    (i) Effectuates cure, establishing conformity of the loan to the 
unmet requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such loan(s) and the cause for such cure or 
repurchase.



Sec. 244.19  General exemptions.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Community-focused residential mortgage means a residential mortgage 
exempt from the definition of ``covered transaction'' under 
Sec. 1026.43(a)(3)(iv) and (v) of the CFPB's Regulation Z (12 CFR 
1026.43(a)).
    First pay class means a class of ABS interests for which all 
interests in the class are entitled to the same priority of payment and 
that, at the time of closing of the transaction, is entitled to 
repayments of principal and payments of interest prior to or pro-rata 
with all other classes of securities collateralized by the same pool of 
first-lien residential mortgages, until such class has no principal or 
notional balance remaining.
    Inverse floater means an ABS interest issued as part of a 
securitization transaction for which interest or other income is payable 
to the holder based on a rate or formula that varies inversely to a 
reference rate of interest.
    Qualifying three-to-four unit residential mortgage loan means a 
mortgage loan that is:
    (i) Secured by a dwelling (as defined in 12 CFR 1026.2(a)(19)) that 
is owner occupied and contains three-to-four housing units;
    (ii) Is deemed to be for business purposes for purposes of 
Regulation Z under 12 CFR part 1026, supplement I, paragraph 3(a)(5)(i); 
and
    (iii) Otherwise meets all of the requirements to qualify as a 
qualified mortgage under Sec. 1026.43(e) and (f) of Regulation Z (12 CFR 
1026.43(e) and (f)) as if the loan were a covered transaction under that 
section.
    (b) This part shall not apply to:
    (1) U.S. Government-backed securitizations. Any securitization 
transaction that:
    (i) Is collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets that are insured or guaranteed (in 
whole or in part) as to the payment of principal and interest by the 
United States or an agency of the United States, and servicing assets; 
or
    (ii) Involves the issuance of asset-backed securities that:
    (A) Are insured or guaranteed as to the payment of principal and 
interest by the United States or an agency of the United States; and
    (B) Are collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets or interests in such assets, and 
servicing assets.
    (2) Certain agricultural loan securitizations. Any securitization 
transaction that is collateralized solely by loans or other assets made, 
insured, guaranteed, or purchased by any institution that is subject to 
the supervision of the Farm Credit Administration, including the Federal 
Agricultural Mortgage Corporation, and servicing assets;

[[Page 266]]

    (3) State and municipal securitizations. Any asset-backed security 
that is a security issued or guaranteed by any State, or by any 
political subdivision of a State, or by any public instrumentality of a 
State that is exempt from the registration requirements of the 
Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 
U.S.C. 77c(a)(2)); and
    (4) Qualified scholarship funding bonds. Any asset-backed security 
that meets the definition of a qualified scholarship funding bond, as 
set forth in section 150(d)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 150(d)(2)).
    (5) Pass-through resecuritizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by asset-
backed securities:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Is structured so that it involves the issuance of only a single 
class of ABS interests; and
    (iii) Provides for the pass-through of all principal and interest 
payments received on the underlying asset-backed securities (net of 
expenses of the issuing entity) to the holders of such class.
    (6) First-pay-class securitizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by first-pay 
classes of asset-backed securities collateralized by first-lien 
residential mortgages on properties located in any state:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Does not provide for any ABS interest issued in the 
securitization transaction to share in realized principal losses other 
than pro rata with all other ABS interests issued in the securitization 
transaction based on the current unpaid principal balance of such ABS 
interests at the time the loss is realized;
    (iii) Is structured to reallocate prepayment risk;
    (iv) Does not reallocate credit risk (other than as a consequence of 
reallocation of prepayment risk); and
    (v) Does not include any inverse floater or similarly structured ABS 
interest.
    (7) Seasoned loans. (i) Any securitization transaction that is 
collateralized solely by servicing assets, and by seasoned loans that 
meet the following requirements:
    (A) The loans have not been modified since origination; and
    (B) None of the loans have been delinquent for 30 days or more.
    (ii) For purposes of this paragraph, a seasoned loan means:
    (A) With respect to asset-backed securities collateralized by 
residential mortgages, a loan that has been outstanding and performing 
for the longer of:
    (1) A period of five years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 25 percent of the original principal balance.
    (3) Notwithstanding paragraphs (b)(7)(ii)(A)(1) and (2) of this 
section, any residential mortgage loan that has been outstanding and 
performing for a period of at least seven years shall be deemed a 
seasoned loan.
    (B) With respect to all other classes of asset-backed securities, a 
loan that has been outstanding and performing for the longer of:
    (1) A period of at least two years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 33 percent of the original principal balance.
    (8) Certain public utility securitizations. (i) Any securitization 
transaction where the asset-back securities issued in the transaction 
are secured by the intangible property right to collect charges for the 
recovery of specified costs and such other assets, if any, of an issuing 
entity that is wholly owned, directly or indirectly, by an investor 
owned utility company that is subject to the regulatory authority of a 
State public utility commission or other appropriate State agency.

[[Page 267]]

    (ii) For purposes of this paragraph:
    (A) Specified cost means any cost identified by a State legislature 
as appropriate for recovery through securitization pursuant to specified 
cost recovery legislation; and
    (B) Specified cost recovery legislation means legislation enacted by 
a State that:
    (1) Authorizes the investor owned utility company to apply for, and 
authorizes the public utility commission or other appropriate State 
agency to issue, a financing order determining the amount of specified 
costs the utility will be allowed to recover;
    (2) Provides that pursuant to a financing order, the utility 
acquires an intangible property right to charge, collect, and receive 
amounts necessary to provide for the full recovery of the specified 
costs determined to be recoverable, and assures that the charges are 
non-bypassable and will be paid by customers within the utility's 
historic service territory who receive utility goods or services through 
the utility's transmission and distribution system, even if those 
customers elect to purchase these goods or services from a third party; 
and
    (3) Guarantees that neither the State nor any of its agencies has 
the authority to rescind or amend the financing order, to revise the 
amount of specified costs, or in any way to reduce or impair the value 
of the intangible property right, except as may be contemplated by 
periodic adjustments authorized by the specified cost recovery 
legislation.
    (c) Exemption for securitizations of assets issued, insured or 
guaranteed by the United States. This part shall not apply to any 
securitization transaction if the asset-backed securities issued in the 
transaction are:
    (1) Collateralized solely by obligations issued by the United States 
or an agency of the United States and servicing assets;
    (2) Collateralized solely by assets that are fully insured or 
guaranteed as to the payment of principal and interest by the United 
States or an agency of the United States (other than those referred to 
in paragraph (b)(1)(i) of this section) and servicing assets; or
    (3) Fully guaranteed as to the timely payment of principal and 
interest by the United States or any agency of the United States;
    (d) Federal Deposit Insurance Corporation securitizations. This part 
shall not apply to any securitization transaction that is sponsored by 
the Federal Deposit Insurance Corporation acting as conservator or 
receiver under any provision of the Federal Deposit Insurance Act or of 
Title II of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act.
    (e) Reduced requirement for certain student loan securitizations. 
The 5 percent risk retention requirement set forth in Sec. 244.4 shall 
be modified as follows:
    (1) With respect to a securitization transaction that is 
collateralized solely by student loans made under the Federal Family 
Education Loan Program (``FFELP loans'') that are guaranteed as to 100 
percent of defaulted principal and accrued interest, and servicing 
assets, the risk retention requirement shall be 0 percent;
    (2) With respect to a securitization transaction that is 
collateralized solely by FFELP loans that are guaranteed as to at least 
98 percent but less than 100 percent of defaulted principal and accrued 
interest, and servicing assets, the risk retention requirement shall be 
2 percent; and
    (3) With respect to any other securitization transaction that is 
collateralized solely by FFELP loans, and servicing assets, the risk 
retention requirement shall be 3 percent.
    (f) Community-focused lending securitizations. (1) This part shall 
not apply to any securitization transaction if the asset-backed 
securities issued in the transaction are collateralized solely by 
community-focused residential mortgages and servicing assets.
    (2) For any securitization transaction that includes both community-
focused residential mortgages and residential mortgages that are not 
exempt from risk retention under this part, the percent of risk 
retention required under Sec. 244.4(a) is reduced by the ratio of the 
unpaid principal balance of the community-focused residential mortgages 
to the total unpaid principal balance of residential mortgages that are 
included in the pool of assets collateralizing the

[[Page 268]]

asset-backed securities issued pursuant to the securitization 
transaction (the community-focused residential mortgage asset ratio); 
provided that:
    (i) The community-focused residential mortgage asset ratio is 
measured as of the cut-off date or similar date for establishing the 
composition of the pool assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction; and
    (ii) If the community-focused residential mortgage asset ratio would 
exceed 50 percent, the community-focused residential mortgage asset 
ratio shall be deemed to be 50 percent.
    (g) Exemptions for securitizations of certain three-to-four unit 
mortgage loans. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction if:
    (1)(i) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans and servicing assets; or
    (ii) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans, qualified residential mortgages as defined in 
Sec. 244.13, and servicing assets.
    (2) The depositor with respect to the securitization provides the 
certifications set forth in Sec. 244.13(b)(4) with respect to the 
process for ensuring that all assets that collateralize the asset-backed 
securities issued in the transaction are qualifying three-to-four unit 
residential mortgage loans, qualified residential mortgages, or 
servicing assets; and
    (3) The sponsor of the securitization complies with the repurchase 
requirements in Sec. 244.13(c) with respect to a loan if, after closing, 
it is determined that the loan does not meet all of the criteria to be 
either a qualified residential mortgage or a qualifying three-to-four 
unit residential mortgage loan, as appropriate.
    (h) Rule of construction. Securitization transactions involving the 
issuance of asset-backed securities that are either issued, insured, or 
guaranteed by, or are collateralized by obligations issued by, or loans 
that are issued, insured, or guaranteed by, the Federal National 
Mortgage Association, the Federal Home Loan Mortgage Corporation, or a 
Federal home loan bank shall not on that basis qualify for exemption 
under this part.



Sec. 244.20  Safe harbor for certain foreign-related transactions.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    U.S. person means:
    (i) Any of the following:
    (A) Any natural person resident in the United States;
    (B) Any partnership, corporation, limited liability company, or 
other organization or entity organized or incorporated under the laws of 
any State or of the United States;
    (C) Any estate of which any executor or administrator is a U.S. 
person (as defined under any other clause of this definition);
    (D) Any trust of which any trustee is a U.S. person (as defined 
under any other clause of this definition);
    (E) Any agency or branch of a foreign entity located in the United 
States;
    (F) Any non-discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary for the benefit or 
account of a U.S. person (as defined under any other clause of this 
definition);
    (G) Any discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary organized, 
incorporated, or (if an individual) resident in the United States; and
    (H) Any partnership, corporation, limited liability company, or 
other organization or entity if:
    (1) Organized or incorporated under the laws of any foreign 
jurisdiction; and
    (2) Formed by a U.S. person (as defined under any other clause of 
this definition) principally for the purpose of investing in securities 
not registered under the Act; and
    (ii) ``U.S. person(s)'' does not include:
    (A) Any discretionary account or similar account (other than an 
estate or trust) held for the benefit or account of a person not 
constituting a U.S. person (as defined in paragraph (i) of this

[[Page 269]]

section) by a dealer or other professional fiduciary organized, 
incorporated, or (if an individual) resident in the United States;
    (B) Any estate of which any professional fiduciary acting as 
executor or administrator is a U.S. person (as defined in paragraph (i) 
of this section) if:
    (1) An executor or administrator of the estate who is not a U.S. 
person (as defined in paragraph (i) of this section) has sole or shared 
investment discretion with respect to the assets of the estate; and
    (2) The estate is governed by foreign law;
    (C) Any trust of which any professional fiduciary acting as trustee 
is a U.S. person (as defined in paragraph (i) of this section), if a 
trustee who is not a U.S. person (as defined in paragraph (i) of this 
section) has sole or shared investment discretion with respect to the 
trust assets, and no beneficiary of the trust (and no settlor if the 
trust is revocable) is a U.S. person (as defined in paragraph (i) of 
this section);
    (D) An employee benefit plan established and administered in 
accordance with the law of a country other than the United States and 
customary practices and documentation of such country;
    (E) Any agency or branch of a U.S. person (as defined in paragraph 
(i) of this section) located outside the United States if:
    (1) The agency or branch operates for valid business reasons; and
    (2) The agency or branch is engaged in the business of insurance or 
banking and is subject to substantive insurance or banking regulation, 
respectively, in the jurisdiction where located;
    (F) The International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, the 
Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates and pension plans, and any other 
similar international organizations, their agencies, affiliates and 
pension plans.
    (b) In general. This part shall not apply to a securitization 
transaction if all the following conditions are met:
    (1) The securitization transaction is not required to be and is not 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.);
    (2) No more than 10 percent of the dollar value (or equivalent 
amount in the currency in which the ABS interests are issued, as 
applicable) of all classes of ABS interests in the securitization 
transaction are sold or transferred to U.S. persons or for the account 
or benefit of U.S. persons;
    (3) Neither the sponsor of the securitization transaction nor the 
issuing entity is:
    (i) Chartered, incorporated, or organized under the laws of the 
United States or any State;
    (ii) An unincorporated branch or office (wherever located) of an 
entity chartered, incorporated, or organized under the laws of the 
United States or any State; or
    (iii) An unincorporated branch or office located in the United 
States or any State of an entity that is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State; and
    (4) If the sponsor or issuing entity is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State, no more than 25 percent (as determined based on unpaid 
principal balance) of the assets that collateralize the ABS interests 
sold in the securitization transaction were acquired by the sponsor or 
issuing entity, directly or indirectly, from:
    (i) A majority-owned affiliate of the sponsor or issuing entity that 
is chartered, incorporated, or organized under the laws of the United 
States or any State; or
    (ii) An unincorporated branch or office of the sponsor or issuing 
entity that is located in the United States or any State.
    (c) Evasions prohibited. In view of the objective of these rules and 
the policies underlying Section 15G of the Exchange Act, the safe harbor 
described in paragraph (b) of this section is not available with respect 
to any transaction or series of transactions that, although in technical 
compliance with paragraphs (a) and (b) of this section, is part of a 
plan or scheme to evade the requirements of section 15G and this

[[Page 270]]

part. In such cases, compliance with section 15G and this part is 
required.



Sec. 244.21  Additional exemptions.

    (a) Securitization transactions. The federal agencies with 
rulewriting authority under section 15G(b) of the Exchange Act (15 
U.S.C. 78o-11(b)) with respect to the type of assets involved may 
jointly provide a total or partial exemption of any securitization 
transaction as such agencies determine may be appropriate in the public 
interest and for the protection of investors.
    (b) Exceptions, exemptions, and adjustments. The Federal banking 
agencies and the Commission, in consultation with the Federal Housing 
Finance Agency and the Department of Housing and Urban Development, may 
jointly adopt or issue exemptions, exceptions or adjustments to the 
requirements of this part, including exemptions, exceptions or 
adjustments for classes of institutions or assets in accordance with 
section 15G(e) of the Exchange Act (15 U.S.C. 78o-11(e)).



Sec. 244.22  Periodic review of the QRM definition, exempted three-to-four 
unit residential mortgage loans, and community-focused residential mortgage 
exemption.

    (a) The Federal banking agencies and the Commission, in consultation 
with the Federal Housing Finance Agency and the Department of Housing 
and Urban Development, shall commence a review of the definition of 
qualified residential mortgage in Sec. 244.13, a review of the 
community-focused residential mortgage exemption in Sec. 244.19(f), and 
a review of the exemption for qualifying three-to-four unit residential 
mortgage loans in Sec. 244.19(g):
    (1) No later than four years after the effective date of the rule 
(as it relates to securitizers and originators of asset-backed 
securities collateralized by residential mortgages), five years 
following the completion of such initial review, and every five years 
thereafter; and
    (2) At any time, upon the request of any Federal banking agency, the 
Commission, the Federal Housing Finance Agency or the Department of 
Housing and Urban Development, specifying the reason for such request, 
including as a result of any amendment to the definition of qualified 
mortgage or changes in the residential housing market.
    (b) The Federal banking agencies, the Commission, the Federal 
Housing Finance Agency and the Department of Housing and Urban 
Development shall publish in the Federal Register notice of the 
commencement of a review and, in the case of a review commenced under 
paragraph (a)(2) of this section, the reason an agency is requesting 
such review. After completion of any review, but no later than six 
months after the publication of the notice announcing the review, unless 
extended by the agencies, the agencies shall jointly publish a notice 
disclosing the determination of their review. If the agencies determine 
to amend the definition of qualified residential mortgage, the agencies 
shall complete any required rulemaking within 12 months of publication 
in the Federal Register of such notice disclosing the determination of 
their review, unless extended by the agencies.



PART 246_SUPERVISION AND REGULATION ASSESSMENTS OF FEES 
(REGULATION TT)--Table of Contents



Sec.
246.1  Authority, purpose and scope.
246.2  Definitions.
246.3  Assessed companies.
246.4  Assessments.
246.5  Notice of assessment and appeal.
246.6  Collection of assessments; payment of interest.

    Authority: Pub. L. 111-203, 124 Stat. 1376, 1526, and section 11(s) 
of the Federal Reserve Act (12 U.S.C. 248(s)).

    Source: 78 FR 52402, Aug. 23, 2013, unless otherwise noted.



Sec. 246.1  Authority, purpose and scope.

    (a) Authority. This part (Regulation TT) is issued by the Board of 
Governors of the Federal Reserve System (Board) under section 318 of 
Title III of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1423-32, 12 
U.S.C. 5365 and 5366) and section 11(s) of the Federal Reserve Act (12 
U.S.C. 248(s)).
    (b) Scope. This part applies to:

[[Page 271]]

    (1) Any bank holding company having total consolidated assets of $50 
billion or more, as defined below;
    (2) Any savings and loan holding company having total consolidated 
assets of $50 billion or more, as defined below; and
    (3) Any nonbank financial company supervised by the Board, as 
defined below.
    (c) Purpose. This part implements provisions of section 318 of the 
Dodd-Frank Act that direct the Board to collect assessments, fees, or 
other charges from companies identified in paragraph (b) of this section 
that are equal to the total expenses the Board estimates are necessary 
or appropriate to carry out the supervisory and regulatory 
responsibilities of the Board with respect to these assessed companies.
    (d)(1) Reservation of authority. In exceptional circumstances, for 
the purpose of avoiding inequitable or inconsistent application of the 
rule, the Board may require an assessed company to pay a lesser amount 
of assessments than would otherwise be provided for under this Part.
    (2) Use of comparable financial information. The Board may use, at 
its discretion, any comparable financial information that the Board may 
require from a company in considering whether the company must pay to 
the Board an assessment and the amount of such assessment, pursuant to 
section 318 of the Dodd-Frank Act.



Sec. 246.2  Definitions.

    As used in this part:
    (a) Assessment period means January 1 through December 31 of each 
calendar year.
    (b) Bank means an insured depository institution as defined in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    (c) Bank holding company is defined as in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841), and the Board's Regulation 
Y (12 CFR part 225).
    (d) Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose entity, 
association, or similar organization.
    (e) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (f) Foreign bank holding company means a foreign bank that is a bank 
holding company and any foreign company that owns such foreign bank.
    (g) Foreign savings and loan holding company means a foreign bank or 
foreign company that is a savings and loan holding company.
    (h) GAAP means generally accepted accounting principles, as used in 
the United States.
    (i) Grandfathered unitary savings and loan holding company means a 
savings and loan holding company described in section 10(c)(9)(C) of the 
Home Owners' Loan Act (``HOLA'') (12 U.S.C. 1467a(c)(9)(C)).
    (j) Nonbank financial company supervised by the Board means a 
company that the Council has determined pursuant to section 113 of the 
Dodd-Frank Act shall be supervised by the Board and for which such 
determination is in effect.
    (k) Notice of assessment means the notice in which the Board informs 
a company that it is an assessed company and states the assessed 
company's total assessable assets and the amount of its assessment.
    (l) Savings and loan holding company is defined as in section 10 of 
HOLA (12 U.S.C. 1467a).
    (m) Savings association is defined as in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).



Sec. 246.3  Assessed companies.

    An assessed company is any company that:
    (a) Is a top-tier company that, on December 31 of the assessment 
period:
    (1) Is a bank holding company, other than a foreign bank holding 
company, with $50 billion or more in total consolidated assets, as 
determined based on the average of the bank holding company's total 
consolidated assets reported for the assessment period on the Federal 
Reserve's Form FR Y-9C (``FR Y-9C''),
    (2)(i) Is a savings and loan holding company, other than a foreign 
savings

[[Page 272]]

and loan holding company, with $50 billion or more in total consolidated 
assets, as determined, except as provided in paragraph (a)(2)(ii) of 
this section, based on the average of the savings and loan holding 
company's total consolidated assets as reported for the assessment 
period on the FR Y-9C or on the Quarterly Savings and Loan Holding 
Company Report (FR 2320), as applicable.
    (ii) If a company does not calculate its total consolidated assets 
under GAAP for any regulatory purpose (including compliance with 
applicable securities laws), the company may request that the Board 
permit the company to file a quarterly estimate of its total 
consolidated assets. The Board may, in its discretion and subject to 
Board review and adjustment, permit the company to provide estimated 
total consolidated assets on a quarterly basis. For purposes of this 
part, the company's total consolidated assets will be the average of the 
estimated total consolidated assets provided for the assessment period.
    (b) Is a top-tier foreign bank holding company on December 31 of the 
assessment period, with $50 billion or more in total consolidated 
assets, as determined based on the average of the foreign bank holding 
company's total consolidated assets reported for the assessment period 
on the Federal Reserve's Form FR Y-7Q (``FR Y-7Q''), provided, however, 
that if any such company has filed only one FR Y-7Q during the 
assessment period, the Board shall use an average of the foreign bank 
holding company's total consolidated assets reported on that FR Y-7Q and 
on the FR Y-7Q for the corresponding period in the year prior to the 
assessment period.
    (c) Is a top-tier foreign savings and loan holding company on 
December 31 of the assessment period, with $50 billion or more in total 
consolidated assets, as determined based on the average of the foreign 
savings and loan holding company's total consolidated assets reported 
for the assessment period on the reporting forms applicable during the 
assessment period, provided, however, that if any such company has filed 
only one reporting form during the assessment period, the Board shall 
use an average of the foreign savings and loan holding company's total 
consolidated assets reported on that reporting form and on the reporting 
form for the corresponding period in the year prior to the assessment 
period, or
    (d) Is a nonbank financial company supervised by the Board.



Sec. 246.4  Assessments.

    (a) Assessment. Each assessed company shall pay to the Board an 
assessment for any assessment period for which the Board determines the 
company to be an assessed company.
    (b)(1) Assessment formula. Except as provided in paragraph (b)(2) of 
this section, the assessment will be calculated according to the 
Assessment Formula, as follows:

----------------------------------------------------------------------------------------------------------------
        Column A                      Column B                      Column C                     Column D
----------------------------------------------------------------------------------------------------------------
Base Amount ($50,000)     +   (Total Assessable          x  Assessment Rate)          =   Assessment
                               Assets
----------------------------------------------------------------------------------------------------------------

    (2) In any assessment period, if, at the time a company becomes a 
bank holding company or savings and loan holding company, it also 
becomes an assessed company, as defined in Sec. 246.3, the Board shall 
pro-rate that company's assessment for that assessment period based on 
the number of quarters in which such company is an assessed company. For 
a nonbank financial company supervised by the Board, for the assessment 
period that the company is designated for Board supervision, Board shall 
pro-rate that company's assessment for that assessment period based on 
the number of quarters the company has been a nonbank financial company 
supervised by the Board.
    (c) Assessment rate. Assessment rate means, with regard to a given 
assessment period, the rate published by the Board on its Web site for 
the calculation of assessments for that period.
    (1) The assessment rate will be calculated according to this 
formula:

[[Page 273]]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    (2) For the calculation set forth in paragraph (c)(1) of this 
section, the number of assessed companies and the total assessable 
assets of all assessed companies will each be that of the relevant 
assessment period, provided, however, that for the assessment periods 
corresponding to 2012, 2013 and 2014, the Board shall use the number of 
assessed companies and the total assessable assets of the 2012 
assessment period to calculate the assessment rate.
    (d) Assessment basis. (1) For the 2012, 2013, and 2014 assessment 
periods, the assessment basis is the amount of total expenses the Board 
estimates is necessary or appropriate to carry out the supervisory and 
regulatory responsibilities of the Board with respect to assessed 
companies for 2012.\1\
---------------------------------------------------------------------------

    \1\ The categories of operating expenses that the Board believes are 
necessary or appropriate include but are not limited to (1) direct 
operating expenses for supervising and regulating assessed companies 
such as conducting examinations, conducting stress tests, communicating 
with the company regarding supervisory matters and laws and regulations, 
etc.; and (2) operating expenses for activities integral to carrying out 
supervisory and regulatory responsibilities such as training staff in 
the supervisory function, research and analysis functions including 
library subscription services, collecting and processing regulatory 
reports filed by supervised institutions, etc. All operating expenses 
include applicable support, overhead, and pension expenses.
---------------------------------------------------------------------------

    (2) For the 2015 assessment period and for each assessment period 
thereafter, the assessment basis is the average of the amount of total 
expenses the Board estimates is necessary or appropriate to carry out 
the supervisory and regulatory responsibilities of the Board with 
respect to assessed companies for that assessment period and the two 
prior assessment periods.\2\
---------------------------------------------------------------------------

    \2\ The categories of operating expenses that the Board believes are 
necessary or appropriate include but are not limited to (1) direct 
operating expenses for supervising and regulating assessed companies 
such as conducting examinations, conducting stress tests, communicating 
with the company regarding supervisory matters and laws and regulations, 
etc.; and (2) operating expenses for activities integral to carrying out 
supervisory and regulatory responsibilities such as training staff in 
the supervisory function, research and analysis functions including 
library subscription services, collecting and processing regulatory 
reports filed by supervised institutions, etc. All operating expenses 
include applicable support, overhead, and pension expenses.
---------------------------------------------------------------------------

    (e) Total assessable assets. Except as provided in paragraph (f) of 
this section, total assessable assets are calculated as follows:
    (1) Bank holding companies. For any bank holding company, other than 
a foreign bank holding company, total assessable assets will be the 
average of the bank holding company's total consolidated assets as 
reported for the assessment period on the bank holding company's FR Y-9C 
or such other reports as determined by the Board as applicable to the 
bank holding company,
    (2) Foreign bank holding companies and foreign savings and loan 
holding companies--(i) In general. For any foreign bank holding company 
or any foreign savings and loan holding company, with the exception of 
the 2012 and 2013 assessment periods, total assessable assets will be 
the average of the foreign bank holding company's or foreign savings and 
loan holding company's total combined assets of its U.S. operations, net 
of intercompany balances and transactions between U.S. domiciled 
affiliates, branches and agencies, as reported for the assessment period 
on the Part 1 of the FR Y-7Q or such other reports as determined by the 
Board as applicable to the foreign bank holding company or foreign 
savings and loan holding company,
    (ii) 2012 and 2013 assessment periods. For the 2012 and 2013 
assessment periods, for any foreign bank holding company, total 
assessable assets will be the average of the sum of the line items set 
forth in this section reported quarterly, plus any line items set forth 
in

[[Page 274]]

this section reported annually for the assessment period on an 
applicable regulatory reporting form for the assessment period for all 
of the foreign bank holding company's majority-owned:
    (A) Top-tier, U.S.-domiciled bank holding companies and savings and 
loan holding companies, calculated as:
    (1) Total assets (line item 12) as reported on Schedule HC of the FR 
Y-9C and, as applicable;
    (2) Total assets (line item 1, column B) as reported on FR 2320;
    (B) Related branches and agencies of Foreign Banks in the United 
States, calculated as: total claims on nonrelated parties (line item 1.i 
from column A on Schedule RAL) plus net due from related institutions in 
foreign countries (line items 2.a, 2.b(1), 2.b(2), and 2.c from column 
A, minus line items 2.a, 2.b(1), 2.b(2) and 2.c from column B, part 1 on 
Schedule M), minus transactions with related nondepository majority-
owned subsidiaries in the U.S. (line item 1 from column A, part 3 on 
Schedule M), as reported on the Report of Assets and Liabilities of U.S. 
Branches and Agencies of Foreign Banks (FFIEC 002);
    (C) U.S.-domiciled nonbank subsidiaries, calculated as:
    (1) For FR Y-7N filers: total assets (line item 10) as reported for 
each nonbank subsidiary reported on Schedule BS--Balance Sheet of the 
Financial Statements of U.S. Nonbank Subsidiaries Held by Foreign 
Banking Organizations (FR Y-7N); minus balances due from related 
institutions located in the United States, gross (line item 4.a), as 
reported on Schedule BS-M--Memoranda, and, as applicable;
    (2) For FR Y-7NS (annual) filers: total assets (line item 2) as 
reported for each nonbank subsidiary reported on abbreviated financial 
statements (page 3) of the Abbreviated Financial Statements of U.S. 
Nonbank Subsidiaries Held by Foreign Banking Organizations (FR Y-7NS);
    (D) Edge Act and agreement corporations that are not reflected in 
the assets of a U.S.-domiciled parent's regulatory reporting form 
submission, calculated as claims on nonrelated organizations (line item 
9, ``consolidated total'' column on Schedule RC of the Consolidated 
Report of Condition and Income for Edge and Agreement Corporations (FR 
2886b)), plus claims on related organizations domiciled outside the 
United States (line items 2.a and 2.b, column A on Schedule RC-M), as 
reported on FR 2886b;
    (E) Banks and savings associations that are not reflected in the 
assets of a U.S.-domiciled parent's regulatory reporting form 
submission, calculated as: total assets (line item 12) as reported on 
Schedule RC--Balance Sheet of the Consolidated Reports of Condition and 
Income for a Bank with Domestic and Foreign Offices (FFIEC 031), or 
total assets (line item 12) as reported on Schedule RC--Balance Sheet of 
the Consolidated Reports of Condition and Income for a Bank with 
Domestic Offices Only (FFIEC 041), as applicable; and
    (F) Broker-dealers that are not reflected in the assets of a U.S.-
domiciled parent's regulatory reporting form submission, calculated as: 
total assets as reported on statement of financial condition of the 
Securities and Exchange Commission's Form X-17A-5 (FOCUS REPORT), Part 
II line item 16, Part IIa, line item 12, or Part II CSE, line item 18, 
as applicable.
    (3)(i) Savings and loan holding companies. For any savings and loan 
holding company, other than a foreign savings and loan holding company, 
total assessable assets will be, except as provided in paragraph 
(e)(3)(ii) of this section, the average of the savings and loan holding 
company's total consolidated assets as reported for the assessment 
period on the regulatory reports on the savings and loan holding 
company's Form FR Y-9C, column B of the Quarterly Savings and Loan 
Holding Company Report (FR 2320), or other reports as determined by the 
Board as applicable to the savings and loan holding company. If the 
savings and loan holding company is a grandfathered unitary savings and 
loan holding company, total assessable assets will only include the 
assets associated with its savings association subsidiary and its other 
financial activities.
    (ii) If a company does not calculate its total consolidated assets 
under

[[Page 275]]

GAAP for any regulatory purpose (including compliance with applicable 
securities laws), the company may request that the Board permit the 
company to file a quarterly estimate of its total consolidated assets. 
The Board may, in its discretion and subject to Board review and 
adjustment, permit the company to provide estimated total consolidated 
assets on a quarterly basis. The company's total assessable assets will 
be the average of the estimated total consolidated assets provided for 
the assessment period.
    (4) Nonbank financial companies supervised by the Board. For a 
nonbank financial company supervised by the Board, if the company is a 
U.S. company, this amount will be the average of the nonbank financial 
company's total consolidated assets as reported for the assessment 
period on such regulatory or other reports as are applicable to the 
nonbank financial company determined by the Board; if the company is a 
foreign company, this amount will be the average of the nonbank 
financial company's total combined assets of U.S. operations, net of 
intercompany balances and transactions between U.S. domiciled 
affiliates, branches and agencies, as reported for the assessment period 
on such regulatory or other reports as determined by the Board as 
applicable to the nonbank financial company.



Sec. 246.5  Notice of assessment and appeal.

    (a) Notice of Assessment. The Board shall issue a notice of 
assessment to each assessed company no later than June 30 of each 
calendar year following the assessment period, provided, however, that 
for the 2012 assessment period, the Board shall issue a notice of 
assessment as soon as reasonably practical after publication of the 
final rule in the Federal Register.
    (b) Appeal period. (1) Each assessed company will have thirty 
calendar days from June 30, or, for the 2012 assessment period, thirty 
calendar days from the Board's issuance of a notice of assessment for 
that assessment period, to submit a written statement to appeal the 
Board's determination:
    (i) That the company is an assessed company; or
    (ii) Of the company's total assessable assets.
    (2) The Board will respond with the results of its consideration to 
an assessed company that has submitted a written appeal within 15 
calendar days from the end of the appeal period in paragraph (b)(1) of 
this section.



Sec. 246.6  Collection of assessments; payment of interest.

    (a) Collection date. Each assessed company shall remit to the 
Federal Reserve the amount of its assessment using the Fedwire Funds 
Service by September 15 of the calendar year following the assessment 
period, or, for the 2012 assessment period, by a date specified in the 
notice of assessment for that assessment period.
    (b) Payment of interest. (1) If the Board does not receive the total 
amount of an assessed company's assessment by the collection date for 
any reason not attributable to the Board, the assessment will be 
delinquent and the assessed company shall pay to the Board interest on 
any sum owed to the Board according to this rule (delinquent payments).
    (2) Interest on delinquent payments will be assessed beginning on 
the first calendar day after the collection date, and on each calendar 
day thereafter up to and including the day payment is received. Interest 
will be simple interest, calculated for each day payment is delinquent 
by multiplying the daily equivalent of the applicable interest rate by 
the amount delinquent. The rate of interest will be the United States 
Treasury Department's current value of funds rate (the ``CVFR 
percentage''); issued under the Treasury Fiscal Requirements Manual and 
published quarterly in the Federal Register. Each delinquent payment 
will be charged interest based on the CVFR percentage applicable to the 
quarter in which all or part of the assessment goes unpaid.

[[Page 276]]



PART 248_PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS 
WITH COVERED FUNDS--Table of Contents



                   Subpart A_Authority and Definitions

Sec.
248.1  Authority, purpose, scope, and relationship to other authorities.
248.2  Definitions.

                      Subpart B_Proprietary Trading

248.3  Prohibition on proprietary trading.
248.4  Permitted underwriting and market making-related activities.
248.5  Permitted risk-mitigating hedging activities.
248.6  Other permitted proprietary trading activities.
248.7  Limitations on permitted proprietary trading activities.
248.8-248.9  [Reserved]

            Subpart C_Covered Fund Activities and Investments

248.10  Prohibition on acquiring or retaining an ownership interest in 
          and having certain relationships with a covered fund.
248.11  Permitted organizing and offering, underwriting, and market 
          making with respect to a covered fund.
248.12  Permitted investment in a covered fund.
248.13  Other permitted covered fund activities and investments.
248.14  Limitations on relationships with a covered fund.
248.15  Other limitations on permitted covered fund activities.
248.16  Ownership of interests in and sponsorship of issuers of certain 
          collateralized debt obligations backed by trust-preferred 
          securities.
248.17-248.19  [Reserved]

          Subpart D_Compliance Program Requirement; Violations

248.20  Program for compliance; reporting.
248.21  Termination of activities or investments; penalties for 
          violations.

Appendix A to Part 248--Reporting and Recordkeeping Requirements for 
          Covered Trading Activities
Appendix B to Part 248--Enhanced Minimum Standards for Compliance 
          Programst

    Authority: 12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C. 1818, 12 
U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq.

    Source: 79 FR 5779, 5804, Jan. 31, 2014, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 248 appear at 79 FR 
5804, Jan. 31, 2014.



                   Subpart A_Authority and Definitions



Sec. 248.1  Authority, purpose, scope, and relationship to other authorities.

    (a) Authority. This part (Regulation VV) is issued by the Board 
under section 13 of the Bank Holding Company Act of 1956, as amended (12 
U.S.C. 1851), as well as under the Federal Reserve Act, as amended (12 
U.S.C. 221 et seq.); section 8 of the Federal Deposit Insurance Act, as 
amended (12 U.S.C. 1818); the Bank Holding Company Act of 1956, as 
amended (12 U.S.C. 1841 et seq.); and the International Banking Act of 
1978, as amended (12 U.S.C. 3101 et seq.).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes 
prohibitions and restrictions on proprietary trading and on investments 
in or relationships with covered funds by certain banking entities, 
including state member banks, bank holding companies, savings and loan 
holding companies, other companies that control an insured depository 
institution, foreign banking organizations, and certain subsidiaries 
thereof. This part implements section 13 of the Bank Holding Company Act 
by defining terms used in the statute and related terms, establishing 
prohibitions and restrictions on proprietary trading and on investments 
in or relationships with covered funds, and explaining the statute's 
requirements.
    (c) Scope. This part implements section 13 of the Bank Holding 
Company Act with respect to banking entities for which the Board is 
authorized to issue regulations under section 13(b)(2) of the Bank 
Holding Company Act (12 U.S.C. 1851(b)(2)) and take actions under 
section 13(e) of that Act (12 U.S.C. 1851(e)). These include any state 
bank that is a member of the Federal Reserve System, any company that 
controls an insured depository institution (including a bank holding 
company and savings and loan holding company), any company that is 
treated as a bank holding company for purposes of section 8 of the 
International Banking Act (12 U.S.C. 3106), and any subsidiary of the 
foregoing other than

[[Page 277]]

a subsidiary for which the OCC, FDIC, CFTC, or SEC is the primary 
financial regulatory agency (as defined in section 2(12) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010 (12 U.S.C. 
5301(12)).
    (d) Relationship to other authorities. Except as otherwise provided 
under section 13 of the BHC Act or this part, and notwithstanding any 
other provision of law, the prohibitions and restrictions under section 
13 of BHC Act and this part shall apply to the activities of a banking 
entity, even if such activities are authorized for the banking entity 
under other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any 
way the authority of the Board to impose on a banking entity identified 
in paragraph (c) of this section additional requirements or restrictions 
with respect to any activity, investment, or relationship covered under 
section 13 of the Bank Holding Company Act or this part, or additional 
penalties for violation of this part provided under any other applicable 
provision of law.

[79 FR 5804, Jan. 31, 2014]



Sec. 248.2  Definitions.

    Unless otherwise specified, for purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Bank holding company has the same meaning as in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    (c) Banking entity. (1) Except as provided in paragraph (c)(2) of 
this section, banking entity means:
    (i) Any insured depository institution;
    (ii) Any company that controls an insured depository institution;
    (iii) Any company that is treated as a bank holding company for 
purposes of section 8 of the International Banking Act of 1978 (12 
U.S.C. 3106); and
    (iv) Any affiliate or subsidiary of any entity described in 
paragraphs (c)(1)(i), (ii), or (iii) of this section.
    (2) Banking entity does not include:
    (i) A covered fund that is not itself a banking entity under 
paragraphs (c)(1)(i), (ii), or (iii) of this section;
    (ii) A portfolio company held under the authority contained in 
section 4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H), (I)), 
or any portfolio concern, as defined under 13 CFR 107.50, that is 
controlled by a small business investment company, as defined in section 
103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 662), so 
long as the portfolio company or portfolio concern is not itself a 
banking entity under paragraphs (c)(1)(i), (ii), or (iii) of this 
section; or
    (iii) The FDIC acting in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (d) Board means the Board of Governors of the Federal Reserve 
System.
    (e) CFTC means the Commodity Futures Trading Commission.
    (f) Dealer has the same meaning as in section 3(a)(5) of the 
Exchange Act (15 U.S.C. 78c(a)(5)).
    (g) Depository institution has the same meaning as in section 3(c) 
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (h) Derivative. (1) Except as provided in paragraph (h)(2) of this 
section, derivative means:
    (i) Any swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as 
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 
78c(a)(68));
    (ii) Any purchase or sale of a commodity, that is not an excluded 
commodity, for deferred shipment or delivery that is intended to be 
physically settled;
    (iii) Any foreign exchange forward (as that term is defined in 
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or 
foreign exchange swap (as that term is defined in section 1a(25) of the 
Commodity Exchange Act (7 U.S.C. 1a(25));
    (iv) Any agreement, contract, or transaction in foreign currency 
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7 
U.S.C. 2(c)(2)(C)(i));
    (v) Any agreement, contract, or transaction in a commodity other 
than

[[Page 278]]

foreign currency described in section 2(c)(2)(D)(i) of the Commodity 
Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
    (vi) Any transaction authorized under section 19 of the Commodity 
Exchange Act (7 U.S.C. 23(a) or (b));
    (2) A derivative does not include:
    (i) Any consumer, commercial, or other agreement, contract, or 
transaction that the CFTC and SEC have further defined by joint 
regulation, interpretation, guidance, or other action as not within the 
definition of swap, as that term is defined in section 1a(47) of the 
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as 
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C. 
78c(a)(68)); or
    (ii) Any identified banking product, as defined in section 402(b) of 
the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)), that 
is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).
    (i) Employee includes a member of the immediate family of the 
employee.
    (j) Exchange Act means the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.).
    (k) Excluded commodity has the same meaning as in section 1a(19) of 
the Commodity Exchange Act (7 U.S.C. 1a(19)).
    (l) FDIC means the Federal Deposit Insurance Corporation.
    (m) Federal banking agencies means the Board, the Office of the 
Comptroller of the Currency, and the FDIC.
    (n) Foreign banking organization has the same meaning as in section 
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not 
include a foreign bank, as defined in section 1(b)(7) of the 
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is organized 
under the laws of the Commonwealth of Puerto Rico, Guam, American Samoa, 
the United States Virgin Islands, or the Commonwealth of the Northern 
Mariana Islands.
    (o) Foreign insurance regulator means the insurance commissioner, or 
a similar official or agency, of any country other than the United 
States that is engaged in the supervision of insurance companies under 
foreign insurance law.
    (p) General account means all of the assets of an insurance company 
except those allocated to one or more separate accounts.
    (q) Insurance company means a company that is organized as an 
insurance company, primarily and predominantly engaged in writing 
insurance or reinsuring risks underwritten by insurance companies, 
subject to supervision as such by a state insurance regulator or a 
foreign insurance regulator, and not operated for the purpose of evading 
the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
    (r) Insured depository institution has the same meaning as in 
section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)), 
but does not include an insured depository institution that is described 
in section 2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)).
    (s) Loan means any loan, lease, extension of credit, or secured or 
unsecured receivable that is not a security or derivative.
    (t) Primary financial regulatory agency has the same meaning as in 
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5301(12)).
    (u) Purchase includes any contract to buy, purchase, or otherwise 
acquire. For security futures products, purchase includes any contract, 
agreement, or transaction for future delivery. With respect to a 
commodity future, purchase includes any contract, agreement, or 
transaction for future delivery. With respect to a derivative, purchase 
includes the execution, termination (prior to its scheduled maturity 
date), assignment, exchange, or similar transfer or conveyance of, or 
extinguishing of rights or obligations under, a derivative, as the 
context may require.
    (v) Qualifying foreign banking organization means a foreign banking 
organization that qualifies as such under section 211.23(a), (c) or (e) 
of the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
    (w) SEC means the Securities and Exchange Commission.
    (x) Sale and sell each include any contract to sell or otherwise 
dispose of. For security futures products, such terms include any 
contract, agreement, or transaction for future delivery. With respect to 
a commodity future, such

[[Page 279]]

terms include any contract, agreement, or transaction for future 
delivery. With respect to a derivative, such terms include the 
execution, termination (prior to its scheduled maturity date), 
assignment, exchange, or similar transfer or conveyance of, or 
extinguishing of rights or obligations under, a derivative, as the 
context may require.
    (y) Security has the meaning specified in section 3(a)(10) of the 
Exchange Act (15 U.S.C. 78c(a)(10)).
    (z) Security-based swap dealer has the same meaning as in section 
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
    (aa) Security future has the meaning specified in section 3(a)(55) 
of the Exchange Act (15 U.S.C. 78c(a)(55)).
    (bb) Separate account means an account established and maintained by 
an insurance company in connection with one or more insurance contracts 
to hold assets that are legally segregated from the insurance company's 
other assets, under which income, gains, and losses, whether or not 
realized, from assets allocated to such account, are, in accordance with 
the applicable contract, credited to or charged against such account 
without regard to other income, gains, or losses of the insurance 
company.
    (cc) State means any State, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, American Samoa, the United States 
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
    (dd) Subsidiary has the same meaning as in section 2(d) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    (ee) State insurance regulator means the insurance commissioner, or 
a similar official or agency, of a State that is engaged in the 
supervision of insurance companies under State insurance law.
    (ff) Swap dealer has the same meaning as in section 1(a)(49) of the 
Commodity Exchange Act (7 U.S.C. 1a(49)).



                      Subpart B_Proprietary Trading



Sec. 248.3  Prohibition on proprietary trading.

    (a) Prohibition. Except as otherwise provided in this subpart, a 
banking entity may not engage in proprietary trading. Proprietary 
trading means engaging as principal for the trading account of the 
banking entity in any purchase or sale of one or more financial 
instruments.
    (b) Definition of trading account. (1) Trading account means any 
account that is used by a banking entity to:
    (i) Purchase or sell one or more financial instruments principally 
for the purpose of:
    (A) Short-term resale;
    (B) Benefitting from actual or expected short-term price movements;
    (C) Realizing short-term arbitrage profits; or
    (D) Hedging one or more positions resulting from the purchases or 
sales of financial instruments described in paragraphs (b)(1)(i)(A), 
(B), or (C) of this section;
    (ii) Purchase or sell one or more financial instruments that are 
both market risk capital rule covered positions and trading positions 
(or hedges of other market risk capital rule covered positions), if the 
banking entity, or any affiliate of the banking entity, is an insured 
depository institution, bank holding company, or savings and loan 
holding company, and calculates risk-based capital ratios under the 
market risk capital rule; or
    (iii) Purchase or sell one or more financial instruments for any 
purpose, if the banking entity:
    (A) Is licensed or registered, or is required to be licensed or 
registered, to engage in the business of a dealer, swap dealer, or 
security-based swap dealer, to the extent the instrument is purchased or 
sold in connection with the activities that require the banking entity 
to be licensed or registered as such; or
    (B) Is engaged in the business of a dealer, swap dealer, or 
security-based swap dealer outside of the United States, to the extent 
the instrument is purchased or sold in connection with the activities of 
such business.
    (2) Rebuttable presumption for certain purchases and sales. The 
purchase (or sale) of a financial instrument by a banking entity shall 
be presumed to be for the trading account of the banking entity under 
paragraph (b)(1)(i) of this section if the banking entity holds the 
financial instrument for fewer than sixty days or substantially 
transfers the risk of the financial instrument

[[Page 280]]

within sixty days of the purchase (or sale), unless the banking entity 
can demonstrate, based on all relevant facts and circumstances, that the 
banking entity did not purchase (or sell) the financial instrument 
principally for any of the purposes described in paragraph (b)(1)(i) of 
this section.
    (c) Financial instrument. (1) Financial instrument means:
    (i) A security, including an option on a security;
    (ii) A derivative, including an option on a derivative; or
    (iii) A contract of sale of a commodity for future delivery, or 
option on a contract of sale of a commodity for future delivery.
    (2) A financial instrument does not include:
    (i) A loan;
    (ii) A commodity that is not:
    (A) An excluded commodity (other than foreign exchange or currency);
    (B) A derivative;
    (C) A contract of sale of a commodity for future delivery; or
    (D) An option on a contract of sale of a commodity for future 
delivery; or
    (iii) Foreign exchange or currency.
    (d) Proprietary trading. Proprietary trading does not include:
    (1) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a repurchase or reverse repurchase 
agreement pursuant to which the banking entity has simultaneously 
agreed, in writing, to both purchase and sell a stated asset, at stated 
prices, and on stated dates or on demand with the same counterparty;
    (2) Any purchase or sale of one or more financial instruments by a 
banking entity that arises under a transaction in which the banking 
entity lends or borrows a security temporarily to or from another party 
pursuant to a written securities lending agreement under which the 
lender retains the economic interests of an owner of such security, and 
has the right to terminate the transaction and to recall the loaned 
security on terms agreed by the parties;
    (3) Any purchase or sale of a security by a banking entity for the 
purpose of liquidity management in accordance with a documented 
liquidity management plan of the banking entity that:
    (i) Specifically contemplates and authorizes the particular 
securities to be used for liquidity management purposes, the amount, 
types, and risks of these securities that are consistent with liquidity 
management, and the liquidity circumstances in which the particular 
securities may or must be used;
    (ii) Requires that any purchase or sale of securities contemplated 
and authorized by the plan be principally for the purpose of managing 
the liquidity of the banking entity, and not for the purpose of short-
term resale, benefitting from actual or expected short-term price 
movements, realizing short-term arbitrage profits, or hedging a position 
taken for such short-term purposes;
    (iii) Requires that any securities purchased or sold for liquidity 
management purposes be highly liquid and limited to securities the 
market, credit, and other risks of which the banking entity does not 
reasonably expect to give rise to appreciable profits or losses as a 
result of short-term price movements;
    (iv) Limits any securities purchased or sold for liquidity 
management purposes, together with any other instruments purchased or 
sold for such purposes, to an amount that is consistent with the banking 
entity's near-term funding needs, including deviations from normal 
operations of the banking entity or any affiliate thereof, as estimated 
and documented pursuant to methods specified in the plan;
    (v) Includes written policies and procedures, internal controls, 
analysis, and independent testing to ensure that the purchase and sale 
of securities that are not permitted under Secs. 248.6(a) or (b) of this 
subpart are for the purpose of liquidity management and in accordance 
with the liquidity management plan described in paragraph (d)(3) of this 
section; and
    (vi) Is consistent with The Board's supervisory requirements, 
guidance, and expectations regarding liquidity management;
    (4) Any purchase or sale of one or more financial instruments by a 
banking entity that is a derivatives clearing

[[Page 281]]

organization or a clearing agency in connection with clearing financial 
instruments;
    (5) Any excluded clearing activities by a banking entity that is a 
member of a clearing agency, a member of a derivatives clearing 
organization, or a member of a designated financial market utility;
    (6) Any purchase or sale of one or more financial instruments by a 
banking entity, so long as:
    (i) The purchase (or sale) satisfies an existing delivery obligation 
of the banking entity or its customers, including to prevent or close 
out a failure to deliver, in connection with delivery, clearing, or 
settlement activity; or
    (ii) The purchase (or sale) satisfies an obligation of the banking 
entity in connection with a judicial, administrative, self-regulatory 
organization, or arbitration proceeding;
    (7) Any purchase or sale of one or more financial instruments by a 
banking entity that is acting solely as agent, broker, or custodian;
    (8) Any purchase or sale of one or more financial instruments by a 
banking entity through a deferred compensation, stock-bonus, profit-
sharing, or pension plan of the banking entity that is established and 
administered in accordance with the law of the United States or a 
foreign sovereign, if the purchase or sale is made directly or 
indirectly by the banking entity as trustee for the benefit of persons 
who are or were employees of the banking entity; or
    (9) Any purchase or sale of one or more financial instruments by a 
banking entity in the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
financial instrument as soon as practicable, and in no event may the 
banking entity retain such instrument for longer than such period 
permitted by the Board.
    (e) Definition of other terms related to proprietary trading. For 
purposes of this subpart:
    (1) Anonymous means that each party to a purchase or sale is unaware 
of the identity of the other party(ies) to the purchase or sale.
    (2) Clearing agency has the same meaning as in section 3(a)(23) of 
the Exchange Act (15 U.S.C. 78c(a)(23)).
    (3) Commodity has the same meaning as in section 1a(9) of the 
Commodity Exchange Act (7 U.S.C. 1a(9)), except that a commodity does 
not include any security;
    (4) Contract of sale of a commodity for future delivery means a 
contract of sale (as that term is defined in section 1a(13) of the 
Commodity Exchange Act (7 U.S.C. 1a(13)) for future delivery (as that 
term is defined in section 1a(27) of the Commodity Exchange Act (7 
U.S.C. 1a(27))).
    (5) Derivatives clearing organization means:
    (i) A derivatives clearing organization registered under section 5b 
of the Commodity Exchange Act (7 U.S.C. 7a-1);
    (ii) A derivatives clearing organization that, pursuant to CFTC 
regulation, is exempt from the registration requirements under section 
5b of the Commodity Exchange Act (7 U.S.C. 7a-1); or
    (iii) A foreign derivatives clearing organization that, pursuant to 
CFTC regulation, is permitted to clear for a foreign board of trade that 
is registered with the CFTC.
    (6) Exchange, unless the context otherwise requires, means any 
designated contract market, swap execution facility, or foreign board of 
trade registered with the CFTC, or, for purposes of securities or 
security-based swaps, an exchange, as defined under section 3(a)(1) of 
the Exchange Act (15 U.S.C. 78c(a)(1)), or security-based swap execution 
facility, as defined under section 3(a)(77) of the Exchange Act (15 
U.S.C. 78c(a)(77)).
    (7) Excluded clearing activities means:
    (i) With respect to customer transactions cleared on a derivatives 
clearing organization, a clearing agency, or a designated financial 
market utility, any purchase or sale necessary to correct trading errors 
made by or on behalf of a customer provided that such purchase or sale 
is conducted in accordance with, for transactions cleared on a 
derivatives clearing organization, the Commodity Exchange Act, CFTC

[[Page 282]]

regulations, and the rules or procedures of the derivatives clearing 
organization, or, for transactions cleared on a clearing agency, the 
rules or procedures of the clearing agency, or, for transactions cleared 
on a designated financial market utility that is neither a derivatives 
clearing organization nor a clearing agency, the rules or procedures of 
the designated financial market utility;
    (ii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a customer 
provided that such purchase or sale is conducted in accordance with, for 
transactions cleared on a derivatives clearing organization, the 
Commodity Exchange Act, CFTC regulations, and the rules or procedures of 
the derivatives clearing organization, or, for transactions cleared on a 
clearing agency, the rules or procedures of the clearing agency, or, for 
transactions cleared on a designated financial market utility that is 
neither a derivatives clearing organization nor a clearing agency, the 
rules or procedures of the designated financial market utility;
    (iii) Any purchase or sale in connection with and related to the 
management of a default or threatened imminent default of a member of a 
clearing agency, a member of a derivatives clearing organization, or a 
member of a designated financial market utility;
    (iv) Any purchase or sale in connection with and related to the 
management of the default or threatened default of a clearing agency, a 
derivatives clearing organization, or a designated financial market 
utility; and
    (v) Any purchase or sale that is required by the rules or procedures 
of a clearing agency, a derivatives clearing organization, or a 
designated financial market utility to mitigate the risk to the clearing 
agency, derivatives clearing organization, or designated financial 
market utility that would result from the clearing by a member of 
security-based swaps that reference the member or an affiliate of the 
member.
    (8) Designated financial market utility has the same meaning as in 
section 803(4) of the Dodd-Frank Act (12 U.S.C. 5462(4)).
    (9) Issuer has the same meaning as in section 2(a)(4) of the 
Securities Act of 1933 (15 U.S.C. 77b(a)(4)).
    (10) Market risk capital rule covered position and trading position 
means a financial instrument that is both a covered position and a 
trading position, as those terms are respectively defined:
    (i) In the case of a banking entity that is a bank holding company, 
savings and loan holding company, or insured depository institution, 
under the market risk capital rule that is applicable to the banking 
entity; and
    (ii) In the case of a banking entity that is affiliated with a bank 
holding company or savings and loan holding company, other than a 
banking entity to which a market risk capital rule is applicable, under 
the market risk capital rule that is applicable to the affiliated bank 
holding company or savings and loan holding company.
    (11) Market risk capital rule means the market risk capital rule 
that is contained in subpart F of 12 CFR part 3, 12 CFR parts 208 and 
225, or 12 CFR part 324, as applicable.
    (12) Municipal security means a security that is a direct obligation 
of or issued by, or an obligation guaranteed as to principal or interest 
by, a State or any political subdivision thereof, or any agency or 
instrumentality of a State or any political subdivision thereof, or any 
municipal corporate instrumentality of one or more States or political 
subdivisions thereof.
    (13) Trading desk means the smallest discrete unit of organization 
of a banking entity that purchases or sells financial instruments for 
the trading account of the banking entity or an affiliate thereof.



Sec. 248.4  Permitted underwriting and market making-related activities.

    (a) Underwriting activities--(1) Permitted underwriting activities. 
The prohibition contained in Sec. 248.3(a) does not apply to a banking 
entity's underwriting activities conducted in accordance with this 
paragraph (a).
    (2) Requirements. The underwriting activities of a banking entity 
are permitted under paragraph (a)(1) of this section only if:

[[Page 283]]

    (i) The banking entity is acting as an underwriter for a 
distribution of securities and the trading desk's underwriting position 
is related to such distribution;
    (ii) The amount and type of the securities in the trading desk's 
underwriting position are designed not to exceed the reasonably expected 
near term demands of clients, customers, or counterparties, and 
reasonable efforts are made to sell or otherwise reduce the underwriting 
position within a reasonable period, taking into account the liquidity, 
maturity, and depth of the market for the relevant type of security;
    (iii) The banking entity has established and implements, maintains, 
and enforces an internal compliance program required by subpart D of 
this part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of paragraph (a) of this section, 
including reasonably designed written policies and procedures, internal 
controls, analysis and independent testing identifying and addressing:
    (A) The products, instruments or exposures each trading desk may 
purchase, sell, or manage as part of its underwriting activities;
    (B) Limits for each trading desk, based on the nature and amount of 
the trading desk's underwriting activities, including the reasonably 
expected near term demands of clients, customers, or counterparties, on 
the:
    (1) Amount, types, and risk of its underwriting position;
    (2) Level of exposures to relevant risk factors arising from its 
underwriting position; and
    (3) Period of time a security may be held;
    (C) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits; and
    (D) Authorization procedures, including escalation procedures that 
require review and approval of any trade that would exceed a trading 
desk's limit(s), demonstrable analysis of the basis for any temporary or 
permanent increase to a trading desk's limit(s), and independent review 
of such demonstrable analysis and approval;
    (iv) The compensation arrangements of persons performing the 
activities described in this paragraph (a) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (v) The banking entity is licensed or registered to engage in the 
activity described in this paragraph (a) in accordance with applicable 
law.
    (3) Definition of distribution. For purposes of this paragraph (a), 
a distribution of securities means:
    (i) An offering of securities, whether or not subject to 
registration under the Securities Act of 1933, that is distinguished 
from ordinary trading transactions by the presence of special selling 
efforts and selling methods; or
    (ii) An offering of securities made pursuant to an effective 
registration statement under the Securities Act of 1933.
    (4) Definition of underwriter. For purposes of this paragraph (a), 
underwriter means:
    (i) A person who has agreed with an issuer or selling security 
holder to:
    (A) Purchase securities from the issuer or selling security holder 
for distribution;
    (B) Engage in a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (C) Manage a distribution of securities for or on behalf of the 
issuer or selling security holder; or
    (ii) A person who has agreed to participate or is participating in a 
distribution of such securities for or on behalf of the issuer or 
selling security holder.
    (5) Definition of selling security holder. For purposes of this 
paragraph (a), selling security holder means any person, other than an 
issuer, on whose behalf a distribution is made.
    (6) Definition of underwriting position. For purposes of this 
paragraph (a), underwriting position means the long or short positions 
in one or more securities held by a banking entity or its affiliate, and 
managed by a particular trading desk, in connection with a particular 
distribution of securities for which such banking entity or affiliate is 
acting as an underwriter.
    (7) Definition of client, customer, and counterparty. For purposes 
of this paragraph (a), the terms client, customer,

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and counterparty, on a collective or individual basis, refer to market 
participants that may transact with the banking entity in connection 
with a particular distribution for which the banking entity is acting as 
underwriter.
    (b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec. 248.3(a) does not 
apply to a banking entity's market making-related activities conducted 
in accordance with this paragraph (b).
    (2) Requirements. The market making-related activities of a banking 
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial 
exposure routinely stands ready to purchase and sell one or more types 
of financial instruments related to its financial exposure and is 
willing and available to quote, purchase and sell, or otherwise enter 
into long and short positions in those types of financial instruments 
for its own account, in commercially reasonable amounts and throughout 
market cycles on a basis appropriate for the liquidity, maturity, and 
depth of the market for the relevant types of financial instruments;
    (ii) The amount, types, and risks of the financial instruments in 
the trading desk's market-maker inventory are designed not to exceed, on 
an ongoing basis, the reasonably expected near term demands of clients, 
customers, or counterparties, based on:
    (A) The liquidity, maturity, and depth of the market for the 
relevant types of financial instrument(s); and
    (B) Demonstrable analysis of historical customer demand, current 
inventory of financial instruments, and market and other factors 
regarding the amount, types, and risks, of or associated with financial 
instruments in which the trading desk makes a market, including through 
block trades;
    (iii) The banking entity has established and implements, maintains, 
and enforces an internal compliance program required by subpart D of 
this part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of paragraph (b) of this section, 
including reasonably designed written policies and procedures, internal 
controls, analysis and independent testing identifying and addressing:
    (A) The financial instruments each trading desk stands ready to 
purchase and sell in accordance with paragraph (b)(2)(i) of this 
section;
    (B) The actions the trading desk will take to demonstrably reduce or 
otherwise significantly mitigate promptly the risks of its financial 
exposure consistent with the limits required under paragraph 
(b)(2)(iii)(C) of this section; the products, instruments, and exposures 
each trading desk may use for risk management purposes; the techniques 
and strategies each trading desk may use to manage the risks of its 
market making-related activities and inventory; and the process, 
strategies, and personnel responsible for ensuring that the actions 
taken by the trading desk to mitigate these risks are and continue to be 
effective;
    (C) Limits for each trading desk, based on the nature and amount of 
the trading desk's market making-related activities, that address the 
factors prescribed by paragraph (b)(2)(ii) of this section, on:
    (1) The amount, types, and risks of its market-maker inventory;
    (2) The amount, types, and risks of the products, instruments, and 
exposures the trading desk may use for risk management purposes;
    (3) The level of exposures to relevant risk factors arising from its 
financial exposure; and
    (4) The period of time a financial instrument may be held;
    (D) Internal controls and ongoing monitoring and analysis of each 
trading desk's compliance with its limits; and
    (E) Authorization procedures, including escalation procedures that 
require review and approval of any trade that would exceed a trading 
desk's limit(s), demonstrable analysis that the basis for any temporary 
or permanent increase to a trading desk's limit(s) is consistent with 
the requirements of this paragraph (b), and independent review of such 
demonstrable analysis and approval;
    (iv) To the extent that any limit identified pursuant to paragraph

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(b)(2)(iii)(C) of this section is exceeded, the trading desk takes 
action to bring the trading desk into compliance with the limits as 
promptly as possible after the limit is exceeded;
    (v) The compensation arrangements of persons performing the 
activities described in this paragraph (b) are designed not to reward or 
incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in 
activity described in this paragraph (b) in accordance with applicable 
law.
    (3) Definition of client, customer, and counterparty. For purposes 
of paragraph (b) of this section, the terms client, customer, and 
counterparty, on a collective or individual basis refer to market 
participants that make use of the banking entity's market making-related 
services by obtaining such services, responding to quotations, or 
entering into a continuing relationship with respect to such services, 
provided that:
    (i) A trading desk or other organizational unit of another banking 
entity is not a client, customer, or counterparty of the trading desk if 
that other entity has trading assets and liabilities of $50 billion or 
more as measured in accordance with Sec. 248.20(d)(1) of subpart D, 
unless:
    (A) The trading desk documents how and why a particular trading desk 
or other organizational unit of the entity should be treated as a 
client, customer, or counterparty of the trading desk for purposes of 
paragraph (b)(2) of this section; or
    (B) The purchase or sale by the trading desk is conducted 
anonymously on an exchange or similar trading facility that permits 
trading on behalf of a broad range of market participants.
    (4) Definition of financial exposure. For purposes of this paragraph 
(b), financial exposure means the aggregate risks of one or more 
financial instruments and any associated loans, commodities, or foreign 
exchange or currency, held by a banking entity or its affiliate and 
managed by a particular trading desk as part of the trading desk's 
market making-related activities.
    (5) Definition of market-maker inventory. For the purposes of this 
paragraph (b), market-maker inventory means all of the positions in the 
financial instruments for which the trading desk stands ready to make a 
market in accordance with paragraph (b)(2)(i) of this section, that are 
managed by the trading desk, including the trading desk's open positions 
or exposures arising from open transactions.



Sec. 248.5  Permitted risk-mitigating hedging activities.

    (a) Permitted risk-mitigating hedging activities. The prohibition 
contained in Sec. 248.3(a) does not apply to the risk-mitigating hedging 
activities of a banking entity in connection with and related to 
individual or aggregated positions, contracts, or other holdings of the 
banking entity and designed to reduce the specific risks to the banking 
entity in connection with and related to such positions, contracts, or 
other holdings.
    (b) Requirements. The risk-mitigating hedging activities of a 
banking entity are permitted under paragraph (a) of this section only 
if:
    (1) The banking entity has established and implements, maintains and 
enforces an internal compliance program required by subpart D of this 
part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (i) Reasonably designed written policies and procedures regarding 
the positions, techniques and strategies that may be used for hedging, 
including documentation indicating what positions, contracts or other 
holdings a particular trading desk may use in its risk-mitigating 
hedging activities, as well as position and aging limits with respect to 
such positions, contracts or other holdings;
    (ii) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (iii) The conduct of analysis, including correlation analysis, and 
independent testing designed to ensure that the positions, techniques 
and strategies that may be used for hedging may reasonably be expected 
to demonstrably reduce or otherwise significantly mitigate the specific, 
identifiable risk(s) being hedged, and such correlation analysis 
demonstrates that

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the hedging activity demonstrably reduces or otherwise significantly 
mitigates the specific, identifiable risk(s) being hedged;
    (2) The risk-mitigating hedging activity:
    (i) Is conducted in accordance with the written policies, 
procedures, and internal controls required under this section;
    (ii) At the inception of the hedging activity, including, without 
limitation, any adjustments to the hedging activity, is designed to 
reduce or otherwise significantly mitigate and demonstrably reduces or 
otherwise significantly mitigates one or more specific, identifiable 
risks, including market risk, counterparty or other credit risk, 
currency or foreign exchange risk, interest rate risk, commodity price 
risk, basis risk, or similar risks, arising in connection with and 
related to identified positions, contracts, or other holdings of the 
banking entity, based upon the facts and circumstances of the identified 
underlying and hedging positions, contracts or other holdings and the 
risks and liquidity thereof;
    (iii) Does not give rise, at the inception of the hedge, to any 
significant new or additional risk that is not itself hedged 
contemporaneously in accordance with this section;
    (iv) Is subject to continuing review, monitoring and management by 
the banking entity that:
    (A) Is consistent with the written hedging policies and procedures 
required under paragraph (b)(1) of this section;
    (B) Is designed to reduce or otherwise significantly mitigate and 
demonstrably reduces or otherwise significantly mitigates the specific, 
identifiable risks that develop over time from the risk-mitigating 
hedging activities undertaken under this section and the underlying 
positions, contracts, and other holdings of the banking entity, based 
upon the facts and circumstances of the underlying and hedging 
positions, contracts and other holdings of the banking entity and the 
risks and liquidity thereof; and
    (C) Requires ongoing recalibration of the hedging activity by the 
banking entity to ensure that the hedging activity satisfies the 
requirements set out in paragraph (b)(2) of this section and is not 
prohibited proprietary trading; and
    (3) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize 
prohibited proprietary trading.
    (c) Documentation requirement. (1) A banking entity must comply with 
the requirements of paragraphs (c)(2) and (3) of this section with 
respect to any purchase or sale of financial instruments made in 
reliance on this section for risk-mitigating hedging purposes that is:
    (i) Not established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the hedging activity is designed to reduce;
    (ii) Established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the purchases or sales are designed to reduce, but 
that is effected through a financial instrument, exposure, technique, or 
strategy that is not specifically identified in the trading desk's 
written policies and procedures established under paragraph (b)(1) of 
this section or under Sec. 248.4(b)(2)(iii)(B) of this subpart as a 
product, instrument, exposure, technique, or strategy such trading desk 
may use for hedging; or
    (iii) Established to hedge aggregated positions across two or more 
trading desks.
    (2) In connection with any purchase or sale identified in paragraph 
(c)(1) of this section, a banking entity must, at a minimum, and 
contemporaneously with the purchase or sale, document:
    (i) The specific, identifiable risk(s) of the identified positions, 
contracts, or other holdings of the banking entity that the purchase or 
sale is designed to reduce;
    (ii) The specific risk-mitigating strategy that the purchase or sale 
is designed to fulfill; and
    (iii) The trading desk or other business unit that is establishing 
and responsible for the hedge.

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    (3) A banking entity must create and retain records sufficient to 
demonstrate compliance with the requirements of this paragraph (c) for a 
period that is no less than five years in a form that allows the banking 
entity to promptly produce such records to the Board on request, or such 
longer period as required under other law or this part.



Sec. 248.6  Other permitted proprietary trading activities.

    (a) Permitted trading in domestic government obligations. The 
prohibition contained in Sec. 248.3(a) does not apply to the purchase or 
sale by a banking entity of a financial instrument that is:
    (1) An obligation of, or issued or guaranteed by, the United States;
    (2) An obligation, participation, or other instrument of, or issued 
or guaranteed by, an agency of the United States, the Government 
National Mortgage Association, the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, a Federal Home 
Loan Bank, the Federal Agricultural Mortgage Corporation or a Farm 
Credit System institution chartered under and subject to the provisions 
of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
    (3) An obligation of any State or any political subdivision thereof, 
including any municipal security; or
    (4) An obligation of the FDIC, or any entity formed by or on behalf 
of the FDIC for purpose of facilitating the disposal of assets acquired 
or held by the FDIC in its corporate capacity or as conservator or 
receiver under the Federal Deposit Insurance Act or Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (b) Permitted trading in foreign government obligations--(1) 
Affiliates of foreign banking entities in the United States. The 
prohibition contained in Sec. 248.3(a) does not apply to the purchase or 
sale of a financial instrument that is an obligation of, or issued or 
guaranteed by, a foreign sovereign (including any multinational central 
bank of which the foreign sovereign is a member), or any agency or 
political subdivision of such foreign sovereign, by a banking entity, so 
long as:
    (i) The banking entity is organized under or is directly or 
indirectly controlled by a banking entity that is organized under the 
laws of a foreign sovereign and is not directly or indirectly controlled 
by a top-tier banking entity that is organized under the laws of the 
United States;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
banking entity referred to in paragraph (b)(1)(i) of this section is 
organized (including any multinational central bank of which the foreign 
sovereign is a member), or any agency or political subdivision of that 
foreign sovereign; and
    (iii) The purchase or sale as principal is not made by an insured 
depository institution.
    (2) Foreign affiliates of a U.S. banking entity. The prohibition 
contained in Sec. 248.3(a) does not apply to the purchase or sale of a 
financial instrument that is an obligation of, or issued or guaranteed 
by, a foreign sovereign (including any multinational central bank of 
which the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign, by a foreign entity that is owned 
or controlled by a banking entity organized or established under the 
laws of the United States or any State, so long as:
    (i) The foreign entity is a foreign bank, as defined in section 
211.2(j) of the Board's Regulation K (12 CFR 211.2(j)), or is regulated 
by the foreign sovereign as a securities dealer;
    (ii) The financial instrument is an obligation of, or issued or 
guaranteed by, the foreign sovereign under the laws of which the foreign 
entity is organized (including any multinational central bank of which 
the foreign sovereign is a member), or any agency or political 
subdivision of that foreign sovereign; and
    (iii) The financial instrument is owned by the foreign entity and is 
not financed by an affiliate that is located in the United States or 
organized under the laws of the United States or of any State.
    (c) Permitted trading on behalf of customers--(1) Fiduciary 
transactions. The prohibition contained in Sec. 248.3(a) does

[[Page 288]]

not apply to the purchase or sale of financial instruments by a banking 
entity acting as trustee or in a similar fiduciary capacity, so long as:
    (i) The transaction is conducted for the account of, or on behalf 
of, a customer; and
    (ii) The banking entity does not have or retain beneficial ownership 
of the financial instruments.
    (2) Riskless principal transactions. The prohibition contained in 
Sec. 248.3(a) does not apply to the purchase or sale of financial 
instruments by a banking entity acting as riskless principal in a 
transaction in which the banking entity, after receiving an order to 
purchase (or sell) a financial instrument from a customer, purchases (or 
sells) the financial instrument for its own account to offset a 
contemporaneous sale to (or purchase from) the customer.
    (d) Permitted trading by a regulated insurance company. The 
prohibition contained in Sec. 248.3(a) does not apply to the purchase or 
sale of financial instruments by a banking entity that is an insurance 
company or an affiliate of an insurance company if:
    (1) The insurance company or its affiliate purchases or sells the 
financial instruments solely for:
    (i) The general account of the insurance company; or
    (ii) A separate account established by the insurance company;
    (2) The purchase or sale is conducted in compliance with, and 
subject to, the insurance company investment laws, regulations, and 
written guidance of the State or jurisdiction in which such insurance 
company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law, regulation, or written guidance described in paragraph 
(d)(2) of this section is insufficient to protect the safety and 
soundness of the covered banking entity, or the financial stability of 
the United States.
    (e) Permitted trading activities of foreign banking entities. (1) 
The prohibition contained in Sec. 248.3(a) does not apply to the 
purchase or sale of financial instruments by a banking entity if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of any State;
    (ii) The purchase or sale by the banking entity is made pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act; and
    (iii) The purchase or sale meets the requirements of paragraph 
(e)(3) of this section.
    (2) A purchase or sale of financial instruments by a banking entity 
is made pursuant to paragraph (9) or (13) of section 4(c) of the BHC Act 
for purposes of paragraph (e)(1)(ii) of this section only if:
    (i) The purchase or sale is conducted in accordance with the 
requirements of paragraph (e) of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of any State and the banking entity, on a fully-
consolidated basis, meets at least two of the following requirements:
    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) A purchase or sale by a banking entity is permitted for purposes 
of this paragraph (e) if:

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    (i) The banking entity engaging as principal in the purchase or sale 
(including any personnel of the banking entity or its affiliate that 
arrange, negotiate or execute such purchase or sale) is not located in 
the United States or organized under the laws of the United States or of 
any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to purchase or sell as principal is not located in the 
United States or organized under the laws of the United States or of any 
State;
    (iii) The purchase or sale, including any transaction arising from 
risk-mitigating hedging related to the instruments purchased or sold, is 
not accounted for as principal directly or on a consolidated basis by 
any branch or affiliate that is located in the United States or 
organized under the laws of the United States or of any State;
    (iv) No financing for the banking entity's purchases or sales is 
provided, directly or indirectly, by any branch or affiliate that is 
located in the United States or organized under the laws of the United 
States or of any State; and
    (v) The purchase or sale is not conducted with or through any U.S. 
entity, other than:
    (A) A purchase or sale with the foreign operations of a U.S. entity 
if no personnel of such U.S. entity that are located in the United 
States are involved in the arrangement, negotiation, or execution of 
such purchase or sale;
    (B) A purchase or sale with an unaffiliated market intermediary 
acting as principal, provided the purchase or sale is promptly cleared 
and settled through a clearing agency or derivatives clearing 
organization acting as a central counterparty; or
    (C) A purchase or sale through an unaffiliated market intermediary 
acting as agent, provided the purchase or sale is conducted anonymously 
on an exchange or similar trading facility and is promptly cleared and 
settled through a clearing agency or derivatives clearing organization 
acting as a central counterparty.
    (4) For purposes of this paragraph (e), a U.S. entity is any entity 
that is, or is controlled by, or is acting on behalf of, or at the 
direction of, any other entity that is, located in the United States or 
organized under the laws of the United States or of any State.
    (5) For purposes of this paragraph (e), a U.S. branch, agency, or 
subsidiary of a foreign banking entity is considered to be located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (6) For purposes of this paragraph (e), unaffiliated market 
intermediary means an unaffiliated entity, acting as an intermediary, 
that is:
    (i) A broker or dealer registered with the SEC under section 15 of 
the Exchange Act or exempt from registration or excluded from regulation 
as such;
    (ii) A swap dealer registered with the CFTC under section 4s of the 
Commodity Exchange Act or exempt from registration or excluded from 
regulation as such;
    (iii) A security-based swap dealer registered with the SEC under 
section 15F of the Exchange Act or exempt from registration or excluded 
from regulation as such; or
    (iv) A futures commission merchant registered with the CFTC under 
section 4f of the Commodity Exchange Act or exempt from registration or 
excluded from regulation as such.



Sec. 248.7  Limitations on permitted proprietary trading activities.

    (a) No transaction, class of transactions, or activity may be deemed 
permissible under Secs. 248.4 through 248.6 if the transaction, class of 
transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a

[[Page 290]]

material conflict of interest between a banking entity and its clients, 
customers, or counterparties exists if the banking entity engages in any 
transaction, class of transactions, or activity that would involve or 
result in the banking entity's interests being materially adverse to the 
interests of its client, customer, or counterparty with respect to such 
transaction, class of transactions, or activity, and the banking entity 
has not taken at least one of the actions in paragraph (b)(2) of this 
section.
    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client, customer, or 
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the banking entity's establishment of information barriers, the conflict 
of interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.



Secs. 248.8-248.9  [Reserved]



           Subpart C_Covered Funds Activities and Investments



Sec. 248.10  Prohibition on acquiring or retaining an ownership interest in 
and having certain relationships with a covered fund.

    (a) Prohibition. (1) Except as otherwise provided in this subpart, a 
banking entity may not, as principal, directly or indirectly, acquire or 
retain any ownership interest in or sponsor a covered fund.
    (2) Paragraph (a)(1) of this section does not include acquiring or 
retaining an ownership interest in a covered fund by a banking entity:
    (i) Acting solely as agent, broker, or custodian, so long as;
    (A) The activity is conducted for the account of, or on behalf of, a 
customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest;
    (ii) Through a deferred compensation, stock-bonus, profit-sharing, 
or pension plan of the banking entity (or an affiliate thereof) that is 
established and administered in accordance with the law of the United 
States or a foreign sovereign, if the ownership interest is held or 
controlled directly or indirectly by the banking entity as trustee for 
the benefit of persons who are or were employees of the banking entity 
(or an affiliate thereof);

[[Page 291]]

    (iii) In the ordinary course of collecting a debt previously 
contracted in good faith, provided that the banking entity divests the 
ownership interest as soon as practicable, and in no event may the 
banking entity retain such ownership interest for longer than such 
period permitted by the Board; or
    (iv) On behalf of customers as trustee or in a similar fiduciary 
capacity for a customer that is not a covered fund, so long as:
    (A) The activity is conducted for the account of, or on behalf of, 
the customer; and
    (B) The banking entity and its affiliates do not have or retain 
beneficial ownership of such ownership interest.
    (b) Definition of covered fund. (1) Except as provided in paragraph 
(c) of this section, covered fund means:
    (i) An issuer that would be an investment company, as defined in the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for 
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7));
    (ii) Any commodity pool under section 1a(10) of the Commodity 
Exchange Act (7 U.S.C. 1a(10)) for which:
    (A) The commodity pool operator has claimed an exemption under 17 
CFR 4.7; or
    (B)(1) A commodity pool operator is registered with the CFTC as a 
commodity pool operator in connection with the operation of the 
commodity pool;
    (2) Substantially all participation units of the commodity pool are 
owned by qualified eligible persons under 17 CFR 4.7(a)(2) and (3); and
    (3) Participation units of the commodity pool have not been publicly 
offered to persons who are not qualified eligible persons under 17 CFR 
4.7(a)(2) and (3); or
    (iii) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, an entity that:
    (A) Is organized or established outside the United States and the 
ownership interests of which are offered and sold solely outside the 
United States;
    (B) Is, or holds itself out as being, an entity or arrangement that 
raises money from investors primarily for the purpose of investing in 
securities for resale or other disposition or otherwise trading in 
securities; and
    (C)(1) Has as its sponsor that banking entity (or an affiliate 
thereof); or
    (2) Has issued an ownership interest that is owned directly or 
indirectly by that banking entity (or an affiliate thereof).
    (2) An issuer shall not be deemed to be a covered fund under 
paragraph (b)(1)(iii) of this section if, were the issuer subject to 
U.S. securities laws, the issuer could rely on an exclusion or exemption 
from the definition of ``investment company'' under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) other than the exclusions 
contained in section 3(c)(1) and 3(c)(7) of that Act.
    (3) For purposes of paragraph (b)(1)(iii) of this section, a U.S. 
branch, agency, or subsidiary of a foreign banking entity is located in 
the United States; however, the foreign bank that operates or controls 
that branch, agency, or subsidiary is not considered to be located in 
the United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (c) Notwithstanding paragraph (b) of this section, unless the 
appropriate Federal banking agencies, the SEC, and the CFTC jointly 
determine otherwise, a covered fund does not include:
    (1) Foreign public funds. (i) Subject to paragraphs (ii) and (iii) 
below, an issuer that:
    (A) Is organized or established outside of the United States;
    (B) Is authorized to offer and sell ownership interests to retail 
investors in the issuer's home jurisdiction; and
    (C) Sells ownership interests predominantly through one or more 
public offerings outside of the United States.
    (ii) With respect to a banking entity that is, or is controlled 
directly or indirectly by a banking entity that is, located in or 
organized under the laws of the United States or of any State and any 
issuer for which such banking entity acts as sponsor, the sponsoring 
banking entity may not rely on the exemption in paragraph (c)(1)(i) of 
this section for such issuer unless ownership interests in the issuer 
are sold predominantly to persons other than:

[[Page 292]]

    (A) Such sponsoring banking entity;
    (B) Such issuer;
    (C) Affiliates of such sponsoring banking entity or such issuer; and
    (D) Directors and employees of such entities.
    (iii) For purposes of paragraph (c)(1)(i)(C) of this section, the 
term ``public offering'' means a distribution (as defined in 
Sec. 248.4(a)(3) of subpart B) of securities in any jurisdiction outside 
the United States to investors, including retail investors, provided 
that:
    (A) The distribution complies with all applicable requirements in 
the jurisdiction in which such distribution is being made;
    (B) The distribution does not restrict availability to investors 
having a minimum level of net worth or net investment assets; and
    (C) The issuer has filed or submitted, with the appropriate 
regulatory authority in such jurisdiction, offering disclosure documents 
that are publicly available.
    (2) Wholly-owned subsidiaries. An entity, all of the outstanding 
ownership interests of which are owned directly or indirectly by the 
banking entity (or an affiliate thereof), except that:
    (i) Up to five percent of the entity's outstanding ownership 
interests, less any amounts outstanding under paragraph (c)(2)(ii) of 
this section, may be held by employees or directors of the banking 
entity or such affiliate (including former employees or directors if 
their ownership interest was acquired while employed by or in the 
service of the banking entity); and
    (ii) Up to 0.5 percent of the entity's outstanding ownership 
interests may be held by a third party if the ownership interest is 
acquired or retained by the third party for the purpose of establishing 
corporate separateness or addressing bankruptcy, insolvency, or similar 
concerns.
    (3) Joint ventures. A joint venture between a banking entity or any 
of its affiliates and one or more unaffiliated persons, provided that 
the joint venture:
    (i) Is comprised of no more than 10 unaffiliated co-venturers;
    (ii) Is in the business of engaging in activities that are 
permissible for the banking entity or affiliate, other than investing in 
securities for resale or other disposition; and
    (iii) Is not, and does not hold itself out as being, an entity or 
arrangement that raises money from investors primarily for the purpose 
of investing in securities for resale or other disposition or otherwise 
trading in securities.
    (4) Acquisition vehicles. An issuer:
    (i) Formed solely for the purpose of engaging in a bona fide merger 
or acquisition transaction; and
    (ii) That exists only for such period as necessary to effectuate the 
transaction.
    (5) Foreign pension or retirement funds. A plan, fund, or program 
providing pension, retirement, or similar benefits that is:
    (i) Organized and administered outside the United States;
    (ii) A broad-based plan for employees or citizens that is subject to 
regulation as a pension, retirement, or similar plan under the laws of 
the jurisdiction in which the plan, fund, or program is organized and 
administered; and
    (iii) Established for the benefit of citizens or residents of one or 
more foreign sovereigns or any political subdivision thereof.
    (6) Insurance company separate accounts. A separate account, 
provided that no banking entity other than the insurance company 
participates in the account's profits and losses.
    (7) Bank owned life insurance. A separate account that is used 
solely for the purpose of allowing one or more banking entities to 
purchase a life insurance policy for which the banking entity or 
entities is beneficiary, provided that no banking entity that purchases 
the policy:
    (i) Controls the investment decisions regarding the underlying 
assets or holdings of the separate account; or
    (ii) Participates in the profits and losses of the separate account 
other than in compliance with applicable supervisory guidance regarding 
bank owned life insurance.
    (8) Loan securitizations--(i) Scope. An issuing entity for asset-
backed securities that satisfies all the conditions of this paragraph 
(c)(8) and the assets or holdings of which are comprised solely of:

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    (A) Loans as defined in Sec. 248.2(s) of subpart A;
    (B) Rights or other assets designed to assure the servicing or 
timely distribution of proceeds to holders of such securities and rights 
or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the loans, provided that each asset 
meets the requirements of paragraph (c)(8)(iii) of this section;
    (C) Interest rate or foreign exchange derivatives that meet the 
requirements of paragraph (c)(8)(iv) of this section; and
    (D) Special units of beneficial interest and collateral certificates 
that meet the requirements of paragraph (c)(8)(v) of this section.
    (ii) Impermissible assets. For purposes of this paragraph (c)(8), 
the assets or holdings of the issuing entity shall not include any of 
the following:
    (A) A security, including an asset-backed security, or an interest 
in an equity or debt security other than as permitted in paragraph 
(c)(8)(iii) of this section;
    (B) A derivative, other than a derivative that meets the 
requirements of paragraph (c)(8)(iv) of this section; or
    (C) A commodity forward contract.
    (iii) Permitted securities. Notwithstanding paragraph (c)(8)(ii)(A) 
of this section, the issuing entity may hold securities if those 
securities are:
    (A) Cash equivalents for purposes of the rights and assets in 
paragraph (c)(8)(i)(B) of this section; or
    (B) Securities received in lieu of debts previously contracted with 
respect to the loans supporting the asset-backed securities.
    (iv) Derivatives. The holdings of derivatives by the issuing entity 
shall be limited to interest rate or foreign exchange derivatives that 
satisfy all of the following conditions:
    (A) The written terms of the derivative directly relate to the 
loans, the asset-backed securities, or the contractual rights of other 
assets described in paragraph (c)(8)(i)(B) of this section; and
    (B) The derivatives reduce the interest rate and/or foreign exchange 
risks related to the loans, the asset-backed securities, or the 
contractual rights or other assets described in paragraph (c)(8)(i)(B) 
of this section.
    (v) Special units of beneficial interest and collateral 
certificates. The assets or holdings of the issuing entity may include 
collateral certificates and special units of beneficial interest issued 
by a special purpose vehicle, provided that:
    (A) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate meets the requirements in 
this paragraph (c)(8);
    (B) The special unit of beneficial interest or collateral 
certificate is used for the sole purpose of transferring to the issuing 
entity for the loan securitization the economic risks and benefits of 
the assets that are permissible for loan securitizations under this 
paragraph (c)(8) and does not directly or indirectly transfer any 
interest in any other economic or financial exposure;
    (C) The special unit of beneficial interest or collateral 
certificate is created solely to satisfy legal requirements or otherwise 
facilitate the structuring of the loan securitization; and
    (D) The special purpose vehicle that issues the special unit of 
beneficial interest or collateral certificate and the issuing entity are 
established under the direction of the same entity that initiated the 
loan securitization.
    (9) Qualifying asset-backed commercial paper conduits. (i) An 
issuing entity for asset-backed commercial paper that satisfies all of 
the following requirements:
    (A) The asset-backed commercial paper conduit holds only:
    (1) Loans and other assets permissible for a loan securitization 
under paragraph (c)(8)(i) of this section; and
    (2) Asset-backed securities supported solely by assets that are 
permissible for loan securitizations under paragraph (c)(8)(i) of this 
section and acquired by the asset-backed commercial paper conduit as 
part of an initial issuance either directly from the issuing entity of 
the asset-backed securities or directly from an underwriter in the 
distribution of the asset-backed securities;
    (B) The asset-backed commercial paper conduit issues only asset-
backed

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securities, comprised of a residual interest and securities with a legal 
maturity of 397 days or less; and
    (C) A regulated liquidity provider has entered into a legally 
binding commitment to provide full and unconditional liquidity coverage 
with respect to all of the outstanding asset-backed securities issued by 
the asset-backed commercial paper conduit (other than any residual 
interest) in the event that funds are required to redeem maturing asset-
backed securities.
    (ii) For purposes of this paragraph (c)(9), a regulated liquidity 
provider means:
    (A) A depository institution, as defined in section 3(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c));
    (B) A bank holding company, as defined in section 2(a) of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841(a)), or a subsidiary 
thereof;
    (C) A savings and loan holding company, as defined in section 10a of 
the Home Owners' Loan Act (12 U.S.C. 1467a), provided all or 
substantially all of the holding company's activities are permissible 
for a financial holding company under section 4(k) of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1843(k)), or a subsidiary thereof;
    (D) A foreign bank whose home country supervisor, as defined in 
Sec. 211.21(q) of the Board's Regulation K (12 CFR 211.21(q)), has 
adopted capital standards consistent with the Capital Accord for the 
Basel Committee on banking Supervision, as amended, and that is subject 
to such standards, or a subsidiary thereof; or
    (E) The United States or a foreign sovereign.
    (10) Qualifying covered bonds--(i) Scope. An entity owning or 
holding a dynamic or fixed pool of loans or other assets as provided in 
paragraph (c)(8) of this section for the benefit of the holders of 
covered bonds, provided that the assets in the pool are comprised solely 
of assets that meet the conditions in paragraph (c)(8)(i) of this 
section.
    (ii) Covered bond. For purposes of this paragraph (c)(10), a covered 
bond means:
    (A) A debt obligation issued by an entity that meets the definition 
of foreign banking organization, the payment obligations of which are 
fully and unconditionally guaranteed by an entity that meets the 
conditions set forth in paragraph (c)(10)(i) of this section; or
    (B) A debt obligation of an entity that meets the conditions set 
forth in paragraph (c)(10)(i) of this section, provided that the payment 
obligations are fully and unconditionally guaranteed by an entity that 
meets the definition of foreign banking organization and the entity is a 
wholly-owned subsidiary, as defined in paragraph (c)(2) of this section, 
of such foreign banking organization.
    (11) SBICs and public welfare investment funds. An issuer:
    (i) That is a small business investment company, as defined in 
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 
662), or that has received from the Small Business Administration notice 
to proceed to qualify for a license as a small business investment 
company, which notice or license has not been revoked; or
    (ii) The business of which is to make investments that are:
    (A) Designed primarily to promote the public welfare, of the type 
permitted under paragraph (11) of section 5136 of the Revised Statutes 
of the United States (12 U.S.C. 24), including the welfare of low- and 
moderate-income communities or families (such as providing housing, 
services, or jobs); or
    (B) Qualified rehabilitation expenditures with respect to a 
qualified rehabilitated building or certified historic structure, as 
such terms are defined in section 47 of the Internal Revenue Code of 
1986 or a similar State historic tax credit program.
    (12) Registered investment companies and excluded entities. An 
issuer:
    (i) That is registered as an investment company under section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed 
and operated pursuant to a written plan to become a registered 
investment company as described in Sec. 248.20(e)(3) of subpart D and 
that complies with the requirements of section 18 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-18);

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    (ii) That may rely on an exclusion or exemption from the definition 
of ``investment company'' under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.) other than the exclusions contained in section 
3(c)(1) and 3(c)(7) of that Act; or
    (iii) That has elected to be regulated as a business development 
company pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has 
not withdrawn its election, or that is formed and operated pursuant to a 
written plan to become a business development company as described in 
Sec. 248.20(e)(3) of subpart D and that complies with the requirements 
of section 61 of the Investment Company Act of 1940 (15 U.S.C. 80a-60).
    (13) Issuers in conjunction with the FDIC's receivership or 
conservatorship operations. An issuer that is an entity formed by or on 
behalf of the FDIC for the purpose of facilitating the disposal of 
assets acquired in the FDIC's capacity as conservator or receiver under 
the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.
    (14) Other excluded issuers. (i) Any issuer that the appropriate 
Federal banking agencies, the SEC, and the CFTC jointly determine the 
exclusion of which is consistent with the purposes of section 13 of the 
BHC Act.
    (ii) A determination made under paragraph (c)(14)(i) of this section 
will be promptly made public.
    (d) Definition of other terms related to covered funds. For purposes 
of this subpart:
    (1) Applicable accounting standards means U.S. generally accepted 
accounting principles, or such other accounting standards applicable to 
a banking entity that the Board determines are appropriate and that the 
banking entity uses in the ordinary course of its business in preparing 
its consolidated financial statements.
    (2) Asset-backed security has the meaning specified in Section 
3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79).
    (3) Director has the same meaning as provided in section 215.2(d)(1) 
of the Board's Regulation O (12 CFR 215.2(d)(1)).
    (4) Issuer has the same meaning as in section 2(a)(22) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(22)).
    (5) Issuing entity means with respect to asset-backed securities the 
special purpose vehicle that owns or holds the pool assets underlying 
asset-backed securities and in whose name the asset-backed securities 
supported or serviced by the pool assets are issued.
    (6) Ownership interest--(i) Ownership interest means any equity, 
partnership, or other similar interest. An ``other similar interest'' 
means an interest that:
    (A) Has the right to participate in the selection or removal of a 
general partner, managing member, member of the board of directors or 
trustees, investment manager, investment adviser, or commodity trading 
advisor of the covered fund (excluding the rights of a creditor to 
exercise remedies upon the occurrence of an event of default or an 
acceleration event);
    (B) Has the right under the terms of the interest to receive a share 
of the income, gains or profits of the covered fund;
    (C) Has the right to receive the underlying assets of the covered 
fund after all other interests have been redeemed and/or paid in full 
(excluding the rights of a creditor to exercise remedies upon the 
occurrence of an event of default or an acceleration event);
    (D) Has the right to receive all or a portion of excess spread (the 
positive difference, if any, between the aggregate interest payments 
received from the underlying assets of the covered fund and the 
aggregate interest paid to the holders of other outstanding interests);
    (E) Provides under the terms of the interest that the amounts 
payable by the covered fund with respect to the interest could be 
reduced based on losses arising from the underlying assets of the 
covered fund, such as allocation of losses, write-downs or charge-offs 
of the outstanding principal balance, or reductions in the amount of 
interest due and payable on the interest;
    (F) Receives income on a pass-through basis from the covered fund, 
or has a rate of return that is determined by reference to the 
performance of the underlying assets of the covered fund; or
    (G) Any synthetic right to have, receive, or be allocated any of the 
rights

[[Page 296]]

in paragraphs (d)(6)(i)(A) through (F) of this section.
    (ii) Ownership interest does not include: Restricted profit 
interest. An interest held by an entity (or an employee or former 
employee thereof) in a covered fund for which the entity (or employee 
thereof) serves as investment manager, investment adviser, commodity 
trading advisor, or other service provider so long as:
    (A) The sole purpose and effect of the interest is to allow the 
entity (or employee or former employee thereof) to share in the profits 
of the covered fund as performance compensation for the investment 
management, investment advisory, commodity trading advisory, or other 
services provided to the covered fund by the entity (or employee or 
former employee thereof), provided that the entity (or employee or 
former employee thereof) may be obligated under the terms of such 
interest to return profits previously received;
    (B) All such profit, once allocated, is distributed to the entity 
(or employee or former employee thereof) promptly after being earned or, 
if not so distributed, is retained by the covered fund for the sole 
purpose of establishing a reserve amount to satisfy contractual 
obligations with respect to subsequent losses of the covered fund and 
such undistributed profit of the entity (or employee or former employee 
thereof) does not share in the subsequent investment gains of the 
covered fund;
    (C) Any amounts invested in the covered fund, including any amounts 
paid by the entity (or employee or former employee thereof) in 
connection with obtaining the restricted profit interest, are within the 
limits of Sec. 248.12 of this subpart; and
    (D) The interest is not transferable by the entity (or employee or 
former employee thereof) except to an affiliate thereof (or an employee 
of the banking entity or affiliate), to immediate family members, or 
through the intestacy, of the employee or former employee, or in 
connection with a sale of the business that gave rise to the restricted 
profit interest by the entity (or employee or former employee thereof) 
to an unaffiliated party that provides investment management, investment 
advisory, commodity trading advisory, or other services to the fund.
    (7) Prime brokerage transaction means any transaction that would be 
a covered transaction, as defined in section 23A(b)(7) of the Federal 
Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with 
custody, clearance and settlement, securities borrowing or lending 
services, trade execution, financing, or data, operational, and 
administrative support.
    (8) Resident of the United States means a person that is a ``U.S. 
person'' as defined in rule 902(k) of the SEC's Regulation S (17 CFR 
230.902(k)).
    (9) Sponsor means, with respect to a covered fund:
    (i) To serve as a general partner, managing member, or trustee of a 
covered fund, or to serve as a commodity pool operator with respect to a 
covered fund as defined in (b)(1)(ii) of this section;
    (ii) In any manner to select or to control (or to have employees, 
officers, or directors, or agents who constitute) a majority of the 
directors, trustees, or management of a covered fund; or
    (iii) To share with a covered fund, for corporate, marketing, 
promotional, or other purposes, the same name or a variation of the same 
name.
    (10) Trustee. (i) For purposes of paragraph (d)(9) of this section 
and Sec. 248.11 of subpart C, a trustee does not include:
    (A) A trustee that does not exercise investment discretion with 
respect to a covered fund, including a trustee that is subject to the 
direction of an unaffiliated named fiduciary who is not a trustee 
pursuant to section 403(a)(1) of the Employee's Retirement Income 
Security Act (29 U.S.C. 1103(a)(1)); or
    (B) A trustee that is subject to fiduciary standards imposed under 
foreign law that are substantially equivalent to those described in 
paragraph (d)(10)(i)(A) of this section;
    (ii) Any entity that directs a person described in paragraph 
(d)(10)(i) of this section, or that possesses authority and discretion 
to manage and control the investment decisions of a covered fund for 
which such person serves as trustee, shall be considered to be a trustee 
of such covered fund.

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Sec. 248.11  Permitted organizing and offering, underwriting, and market 
making with respect to a covered fund.

    (a) Organizing and offering a covered fund in general. 
Notwithstanding Sec. 248.10(a) of this subpart, a banking entity is not 
prohibited from acquiring or retaining an ownership interest in, or 
acting as sponsor to, a covered fund in connection with, directly or 
indirectly, organizing and offering a covered fund, including serving as 
a general partner, managing member, trustee, or commodity pool operator 
of the covered fund and in any manner selecting or controlling (or 
having employees, officers, directors, or agents who constitute) a 
majority of the directors, trustees, or management of the covered fund, 
including any necessary expenses for the foregoing, only if:
    (1) The banking entity (or an affiliate thereof) provides bona fide 
trust, fiduciary, investment advisory, or commodity trading advisory 
services;
    (2) The covered fund is organized and offered only in connection 
with the provision of bona fide trust, fiduciary, investment advisory, 
or commodity trading advisory services and only to persons that are 
customers of such services of the banking entity (or an affiliate 
thereof), pursuant to a written plan or similar documentation outlining 
how the banking entity or such affiliate intends to provide advisory or 
similar services to its customers through organizing and offering such 
fund;
    (3) The banking entity and its affiliates do not acquire or retain 
an ownership interest in the covered fund except as permitted under 
Sec. 248.12 of this subpart;
    (4) The banking entity and its affiliates comply with the 
requirements of Sec. 248.14 of this subpart;
    (5) The banking entity and its affiliates do not, directly or 
indirectly, guarantee, assume, or otherwise insure the obligations or 
performance of the covered fund or of any covered fund in which such 
covered fund invests;
    (6) The covered fund, for corporate, marketing, promotional, or 
other purposes:
    (i) Does not share the same name or a variation of the same name 
with the banking entity (or an affiliate thereof); and
    (ii) Does not use the word ``bank'' in its name;
    (7) No director or employee of the banking entity (or an affiliate 
thereof) takes or retains an ownership interest in the covered fund, 
except for any director or employee of the banking entity or such 
affiliate who is directly engaged in providing investment advisory, 
commodity trading advisory, or other services to the covered fund at the 
time the director or employee takes the ownership interest; and
    (8) The banking entity:
    (i) Clearly and conspicuously discloses, in writing, to any 
prospective and actual investor in the covered fund (such as through 
disclosure in the covered fund's offering documents):
    (A) That ``any losses in [such covered fund] will be borne solely by 
investors in [the covered fund] and not by [the banking entity] or its 
affiliates; therefore, [the banking entity's] losses in [such covered 
fund] will be limited to losses attributable to the ownership interests 
in the covered fund held by [the banking entity] and any affiliate in 
its capacity as investor in the [covered fund] or as beneficiary of a 
restricted profit interest held by [the banking entity] or any 
affiliate'';
    (B) That such investor should read the fund offering documents 
before investing in the covered fund;
    (C) That the ``ownership interests in the covered fund are not 
insured by the FDIC, and are not deposits, obligations of, or endorsed 
or guaranteed in any way, by any banking entity'' (unless that happens 
to be the case); and
    (D) The role of the banking entity and its affiliates and employees 
in sponsoring or providing any services to the covered fund; and
    (ii) Complies with any additional rules of the appropriate Federal 
banking agencies, the SEC, or the CFTC, as provided in section 13(b)(2) 
of the BHC Act, designed to ensure that losses in such covered fund are 
borne solely by investors in the covered fund and not by the covered 
banking entity and its affiliates.
    (b) Organizing and offering an issuing entity of asset-backed 
securities. (1) Notwithstanding Sec. 248.10(a) of this subpart,

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a banking entity is not prohibited from acquiring or retaining an 
ownership interest in, or acting as sponsor to, a covered fund that is 
an issuing entity of asset-backed securities in connection with, 
directly or indirectly, organizing and offering that issuing entity, so 
long as the banking entity and its affiliates comply with all of the 
requirements of paragraph (a)(3) through (8) of this section.
    (2) For purposes of this paragraph (b), organizing and offering a 
covered fund that is an issuing entity of asset-backed securities means 
acting as the securitizer, as that term is used in section 15G(a)(3) of 
the Exchange Act (15 U.S.C. 78o-11(a)(3)) of the issuing entity, or 
acquiring or retaining an ownership interest in the issuing entity as 
required by section 15G of that Act (15 U.S.C.78o-11) and the 
implementing regulations issued thereunder.
    (c) Underwriting and market making in ownership interests of a 
covered fund. The prohibition contained in Sec. 248.10(a) of this 
subpart does not apply to a banking entity's underwriting activities or 
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the 
requirements of Sec. 248.4(a) or Sec. 248.4(b) of subpart B, 
respectively;
    (2) With respect to any banking entity (or any affiliate thereof) 
that: Acts as a sponsor, investment adviser or commodity trading advisor 
to a particular covered fund or otherwise acquires and retains an 
ownership interest in such covered fund in reliance on paragraph (a) of 
this section; acquires and retains an ownership interest in such covered 
fund and is either a securitizer, as that term is used in section 
15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is acquiring 
and retaining an ownership interest in such covered fund in compliance 
with section 15G of that Act (15 U.S.C.78o-11) and the implementing 
regulations issued thereunder each as permitted by paragraph (b) of this 
section; or, directly or indirectly, guarantees, assumes, or otherwise 
insures the obligations or performance of the covered fund or of any 
covered fund in which such fund invests, then in each such case any 
ownership interests acquired or retained by the banking entity and its 
affiliates in connection with underwriting and market making related 
activities for that particular covered fund are included in the 
calculation of ownership interests permitted to be held by the banking 
entity and its affiliates under the limitations of Sec. 248.12(a)(2)(ii) 
and Sec. 248.12(d) of this subpart; and
    (3) With respect to any banking entity, the aggregate value of all 
ownership interests of the banking entity and its affiliates in all 
covered funds acquired and retained under Sec. 248.11 of this subpart, 
including all covered funds in which the banking entity holds an 
ownership interest in connection with underwriting and market making 
related activities permitted under this paragraph (c), are included in 
the calculation of all ownership interests under Sec. 248.12(a)(2)(iii) 
and Sec. 248.12(d) of this subpart.



Sec. 248.12  Permitted investment in a covered fund.

    (a) Authority and limitations on permitted investments in covered 
funds. (1) Notwithstanding the prohibition contained in Sec. 248.10(a) 
of this subpart, a banking entity may acquire and retain an ownership 
interest in a covered fund that the banking entity or an affiliate 
thereof organizes and offers pursuant to Sec. 248.11, for the purposes 
of:
    (i) Establishment. Establishing the fund and providing the fund with 
sufficient initial equity for investment to permit the fund to attract 
unaffiliated investors, subject to the limits contained in paragraphs 
(a)(2)(i) and (iii) of this section; or
    (ii) De minimis investment. Making and retaining an investment in 
the covered fund subject to the limits contained in paragraphs 
(a)(2)(ii) and (iii) of this section.
    (2) Investment limits--(i) Seeding period. With respect to an 
investment in any covered fund made or held pursuant to paragraph 
(a)(1)(i) of this section, the banking entity and its affiliates:
    (A) Must actively seek unaffiliated investors to reduce, through 
redemption, sale, dilution, or other methods, the aggregate amount of 
all ownership

[[Page 299]]

interests of the banking entity in the covered fund to the amount 
permitted in paragraph (a)(2)(i)(B) of this section; and
    (B) Must, no later than 1 year after the date of establishment of 
the fund (or such longer period as may be provided by the Board pursuant 
to paragraph (e) of this section), conform its ownership interest in the 
covered fund to the limits in paragraph (a)(2)(ii) of this section;
    (ii) Per-fund limits. (A) Except as provided in paragraph 
(a)(2)(ii)(B) of this section, an investment by a banking entity and its 
affiliates in any covered fund made or held pursuant to paragraph 
(a)(1)(ii) of this section may not exceed 3 percent of the total number 
or value of the outstanding ownership interests of the fund.
    (B) An investment by a banking entity and its affiliates in a 
covered fund that is an issuing entity of asset-backed securities may 
not exceed 3 percent of the total fair market value of the ownership 
interests of the fund measured in accordance with paragraph (b)(3) of 
this section, unless a greater percentage is retained by the banking 
entity and its affiliates in compliance with the requirements of section 
15G of the Exchange Act (15 U.S.C. 78o-11) and the implementing 
regulations issued thereunder, in which case the investment by the 
banking entity and its affiliates in the covered fund may not exceed the 
amount, number, or value of ownership interests of the fund required 
under section 15G of the Exchange Act and the implementing regulations 
issued thereunder.
    (iii) Aggregate limit. The aggregate value of all ownership 
interests of the banking entity and its affiliates in all covered funds 
acquired or retained under this section may not exceed 3 percent of the 
tier 1 capital of the banking entity, as provided under paragraph (c) of 
this section, and shall be calculated as of the last day of each 
calendar quarter.
    (iv) Date of establishment. For purposes of this section, the date 
of establishment of a covered fund shall be:
    (A) In general. The date on which the investment adviser or similar 
entity to the covered fund begins making investments pursuant to the 
written investment strategy for the fund;
    (B) Issuing entities of asset-backed securities. In the case of an 
issuing entity of asset-backed securities, the date on which the assets 
are initially transferred into the issuing entity of asset-backed 
securities.
    (b) Rules of construction--(1) Attribution of ownership interests to 
a covered banking entity. (i) For purposes of paragraph (a)(2) of this 
section, the amount and value of a banking entity's permitted investment 
in any single covered fund shall include any ownership interest held 
under Sec. 248.12 directly by the banking entity, including any 
affiliate of the banking entity.
    (ii) Treatment of registered investment companies, SEC-regulated 
business development companies and foreign public funds. For purposes of 
paragraph (b)(1)(i) of this section, a registered investment company, 
SEC-regulated business development companies or foreign public fund as 
described in Sec. 248.10(c)(1) of this subpart will not be considered to 
be an affiliate of the banking entity so long as the banking entity:
    (A) Does not own, control, or hold with the power to vote 25 percent 
or more of the voting shares of the company or fund; and
    (B) Provides investment advisory, commodity trading advisory, 
administrative, and other services to the company or fund in compliance 
with the limitations under applicable regulation, order, or other 
authority.
    (iii) Covered funds. For purposes of paragraph (b)(1)(i) of this 
section, a covered fund will not be considered to be an affiliate of a 
banking entity so long as the covered fund is held in compliance with 
the requirements of this subpart.
    (iv) Treatment of employee and director investments financed by the 
banking entity. For purposes of paragraph (b)(1)(i) of this section, an 
investment by a director or employee of a banking entity who acquires an 
ownership interest in his or her personal capacity in a covered fund 
sponsored by the banking entity will be attributed to the banking entity 
if the banking entity, directly or indirectly, extends financing for the

[[Page 300]]

purpose of enabling the director or employee to acquire the ownership 
interest in the fund and the financing is used to acquire such ownership 
interest in the covered fund.
    (2) Calculation of permitted ownership interests in a single covered 
fund. Except as provided in paragraph (b)(3) or (4), for purposes of 
determining whether an investment in a single covered fund complies with 
the restrictions on ownership interests under paragraphs (a)(2)(i)(B) 
and (a)(2)(ii)(A) of this section:
    (i) The aggregate number of the outstanding ownership interests held 
by the banking entity shall be the total number of ownership interests 
held under this section by the banking entity in a covered fund divided 
by the total number of ownership interests held by all entities in that 
covered fund, as of the last day of each calendar quarter (both measured 
without regard to committed funds not yet called for investment);
    (ii) The aggregate value of the outstanding ownership interests held 
by the banking entity shall be the aggregate fair market value of all 
investments in and capital contributions made to the covered fund by the 
banking entity, divided by the value of all investments in and capital 
contributions made to that covered fund by all entities, as of the last 
day of each calendar quarter (all measured without regard to committed 
funds not yet called for investment). If fair market value cannot be 
determined, then the value shall be the historical cost basis of all 
investments in and contributions made by the banking entity to the 
covered fund;
    (iii) For purposes of the calculation under paragraph (b)(2)(ii) of 
this section, once a valuation methodology is chosen, the banking entity 
must calculate the value of its investment and the investments of all 
others in the covered fund in the same manner and according to the same 
standards.
    (3) Issuing entities of asset-backed securities. In the case of an 
ownership interest in an issuing entity of asset-backed securities, for 
purposes of determining whether an investment in a single covered fund 
complies with the restrictions on ownership interests under paragraphs 
(a)(2)(i)(B) and (a)(2)(ii)(B) of this section:
    (i) For securitizations subject to the requirements of section 15G 
of the Exchange Act (15 U.S.C. 78o-11), the calculations shall be made 
as of the date and according to the valuation methodology applicable 
pursuant to the requirements of section 15G of the Exchange Act (15 
U.S.C. 78o-11) and the implementing regulations issued thereunder; or
    (ii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the calculations shall be made 
as of the date of establishment as defined in paragraph (a)(2)(iv)(B) of 
this section or such earlier date on which the transferred assets have 
been valued for purposes of transfer to the covered fund, and thereafter 
only upon the date on which additional securities of the issuing entity 
of asset-backed securities are priced for purposes of the sales of 
ownership interests to unaffiliated investors.
    (iii) For securitization transactions completed prior to the 
compliance date of such implementing regulations (or as to which such 
implementing regulations do not apply), the aggregate value of the 
outstanding ownership interests in the covered fund shall be the fair 
market value of the assets transferred to the issuing entity of the 
securitization and any other assets otherwise held by the issuing entity 
at such time, determined in a manner that is consistent with its 
determination of the fair market value of those assets for financial 
statement purposes.
    (iv) For purposes of the calculation under paragraph (b)(3)(iii) of 
this section, the valuation methodology used to calculate the fair 
market value of the ownership interests must be the same for both the 
ownership interests held by a banking entity and the ownership interests 
held by all others in the covered fund in the same manner and according 
to the same standards.
    (4) Multi-tier fund investments--(i) Master-feeder fund investments. 
If the principal investment strategy of a covered fund (the ``feeder 
fund'') is to invest substantially all of its assets in

[[Page 301]]

another single covered fund (the ``master fund''), then for purposes of 
the investment limitations in paragraphs (a)(2)(i)(B) and (a)(2)(ii) of 
this section, the banking entity's permitted investment in such funds 
shall be measured only by reference to the value of the master fund. The 
banking entity's permitted investment in the master fund shall include 
any investment by the banking entity in the master fund, as well as the 
banking entity's pro-rata share of any ownership interest of the master 
fund that is held through the feeder fund; and
    (ii) Fund-of-funds investments. If a banking entity organizes and 
offers a covered fund pursuant to Sec. 248.11 of this subpart for the 
purpose of investing in other covered funds (a ``fund of funds'') and 
that fund of funds itself invests in another covered fund that the 
banking entity is permitted to own, then the banking entity's permitted 
investment in that other fund shall include any investment by the 
banking entity in that other fund, as well as the banking entity's pro-
rata share of any ownership interest of the fund that is held through 
the fund of funds. The investment of the banking entity may not 
represent more than 3 percent of the amount or value of any single 
covered fund.
    (c) Aggregate permitted investments in all covered funds. (1) For 
purposes of paragraph (a)(2)(iii) of this section, the aggregate value 
of all ownership interests held by a banking entity shall be the sum of 
all amounts paid or contributed by the banking entity in connection with 
acquiring or retaining an ownership interest in covered funds (together 
with any amounts paid by the entity (or employee thereof) in connection 
with obtaining a restricted profit interest under Sec. 248.10(d)(6)(ii) 
of this subpart), on a historical cost basis.
    (2) Calculation of tier 1 capital. For purposes of paragraph 
(a)(2)(iii) of this section:
    (i) Entities that are required to hold and report tier 1 capital. If 
a banking entity is required to calculate and report tier 1 capital, the 
banking entity's tier 1 capital shall be equal to the amount of tier 1 
capital of the banking entity as of the last day of the most recent 
calendar quarter, as reported to its primary financial regulatory 
agency; and
    (ii) If a banking entity is not required to calculate and report 
tier 1 capital, the banking entity's tier 1 capital shall be determined 
to be equal to:
    (A) In the case of a banking entity that is controlled, directly or 
indirectly, by a depository institution that calculates and reports tier 
1 capital, be equal to the amount of tier 1 capital reported by such 
controlling depository institution in the manner described in paragraph 
(c)(2)(i) of this section;
    (B) In the case of a banking entity that is not controlled, directly 
or indirectly, by a depository institution that calculates and reports 
tier 1 capital:
    (1) Bank holding company subsidiaries. If the banking entity is a 
subsidiary of a bank holding company or company that is treated as a 
bank holding company, be equal to the amount of tier 1 capital reported 
by the top-tier affiliate of such covered banking entity that calculates 
and reports tier 1 capital in the manner described in paragraph 
(c)(2)(i) of this section; and
    (2) Other holding companies and any subsidiary or affiliate thereof. 
If the banking entity is not a subsidiary of a bank holding company or a 
company that is treated as a bank holding company, be equal to the total 
amount of shareholders' equity of the top-tier affiliate within such 
organization as of the last day of the most recent calendar quarter that 
has ended, as determined under applicable accounting standards.
    (iii) Treatment of foreign banking entities--(A) Foreign banking 
entities. Except as provided in paragraph (c)(2)(iii)(B) of this 
section, with respect to a banking entity that is not itself, and is not 
controlled directly or indirectly by, a banking entity that is located 
or organized under the laws of the United States or of any State, the 
tier 1 capital of the banking entity shall be the consolidated tier 1 
capital of the entity as calculated under applicable home country 
standards.
    (B) U.S. affiliates of foreign banking entities. With respect to a 
banking entity that is located or organized under the laws of the United 
States or of any State and is controlled by a foreign banking entity 
identified under paragraph (c)(2)(iii)(A) of this section, the banking 
entity's tier 1 capital shall be

[[Page 302]]

as calculated under paragraphs (c)(2)(i) or (ii) of this section.
    (d) Capital treatment for a permitted investment in a covered fund. 
For purposes of calculating compliance with the applicable regulatory 
capital requirements, a banking entity shall deduct from the banking 
entity's tier 1 capital (as determined under paragraph (c)(2) of this 
section) the greater of:
    (1) The sum of all amounts paid or contributed by the banking entity 
in connection with acquiring or retaining an ownership interest 
(together with any amounts paid by the entity (or employee thereof) in 
connection with obtaining a restricted profit interest under 
Sec. 248.10(d)(6)(ii) of subpart C), on a historical cost basis, plus 
any earnings received; and
    (2) The fair market value of the banking entity's ownership 
interests in the covered fund as determined under paragraph (b)(2)(ii) 
or (b)(3) of this section (together with any amounts paid by the entity 
(or employee thereof) in connection with obtaining a restricted profit 
interest under Sec. 248.10(d)(6)(ii) of subpart C), if the banking 
entity accounts for the profits (or losses) of the fund investment in 
its financial statements.
    (e) Extension of time to divest an ownership interest. (1) Upon 
application by a banking entity, the Board may extend the period under 
paragraph (a)(2)(i) of this section for up to 2 additional years if the 
Board finds that an extension would be consistent with safety and 
soundness and not detrimental to the public interest. An application for 
extension must:
    (i) Be submitted to the Board at least 90 days prior to the 
expiration of the applicable time period;
    (ii) Provide the reasons for application, including information that 
addresses the factors in paragraph (e)(2) of this section; and
    (iii) Explain the banking entity's plan for reducing the permitted 
investment in a covered fund through redemption, sale, dilution or other 
methods as required in paragraph (a)(2) of this section.
    (2) Factors governing the Board determinations. In reviewing any 
application under paragraph (e)(1) of this section, the Board may 
consider all the facts and circumstances related to the permitted 
investment in a covered fund, including:
    (i) Whether the investment would result, directly or indirectly, in 
a material exposure by the banking entity to high-risk assets or high-
risk trading strategies;
    (ii) The contractual terms governing the banking entity's interest 
in the covered fund;
    (iii) The date on which the covered fund is expected to have 
attracted sufficient investments from investors unaffiliated with the 
banking entity to enable the banking entity to comply with the 
limitations in paragraph (a)(2)(i) of this section;
    (iv) The total exposure of the covered banking entity to the 
investment and the risks that disposing of, or maintaining, the 
investment in the covered fund may pose to the banking entity and the 
financial stability of the United States;
    (v) The cost to the banking entity of divesting or disposing of the 
investment within the applicable period;
    (vi) Whether the investment or the divestiture or conformance of the 
investment would involve or result in a material conflict of interest 
between the banking entity and unaffiliated parties, including clients, 
customers or counterparties to which it owes a duty;
    (vi) The banking entity's prior efforts to reduce through 
redemption, sale, dilution, or other methods its ownership interests in 
the covered fund, including activities related to the marketing of 
interests in such covered fund;
    (vii) [Reserved]
    (viii) Market conditions; and
    (ix) Any other factor that the Board believes appropriate.
    (3) Authority to impose restrictions on activities or investment 
during any extension period. The Board may impose such conditions on any 
extension approved under paragraph (e)(1) of this section as the Board 
determines are necessary or appropriate to protect the safety and 
soundness of the banking entity or the financial stability of the United 
States, address material conflicts of interest or other unsound banking 
practices, or otherwise further the purposes of section 13 of the BHC 
Act and this part.

[[Page 303]]

    (4) Consultation. In the case of a banking entity that is primarily 
regulated by another Federal banking agency, the SEC, or the CFTC, the 
Board will consult with such agency prior to acting on an application by 
the banking entity for an extension under paragraph (e)(1) of this 
section.



Sec. 248.13  Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The 
prohibition contained in Sec. 248.10(a) of this subpart does not apply 
with respect to an ownership interest in a covered fund acquired or 
retained by a banking entity that is designed to demonstrably reduce or 
otherwise significantly mitigate the specific, identifiable risks to the 
banking entity in connection with a compensation arrangement with an 
employee of the banking entity or an affiliate thereof that directly 
provides investment advisory, commodity trading advisory or other 
services to the covered fund.
    (2) Requirements. The risk-mitigating hedging activities of a 
banking entity are permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains and 
enforces an internal compliance program required by subpart D of this 
part that is reasonably designed to ensure the banking entity's 
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and 
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures and 
internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or 
otherwise significantly mitigate and demonstrably reduces or otherwise 
significantly mitigates one or more specific, identifiable risks arising 
in connection with the compensation arrangement with the employee that 
directly provides investment advisory, commodity trading advisory, or 
other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any 
significant new or additional risk that is not itself hedged 
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by 
the banking entity.
    (iii) The compensation arrangement relates solely to the covered 
fund in which the banking entity or any affiliate has acquired an 
ownership interest pursuant to this paragraph and such compensation 
arrangement provides that any losses incurred by the banking entity on 
such ownership interest will be offset by corresponding decreases in 
amounts payable under such compensation arrangement.
    (b) Certain permitted covered fund activities and investments 
outside of the United States. (1) The prohibition contained in 
Sec. 248.10(a) of this subpart does not apply to the acquisition or 
retention of any ownership interest in, or the sponsorship of, a covered 
fund by a banking entity only if:
    (i) The banking entity is not organized or directly or indirectly 
controlled by a banking entity that is organized under the laws of the 
United States or of one or more States;
    (ii) The activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act;
    (iii) No ownership interest in the covered fund is offered for sale 
or sold to a resident of the United States; and
    (iv) The activity or investment occurs solely outside of the United 
States.
    (2) An activity or investment by the banking entity is pursuant to 
paragraph (9) or (13) of section 4(c) of the BHC Act for purposes of 
paragraph (b)(1)(ii) of this section only if:
    (i) The activity or investment is conducted in accordance with the 
requirements of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking 
organization, the banking entity meets the qualifying foreign banking 
organization requirements of section 211.23(a), (c) or (e) of the 
Board's Regulation K

[[Page 304]]

(12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking 
organization, the banking entity is not organized under the laws of the 
United States or of one or more States and the banking entity, on a 
fully-consolidated basis, meets at least two of the following 
requirements:
    (1) Total assets of the banking entity held outside of the United 
States exceed total assets of the banking entity held in the United 
States;
    (2) Total revenues derived from the business of the banking entity 
outside of the United States exceed total revenues derived from the 
business of the banking entity in the United States; or
    (3) Total net income derived from the business of the banking entity 
outside of the United States exceeds total net income derived from the 
business of the banking entity in the United States.
    (3) An ownership interest in a covered fund is not offered for sale 
or sold to a resident of the United States for purposes of paragraph 
(b)(1)(iii) of this section only if it is sold or has been sold pursuant 
to an offering that does not target residents of the United States.
    (4) An activity or investment occurs solely outside of the United 
States for purposes of paragraph (b)(1)(iv) of this section only if:
    (i) The banking entity acting as sponsor, or engaging as principal 
in the acquisition or retention of an ownership interest in the covered 
fund, is not itself, and is not controlled directly or indirectly by, a 
banking entity that is located in the United States or organized under 
the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes 
the decision to acquire or retain the ownership interest or act as 
sponsor to the covered fund is not located in the United States or 
organized under the laws of the United States or of any State;
    (iii) The investment or sponsorship, including any transaction 
arising from risk-mitigating hedging related to an ownership interest, 
is not accounted for as principal directly or indirectly on a 
consolidated basis by any branch or affiliate that is located in the 
United States or organized under the laws of the United States or of any 
State; and
    (iv) No financing for the banking entity's ownership or sponsorship 
is provided, directly or indirectly, by any branch or affiliate that is 
located in the United States or organized under the laws of the United 
States or of any State.
    (5) For purposes of this section, a U.S. branch, agency, or 
subsidiary of a foreign bank, or any subsidiary thereof, is located in 
the United States; however, a foreign bank of which that branch, agency, 
or subsidiary is a part is not considered to be located in the United 
States solely by virtue of operation of the U.S. branch, agency, or 
subsidiary.
    (c) Permitted covered fund interests and activities by a regulated 
insurance company. The prohibition contained in Sec. 248.10(a) of this 
subpart does not apply to the acquisition or retention by an insurance 
company, or an affiliate thereof, of any ownership interest in, or the 
sponsorship of, a covered fund only if:
    (1) The insurance company or its affiliate acquires and retains the 
ownership interest solely for the general account of the insurance 
company or for one or more separate accounts established by the 
insurance company;
    (2) The acquisition and retention of the ownership interest is 
conducted in compliance with, and subject to, the insurance company 
investment laws, regulations, and written guidance of the State or 
jurisdiction in which such insurance company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation 
with the Financial Stability Oversight Council and the relevant 
insurance commissioners of the States and foreign jurisdictions, as 
appropriate, have not jointly determined, after notice and comment, that 
a particular law, regulation, or written guidance described in paragraph 
(c)(2) of this section is insufficient to protect the safety and 
soundness of the banking entity, or the financial stability of the 
United States.

[[Page 305]]



Sec. 248.14  Limitations on relationships with a covered fund.

    (a) Relationships with a covered fund. (1) Except as provided for in 
paragraph (a)(2) of this section, no banking entity that serves, 
directly or indirectly, as the investment manager, investment adviser, 
commodity trading advisor, or sponsor to a covered fund, that organizes 
and offers a covered fund pursuant to Sec. 248.11 of this subpart, or 
that continues to hold an ownership interest in accordance with 
Sec. 248.11(b) of this subpart, and no affiliate of such entity, may 
enter into a transaction with the covered fund, or with any other 
covered fund that is controlled by such covered fund, that would be a 
covered transaction as defined in section 23A of the Federal Reserve Act 
(12 U.S.C. 371c(b)(7)), as if such banking entity and the affiliate 
thereof were a member bank and the covered fund were an affiliate 
thereof.
    (2) Notwithstanding paragraph (a)(1) of this section, a banking 
entity may:
    (i) Acquire and retain any ownership interest in a covered fund in 
accordance with the requirements of Sec. 248.11, Sec. 248.12, or 
Sec. 248.13 of this subpart; and
    (ii) Enter into any prime brokerage transaction with any covered 
fund in which a covered fund managed, sponsored, or advised by such 
banking entity (or an affiliate thereof) has taken an ownership 
interest, if:
    (A) The banking entity is in compliance with each of the limitations 
set forth in Sec. 248.11 of this subpart with respect to a covered fund 
organized and offered by such banking entity (or an affiliate thereof);
    (B) The chief executive officer (or equivalent officer) of the 
banking entity certifies in writing annually to the Board (with a duty 
to update the certification if the information in the certification 
materially changes) that the banking entity does not, directly or 
indirectly, guarantee, assume, or otherwise insure the obligations or 
performance of the covered fund or of any covered fund in which such 
covered fund invests; and
    (C) The Board has not determined that such transaction is 
inconsistent with the safe and sound operation and condition of the 
banking entity.
    (b) Restrictions on transactions with covered funds. A banking 
entity that serves, directly or indirectly, as the investment manager, 
investment adviser, commodity trading advisor, or sponsor to a covered 
fund, or that organizes and offers a covered fund pursuant to 
Sec. 248.11 of this subpart, or that continues to hold an ownership 
interest in accordance with Sec. 248.11(b) of this subpart, shall be 
subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1), as 
if such banking entity were a member bank and such covered fund were an 
affiliate thereof.
    (c) Restrictions on prime brokerage transactions. A prime brokerage 
transaction permitted under paragraph (a)(2)(ii) of this section shall 
be subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1) 
as if the counterparty were an affiliate of the banking entity.



Sec. 248.15  Other limitations on permitted covered fund activities.

    (a) No transaction, class of transactions, or activity may be deemed 
permissible under Secs. 248.11 through 248.13 of this subpart if the 
transaction, class of transactions, or activity would:
    (1) Involve or result in a material conflict of interest between the 
banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the 
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity 
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes of 
this section, a material conflict of interest between a banking entity 
and its clients, customers, or counterparties exists if the banking 
entity engages in any transaction, class of transactions, or activity 
that would involve or result in the banking entity's interests being 
materially adverse to the interests of its client, customer, or 
counterparty with respect to such transaction, class of transactions, or 
activity, and the banking entity has not taken at least one of the 
actions in paragraph (b)(2) of this section.

[[Page 306]]

    (2) Prior to effecting the specific transaction or class or type of 
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely, and 
effective disclosure of the conflict of interest, together with other 
necessary information, in reasonable detail and in a manner sufficient 
to permit a reasonable client, customer, or counterparty to meaningfully 
understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client, 
customer, or counterparty the opportunity to negate, or substantially 
mitigate, any materially adverse effect on the client, customer, or 
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and enforced 
information barriers that are memorialized in written policies and 
procedures, such as physical separation of personnel, or functions, or 
limitations on types of activity, that are reasonably designed, taking 
into consideration the nature of the banking entity's business, to 
prevent the conflict of interest from involving or resulting in a 
materially adverse effect on a client, customer, or counterparty. A 
banking entity may not rely on such information barriers if, in the case 
of any specific transaction, class or type of transactions or activity, 
the banking entity knows or should reasonably know that, notwithstanding 
the banking entity's establishment of information barriers, the conflict 
of interest may involve or result in a materially adverse effect on a 
client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy. 
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that 
would, if held by a banking entity, significantly increase the 
likelihood that the banking entity would incur a substantial financial 
loss or would pose a threat to the financial stability of the United 
States.
    (2) High-risk trading strategy means a trading strategy that would, 
if engaged in by a banking entity, significantly increase the likelihood 
that the banking entity would incur a substantial financial loss or 
would pose a threat to the financial stability of the United States.



Sec. 248.16  Ownership of interests in and sponsorship of issuers of 
certain collateralized debt obligations backed by trust-preferred 
securities.

    (a) The prohibition contained in Sec. 248.10(a)(1) does not apply to 
the ownership by a banking entity of an interest in, or sponsorship of, 
any issuer if:
    (1) The issuer was established, and the interest was issued, before 
May 19, 2010;
    (2) The banking entity reasonably believes that the offering 
proceeds received by the issuer were invested primarily in Qualifying 
TruPS Collateral; and
    (3) The banking entity acquired such interest on or before December 
10, 2013 (or acquired such interest in connection with a merger with or 
acquisition of a banking entity that acquired the interest on or before 
December 10, 2013).
    (b) For purposes of this Sec. 248.16, Qualifying TruPS Collateral 
shall mean any trust preferred security or subordinated debt instrument 
issued prior to May 19, 2010 by a depository institution holding company 
that, as of the end of any reporting period within 12 months immediately 
preceding the issuance of such trust preferred security or subordinated 
debt instrument, had total consolidated assets of less than 
$15,000,000,000 or issued prior to May 19, 2010 by a mutual holding 
company.
    (c) Notwithstanding paragraph (a)(3) of this section, a banking 
entity may act as a market maker with respect to the interests of an 
issuer described in paragraph (a) of this section in accordance with the 
applicable provisions of Secs. 248.4 and 248.11.
    (d) Without limiting the applicability of paragraph (a) of this 
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a). A 
banking entity may rely on the list published by the Board, the FDIC and 
the OCC.

[79 FR 5227, 5228, Jan. 31, 2014]

[[Page 307]]



Secs. 248.17-248.19  [Reserved]



          Subpart D_Compliance Program Requirement; Violations



Sec. 248.20  Program for compliance; reporting.

    (a) Program requirement. Each banking entity shall develop and 
provide for the continued administration of a compliance program 
reasonably designed to ensure and monitor compliance with the 
prohibitions and restrictions on proprietary trading and covered fund 
activities and investments set forth in section 13 of the BHC Act and 
this part. The terms, scope and detail of the compliance program shall 
be appropriate for the types, size, scope and complexity of activities 
and business structure of the banking entity.
    (b) Contents of compliance program. Except as provided in paragraph 
(f) of this section, the compliance program required by paragraph (a) of 
this section, at a minimum, shall include:
    (1) Written policies and procedures reasonably designed to document, 
describe, monitor and limit trading activities subject to subpart B 
(including those permitted under Secs. 248.3 to 248.6 of subpart B), 
including setting, monitoring and managing required limits set out in 
Secs. 248.4 and 248.5, and activities and investments with respect to a 
covered fund subject to subpart C (including those permitted under 
Secs. 248.11 through 248.14 of subpart C) conducted by the banking 
entity to ensure that all activities and investments conducted by the 
banking entity that are subject to section 13 of the BHC Act and this 
part comply with section 13 of the BHC Act and this part;
    (2) A system of internal controls reasonably designed to monitor 
compliance with section 13 of the BHC Act and this part and to prevent 
the occurrence of activities or investments that are prohibited by 
section 13 of the BHC Act and this part;
    (3) A management framework that clearly delineates responsibility 
and accountability for compliance with section 13 of the BHC Act and 
this part and includes appropriate management review of trading limits, 
strategies, hedging activities, investments, incentive compensation and 
other matters identified in this part or by management as requiring 
attention;
    (4) Independent testing and audit of the effectiveness of the 
compliance program conducted periodically by qualified personnel of the 
banking entity or by a qualified outside party;
    (5) Training for trading personnel and managers, as well as other 
appropriate personnel, to effectively implement and enforce the 
compliance program; and
    (6) Records sufficient to demonstrate compliance with section 13 of 
the BHC Act and this part, which a banking entity must promptly provide 
to the Board upon request and retain for a period of no less than 5 
years or such longer period as required by the Board.
    (c) Additional standards. In addition to the requirements in 
paragraph (b) of this section, the compliance program of a banking 
entity must satisfy the requirements and other standards contained in 
appendix B, if:
    (1) The banking entity engages in proprietary trading permitted 
under subpart B and is required to comply with the reporting 
requirements of paragraph (d) of this section;
    (2) The banking entity has reported total consolidated assets as of 
the previous calendar year end of $50 billion or more or, in the case of 
a foreign banking entity, has total U.S. assets as of the previous 
calendar year end of $50 billion or more (including all subsidiaries, 
affiliates, branches and agencies of the foreign banking entity 
operating, located or organized in the United States); or
    (3) The Board notifies the banking entity in writing that it must 
satisfy the requirements and other standards contained in appendix B to 
this part.
    (d) Reporting requirements under appendix A to this part. (1) A 
banking entity engaged in proprietary trading activity permitted under 
subpart B shall comply with the reporting requirements described in 
appendix A, if:
    (i) The banking entity (other than a foreign banking entity as 
provided in paragraph (d)(1)(ii) of this section) has, together with its 
affiliates and subsidiaries, trading assets and liabilities (excluding 
trading assets and liabilities involving obligations of or guaranteed by 
the United States or any agency of

[[Page 308]]

the United States) the average gross sum of which (on a worldwide 
consolidated basis) over the previous consecutive four quarters, as 
measured as of the last day of each of the four prior calendar quarters, 
equals or exceeds the threshold established in paragraph (d)(2) of this 
section;
    (ii) In the case of a foreign banking entity, the average gross sum 
of the trading assets and liabilities of the combined U.S. operations of 
the foreign banking entity (including all subsidiaries, affiliates, 
branches and agencies of the foreign banking entity operating, located 
or organized in the United States and excluding trading assets and 
liabilities involving obligations of or guaranteed by the United States 
or any agency of the United States) over the previous consecutive four 
quarters, as measured as of the last day of each of the four prior 
calendar quarters, equals or exceeds the threshold established in 
paragraph (d)(2) of this section; or
    (iii) The Board notifies the banking entity in writing that it must 
satisfy the reporting requirements contained in appendix A.
    (2) The threshold for reporting under paragraph (d)(1) of this 
section shall be $50 billion beginning on June 30, 2014; $25 billion 
beginning on April 30, 2016; and $10 billion beginning on December 31, 
2016.
    (3) Frequency of reporting: Unless the Board notifies the banking 
entity in writing that it must report on a different basis, a banking 
entity with $50 billion or more in trading assets and liabilities (as 
calculated in accordance with paragraph (d)(1) of this section) shall 
report the information required by appendix A for each calendar month 
within 30 days of the end of the relevant calendar month; beginning with 
information for the month of January 2015, such information shall be 
reported within 10 days of the end of each calendar month. Any other 
banking entity subject to appendix A shall report the information 
required by appendix A for each calendar quarter within 30 days of the 
end of that calendar quarter unless the Board notifies the banking 
entity in writing that it must report on a different basis.
    (e) Additional documentation for covered funds. Any banking entity 
that has more than $10 billion in total consolidated assets as reported 
on December 31 of the previous two calendar years shall maintain records 
that include:
    (1) Documentation of the exclusions or exemptions other than 
sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 
relied on by each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) in determining that such fund is not a 
covered fund;
    (2) For each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) for which the banking entity relies on one 
or more of the exclusions from the definition of covered fund provided 
by Secs. 248.10(c)(1),248.10(c)(5), 248.10(c)(8), 248.10(c)(9), or 
248.10(c)(10) of subpart C, documentation supporting the banking 
entity's determination that the fund is not a covered fund pursuant to 
one or more of those exclusions;
    (3) For each seeding vehicle described in Sec. 248.10(c)(12)(i) or 
(iii) of subpart C that will become a registered investment company or 
SEC-regulated business development company, a written plan documenting 
the banking entity's determination that the seeding vehicle will become 
a registered investment company or SEC-regulated business development 
company; the period of time during which the vehicle will operate as a 
seeding vehicle; and the banking entity's plan to market the vehicle to 
third-party investors and convert it into a registered investment 
company or SEC-regulated business development company within the time 
period specified in Sec. 248.12(a)(2)(i)(B) of subpart C;
    (4) For any banking entity that is, or is controlled directly or 
indirectly by a banking entity that is, located in or organized under 
the laws of the United States or of any State, if the aggregate amount 
of ownership interests in foreign public funds that are described in 
Sec. 248.10(c)(1) of subpart C owned by such banking entity (including 
ownership interests owned by any affiliate that is controlled directly 
or indirectly by a banking entity that is located in or organized under 
the laws of the United

[[Page 309]]

States or of any State) exceeds $50 million at the end of two or more 
consecutive calendar quarters, beginning with the next succeeding 
calendar quarter, documentation of the value of the ownership interests 
owned by the banking entity (and such affiliates) in each foreign public 
fund and each jurisdiction in which any such foreign public fund is 
organized, calculated as of the end of each calendar quarter, which 
documentation must continue until the banking entity's aggregate amount 
of ownership interests in foreign public funds is below $50 million for 
two consecutive calendar quarters; and
    (5) For purposes of paragraph (e)(4) of this section, a U.S. branch, 
agency, or subsidiary of a foreign banking entity is located in the 
United States; however, the foreign bank that operates or controls that 
branch, agency, or subsidiary is not considered to be located in the 
United States solely by virtue of operating or controlling the U.S. 
branch, agency, or subsidiary.
    (f) Simplified programs for less active banking entities--(1) 
Banking entities with no covered activities. A banking entity that does 
not engage in activities or investments pursuant to subpart B or subpart 
C (other than trading activities permitted pursuant to Sec. 248.6(a) of 
subpart B) may satisfy the requirements of this section by establishing 
the required compliance program prior to becoming engaged in such 
activities or making such investments (other than trading activities 
permitted pursuant to Sec. 248.6(a) of subpart B).
    (2) Banking entities with modest activities. A banking entity with 
total consolidated assets of $10 billion or less as reported on December 
31 of the previous two calendar years that engages in activities or 
investments pursuant to subpart B or subpart C (other than trading 
activities permitted under Sec. 248.6(a) of subpart B) may satisfy the 
requirements of this section by including in its existing compliance 
policies and procedures appropriate references to the requirements of 
section 13 of the BHC Act and this part and adjustments as appropriate 
given the activities, size, scope and complexity of the banking entity.



Sec. 248.21  Termination of activities or investments; penalties for 
violations.

    (a) Any banking entity that engages in an activity or makes an 
investment in violation of section 13 of the BHC Act or this part, or 
acts in a manner that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, including through an abuse of 
any activity or investment permitted under subparts B or C, or otherwise 
violates the restrictions and requirements of section 13 of the BHC Act 
or this part, shall, upon discovery, promptly terminate the activity 
and, as relevant, dispose of the investment.
    (b) Whenever the Board finds reasonable cause to believe any banking 
entity has engaged in an activity or made an investment in violation of 
section 13 of the BHC Act or this part, or engaged in any activity or 
made any investment that functions as an evasion of the requirements of 
section 13 of the BHC Act or this part, the Board may take any action 
permitted by law to enforce compliance with section 13 of the BHC Act 
and this part, including directing the banking entity to restrict, 
limit, or terminate any or all activities under this part and dispose of 
any investment.



 Sec. Appendix A to Part 248--Reporting and Recordkeeping Requirements 
                     for Covered Trading Activities

                               I. Purpose

    a. This appendix sets forth reporting and recordkeeping requirements 
that certain banking entities must satisfy in connection with the 
restrictions on proprietary trading set forth in subpart B 
(``proprietary trading restrictions''). Pursuant to Sec. 248.20(d), this 
appendix generally applies to a banking entity that, together with its 
affiliates and subsidiaries, has significant trading assets and 
liabilities. These entities are required to (i) furnish periodic reports 
to the Board regarding a variety of quantitative measurements of their 
covered trading activities, which vary depending on the scope and size 
of covered trading activities, and (ii) create and maintain records 
documenting the preparation and content of these reports. The 
requirements of this appendix must be incorporated into the banking 
entity's internal compliance program under Sec. 248.20 and Appendix B.
    b. The purpose of this appendix is to assist banking entities and 
the Board in:

[[Page 310]]

    (i) Better understanding and evaluating the scope, type, and profile 
of the banking entity's covered trading activities;
    (ii) Monitoring the banking entity's covered trading activities;
    (iii) Identifying covered trading activities that warrant further 
review or examination by the banking entity to verify compliance with 
the proprietary trading restrictions;
    (iv) Evaluating whether the covered trading activities of trading 
desks engaged in market making-related activities subject to 
Sec. 248.4(b) are consistent with the requirements governing permitted 
market making-related activities;
    (v) Evaluating whether the covered trading activities of trading 
desks that are engaged in permitted trading activity subject to 
Secs. 248.4, 248.5, or 248.6(a)-(b) (i.e., underwriting and market 
making-related related activity, risk-mitigating hedging, or trading in 
certain government obligations) are consistent with the requirement that 
such activity not result, directly or indirectly, in a material exposure 
to high-risk assets or high-risk trading strategies;
    (vi) Identifying the profile of particular covered trading 
activities of the banking entity, and the individual trading desks of 
the banking entity, to help establish the appropriate frequency and 
scope of examination by the Board of such activities; and
    (vii) Assessing and addressing the risks associated with the banking 
entity's covered trading activities.
    c. The quantitative measurements that must be furnished pursuant to 
this appendix are not intended to serve as a dispositive tool for the 
identification of permissible or impermissible activities.
    d. In order to allow banking entities and the Agencies to evaluate 
the effectiveness of these metrics, banking entities must collect and 
report these metrics for all trading desks beginning on the dates 
established in Sec. 248.20 of the final rule. The Agencies will review 
the data collected and revise this collection requirement as appropriate 
based on a review of the data collected prior to September 30, 2015.
    e. In addition to the quantitative measurements required in this 
appendix, a banking entity may need to develop and implement other 
quantitative measurements in order to effectively monitor its covered 
trading activities for compliance with section 13 of the BHC Act and 
this part and to have an effective compliance program, as required by 
Sec. 248.20 and Appendix B to this part. The effectiveness of particular 
quantitative measurements may differ based on the profile of the banking 
entity's businesses in general and, more specifically, of the particular 
trading desk, including types of instruments traded, trading activities 
and strategies, and history and experience (e.g., whether the trading 
desk is an established, successful market maker or a new entrant to a 
competitive market). In all cases, banking entities must ensure that 
they have robust measures in place to identify and monitor the risks 
taken in their trading activities, to ensure that the activities are 
within risk tolerances established by the banking entity, and to monitor 
and examine for compliance with the proprietary trading restrictions in 
this part.
    f. On an ongoing basis, banking entities must carefully monitor, 
review, and evaluate all furnished quantitative measurements, as well as 
any others that they choose to utilize in order to maintain compliance 
with section 13 of the BHC Act and this part. All measurement results 
that indicate a heightened risk of impermissible proprietary trading, 
including with respect to otherwise-permitted activities under 
Secs. 248.4 through 248.6(a) and (b), or that result in a material 
exposure to high-risk assets or high-risk trading strategies, must be 
escalated within the banking entity for review, further analysis, 
explanation to the Board, and remediation, where appropriate. The 
quantitative measurements discussed in this appendix should be helpful 
to banking entities in identifying and managing the risks related to 
their covered trading activities.

                             II. Definitions

    The terms used in this appendix have the same meanings as set forth 
in Secs. 248.2 and 248.3. In addition, for purposes of this appendix, 
the following definitions apply:
    Calculation period means the period of time for which a particular 
quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a 
trading desk's material sources of trading revenue over a specific 
period of time, including, for example, any increase or decrease in the 
market value of a trading desk's holdings, dividend income, and interest 
income and expense.
    Covered trading activity means trading conducted by a trading desk 
under Secs. 248.4, 248.5, 248.6(a), or 248.6(b). A banking entity may 
include trading under Secs. 248.3(d), 248.6(c), 248.6(d) or 248.6(e).
    Measurement frequency means the frequency with which a particular 
quantitative metric must be calculated and recorded.
    Trading desk means the smallest discrete unit of organization of a 
banking entity that purchases or sells financial instruments for the 
trading account of the banking entity or an affiliate thereof.

      III. Reporting and Recordkeeping of Quantitative Measurements

                     a. Scope of Required Reporting

    General scope. Each banking entity made subject to this part by 
Sec. 248.20 must furnish the following quantitative measurements for

[[Page 311]]

each trading desk of the banking entity, calculated in accordance with 
this appendix:
      Risk and Position Limits and Usage;
      Risk Factor Sensitivities;
      Value-at-Risk and Stress VaR;
      Comprehensive Profit and Loss Attribution;
      Inventory Turnover;
      Inventory Aging; and
      Customer-Facing Trade Ratio

           b. Frequency of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative 
measurement for each trading day. A banking entity must report each 
applicable quantitative measurement to the Board on the reporting 
schedule established in Sec. 248.20 unless otherwise requested by the 
Board. All quantitative measurements for any calendar month must be 
reported within the time period required by Sec. 248.20.

                            c. Recordkeeping

    A banking entity must, for any quantitative measurement furnished to 
the Board pursuant to this appendix and Sec. 248.20(d), create and 
maintain records documenting the preparation and content of these 
reports, as well as such information as is necessary to permit the Board 
to verify the accuracy of such reports, for a period of 5 years from the 
end of the calendar year for which the measurement was taken.

                      IV. Quantitative Measurements

                     a. Risk-Management Measurements

                  1. Risk and Position Limits and Usage

    i. Description: For purposes of this appendix, Risk and Position 
Limits are the constraints that define the amount of risk that a trading 
desk is permitted to take at a point in time, as defined by the banking 
entity for a specific trading desk. Usage represents the portion of the 
trading desk's limits that are accounted for by the current activity of 
the desk. Risk and position limits and their usage are key risk 
management tools used to control and monitor risk taking and include, 
but are not limited, to the limits set out in Sec. 248.4 and Sec. 248.5. 
A number of the metrics that are described below, including ``Risk 
Factor Sensitivities'' and ``Value-at-Risk and Stress Value-at-Risk,'' 
relate to a trading desk's risk and position limits and are useful in 
evaluating and setting these limits in the broader context of the 
trading desk's overall activities, particularly for the market making 
activities under Sec. 248.4(b) and hedging activity under Sec. 248.5. 
Accordingly, the limits required under Sec. 248.4(b)(2)(iii) and 
Sec. 248.5(b)(1)(i) must meet the applicable requirements under 
Sec. 248.4(b)(2)(iii) and Sec. 248.5(b)(1)(i) and also must include 
appropriate metrics for the trading desk limits including, at a minimum, 
the ``Risk Factor Sensitivities'' and ``Value-at-Risk and Stress Value-
at-Risk'' metrics except to the extent any of the ``Risk Factor 
Sensitivities'' or ``Value-at-Risk and Stress Value-at-Risk'' metrics 
are demonstrably ineffective for measuring and monitoring the risks of a 
trading desk based on the types of positions traded by, and risk 
exposures of, that desk.
    ii. General Calculation Guidance: Risk and Position Limits must be 
reported in the format used by the banking entity for the purposes of 
risk management of each trading desk. Risk and Position Limits are often 
expressed in terms of risk measures, such as VaR and Risk Factor 
Sensitivities, but may also be expressed in terms of other observable 
criteria, such as net open positions. When criteria other than VaR or 
Risk Factor Sensitivities are used to define the Risk and Position 
Limits, both the value of the Risk and Position Limits and the value of 
the variables used to assess whether these limits have been reached must 
be reported.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                      2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor 
Sensitivities are changes in a trading desk's Comprehensive Profit and 
Loss that are expected to occur in the event of a change in one or more 
underlying variables that are significant sources of the trading desk's 
profitability and risk.
    ii. General Calculation Guidance: A banking entity must report the 
Risk Factor Sensitivities that are monitored and managed as part of the 
trading desk's overall risk management policy. The underlying data and 
methods used to compute a trading desk's Risk Factor Sensitivities will 
depend on the specific function of the trading desk and the internal 
risk management models employed. The number and type of Risk Factor 
Sensitivities that are monitored and managed by a trading desk, and 
furnished to the Board, will depend on the explicit risks assumed by the 
trading desk. In general, however, reported Risk Factor Sensitivities 
must be sufficiently granular to account for a preponderance of the 
expected price variation in the trading desk's holdings.
    A. Trading desks must take into account any relevant factors in 
calculating Risk Factor Sensitivities, including, for example, the 
following with respect to particular asset classes:
      Commodity derivative positions: risk factors with respect 
to the related commodities set out in 17 CFR 20.2, the maturity of the 
positions, volatility and/or correlation sensitivities (expressed in a 
manner that demonstrates any significant non-linearities), and the 
maturity profile of the positions;

[[Page 312]]

      Credit positions: risk factors with respect to credit 
spreads that are sufficiently granular to account for specific credit 
sectors and market segments, the maturity profile of the positions, and 
risk factors with respect to interest rates of all relevant maturities;
      Credit-related derivative positions: risk factor 
sensitivities, for example credit spreads, shifts (parallel and non-
parallel) in credit spreads--volatility, and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), and the maturity profile of the positions;
      Equity derivative positions: risk factor sensitivities 
such as equity positions, volatility, and/or correlation sensitivities 
(expressed in a manner that demonstrates any significant non-
linearities), and the maturity profile of the positions;
      Equity positions: risk factors for equity prices and risk 
factors that differentiate between important equity market sectors and 
segments, such as a small capitalization equities and international 
equities;
      Foreign exchange derivative positions: risk factors with 
respect to major currency pairs and maturities, exposure to interest 
rates at relevant maturities, volatility, and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), as well as the maturity profile of the positions; and
      Interest rate positions, including interest rate 
derivative positions: risk factors with respect to major interest rate 
categories and maturities and volatility and/or correlation 
sensitivities (expressed in a manner that demonstrates any significant 
non-linearities), and shifts (parallel and non-parallel) in the interest 
rate curve, as well as the maturity profile of the positions.
    B. The methods used by a banking entity to calculate sensitivities 
to a common factor shared by multiple trading desks, such as an equity 
price factor, must be applied consistently across its trading desks so 
that the sensitivities can be compared from one trading desk to another.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                3. Value-at-Risk and Stress Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk 
(``VaR'') is the commonly used percentile measurement of the risk of 
future financial loss in the value of a given set of aggregated 
positions over a specified period of time, based on current market 
conditions. For purposes of this appendix, Stress Value-at-Risk 
(``Stress VaR'') is the percentile measurement of the risk of future 
financial loss in the value of a given set of aggregated positions over 
a specified period of time, based on market conditions during a period 
of significant financial stress.
    ii. General Calculation Guidance: Banking entities must compute and 
report VaR and Stress VaR by employing generally accepted standards and 
methods of calculation. VaR should reflect a loss in a trading desk that 
is expected to be exceeded less than one percent of the time over a one-
day period. For those banking entities that are subject to regulatory 
capital requirements imposed by a Federal banking agency, VaR and Stress 
VaR must be computed and reported in a manner that is consistent with 
such regulatory capital requirements. In cases where a trading desk does 
not have a standalone VaR or Stress VaR calculation but is part of a 
larger aggregation of positions for which a VaR or Stress VaR 
calculation is performed, a VaR or Stress VaR calculation that includes 
only the trading desk's holdings must be performed consistent with the 
VaR or Stress VaR model and methodology used for the larger aggregation 
of positions.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                    b. Source-of-Revenue Measurements

              1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive Profit 
and Loss Attribution is an analysis that attributes the daily 
fluctuation in the value of a trading desk's positions to various 
sources. First, the daily profit and loss of the aggregated positions is 
divided into three categories: (i) profit and loss attributable to a 
trading desk's existing positions that were also positions held by the 
trading desk as of the end of the prior day (``existing positions''); 
(ii) profit and loss attributable to new positions resulting from the 
current day's trading activity (``new positions''); and (iii) residual 
profit and loss that cannot be specifically attributed to existing 
positions or new positions. The sum of (i), (ii), and (iii) must equal 
the trading desk's comprehensive profit and loss at each point in time. 
In addition, profit and loss measurements must calculate volatility of 
comprehensive profit and loss (i.e., the standard deviation of the 
trading desk's one-day profit and loss, in dollar terms) for the 
reporting period for at least a 30-, 60- and 90-day lag period, from the 
end of the reporting period, and any other period that the banking 
entity deems necessary to meet the requirements of the rule.
    A. The comprehensive profit and loss associated with existing 
positions must reflect changes in the value of these positions on the 
applicable day. The comprehensive profit and loss from existing 
positions must be further attributed, as applicable, to changes in (i) 
the specific Risk Factors and other factors that are monitored and 
managed as part of the trading desk's overall risk management policies 
and procedures; and (ii) any other applicable elements, such as cash 
flows, carry, changes in reserves, and the

[[Page 313]]

correction, cancellation, or exercise of a trade.
    B. The comprehensive profit and loss attributed to new positions 
must reflect commissions and fee income or expense and market gains or 
losses associated with transactions executed on the applicable day. New 
positions include purchases and sales of financial instruments and other 
assets/liabilities and negotiated amendments to existing positions. The 
comprehensive profit and loss from new positions may be reported in the 
aggregate and does not need to be further attributed to specific 
sources.
    C. The portion of comprehensive profit and loss that cannot be 
specifically attributed to known sources must be allocated to a residual 
category identified as an unexplained portion of the comprehensive 
profit and loss. Significant unexplained profit and loss must be 
escalated for further investigation and analysis.
    ii. General Calculation Guidance: The specific categories used by a 
trading desk in the attribution analysis and amount of detail for the 
analysis should be tailored to the type and amount of trading activities 
undertaken by the trading desk. The new position attribution must be 
computed by calculating the difference between the prices at which 
instruments were bought and/or sold and the prices at which those 
instruments are marked to market at the close of business on that day 
multiplied by the notional or principal amount of each purchase or sale. 
Any fees, commissions, or other payments received (paid) that are 
associated with transactions executed on that day must be added 
(subtracted) from such difference. These factors must be measured 
consistently over time to facilitate historical comparisons.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

                c. Customer-Facing Activity Measurements

                          1. Inventory Turnover

    i. Description: For purposes of this appendix, Inventory Turnover is 
a ratio that measures the turnover of a trading desk's inventory. The 
numerator of the ratio is the absolute value of all transactions over 
the reporting period. The denominator of the ratio is the value of the 
trading desk's inventory at the beginning of the reporting period.
    ii. General Calculation Guidance: For purposes of this appendix, for 
derivatives, other than options and interest rate derivatives, value 
means gross notional value, for options, value means delta adjusted 
notional value, and for interest rate derivatives, value means 10-year 
bond equivalent value.
    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.

                           2. Inventory Aging

    i. Description: For purposes of this appendix, Inventory Aging 
generally describes a schedule of the trading desk's aggregate assets 
and liabilities and the amount of time that those assets and liabilities 
have been held. Inventory Aging should measure the age profile of the 
trading desk's assets and liabilities.
    ii. General Calculation Guidance: In general, Inventory Aging must 
be computed using a trading desk's trading activity data and must 
identify the value of a trading desk's aggregate assets and liabilities. 
Inventory Aging must include two schedules, an asset-aging schedule and 
a liability-aging schedule. Each schedule must record the value of 
assets or liabilities held over all holding periods. For derivatives, 
other than options, and interest rate derivatives, value means gross 
notional value, for options, value means delta adjusted notional value 
and, for interest rate derivatives, value means 10-year bond equivalent 
value.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

    3. Customer-Facing Trade Ratio--Trade Count Based and Value Based

    i. Description: For purposes of this appendix, the Customer-Facing 
Trade Ratio is a ratio comparing (i) the transactions involving a 
counterparty that is a customer of the trading desk to (ii) the 
transactions involving a counterparty that is not a customer of the 
trading desk. A trade count based ratio must be computed that records 
the number of transactions involving a counterparty that is a customer 
of the trading desk and the number of transactions involving a 
counterparty that is not a customer of the trading desk. A value based 
ratio must be computed that records the value of transactions involving 
a counterparty that is a customer of the trading desk and the value of 
transactions involving a counterparty that is not a customer of the 
trading desk.
    ii. General Calculation Guidance: For purposes of calculating the 
Customer-Facing Trade Ratio, a counterparty is considered to be a 
customer of the trading desk if the counterparty is a market participant 
that makes use of the banking entity's market making-related services by 
obtaining such services, responding to quotations, or entering into a 
continuing relationship with respect to such services. However, a 
trading desk or other organizational unit of another banking entity 
would not be a client, customer, or counterparty of the trading desk if 
the other entity has trading assets and liabilities of $50 billion or 
more as measured in accordance with Sec. 248.20(d)(1) unless the trading 
desk documents how and why a particular trading desk or other 
organizational

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unit of the entity should be treated as a client, customer, or 
counterparty of the trading desk. Transactions conducted anonymously on 
an exchange or similar trading facility that permits trading on behalf 
of a broad range of market participants would be considered transactions 
with customers of the trading desk. For derivatives, other than options, 
and interest rate derivatives, value means gross notional value, for 
options, value means delta adjusted notional value, and for interest 
rate derivatives, value means 10-year bond equivalent value.
    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.



 Sec. Appendix B to Part 248--Enhanced Minimum Standards for Compliance 
                                Programs

                               I. Overview

    Section 248.20(c) requires certain banking entities to establish, 
maintain, and enforce an enhanced compliance program that includes the 
requirements and standards in this Appendix as well as the minimum 
written policies and procedures, internal controls, management 
framework, independent testing, training, and recordkeeping provisions 
outlined in Sec. 248.20. This Appendix sets forth additional minimum 
standards with respect to the establishment, oversight, maintenance, and 
enforcement by these banking entities of an enhanced internal compliance 
program for ensuring and monitoring compliance with the prohibitions and 
restrictions on proprietary trading and covered fund activities and 
investments set forth in section 13 of the BHC Act and this part.
    a. This compliance program must:
    1. Be reasonably designed to identify, document, monitor, and report 
the permitted trading and covered fund activities and investments of the 
banking entity; identify, monitor and promptly address the risks of 
these covered activities and investments and potential areas of 
noncompliance; and prevent activities or investments prohibited by, or 
that do not comply with, section 13 of the BHC Act and this part;
    2. Establish and enforce appropriate limits on the covered 
activities and investments of the banking entity, including limits on 
the size, scope, complexity, and risks of the individual activities or 
investments consistent with the requirements of section 13 of the BHC 
Act and this part;
    3. Subject the effectiveness of the compliance program to periodic 
independent review and testing, and ensure that the entity's internal 
audit, corporate compliance and internal control functions involved in 
review and testing are effective and independent;
    4. Make senior management, and others as appropriate, accountable 
for the effective implementation of the compliance program, and ensure 
that the board of directors and chief executive officer (or equivalent) 
of the banking entity review the effectiveness of the compliance 
program; and
    5. Facilitate supervision and examination by the Agencies of the 
banking entity's permitted trading and covered fund activities and 
investments.

                     II. Enhanced Compliance Program

    a. Proprietary Trading Activities. A banking entity must establish, 
maintain and enforce a compliance program that includes written policies 
and procedures that are appropriate for the types, size, and complexity 
of, and risks associated with, its permitted trading activities. The 
compliance program may be tailored to the types of trading activities 
conducted by the banking entity, and must include a detailed description 
of controls established by the banking entity to reasonably ensure that 
its trading activities are conducted in accordance with the requirements 
and limitations applicable to those trading activities under section 13 
of the BHC Act and this part, and provide for appropriate revision of 
the compliance program before expansion of the trading activities of the 
banking entity. A banking entity must devote adequate resources and use 
knowledgeable personnel in conducting, supervising and managing its 
trading activities, and promote consistency, independence and rigor in 
implementing its risk controls and compliance efforts. The compliance 
program must be updated with a frequency sufficient to account for 
changes in the activities of the banking entity, results of independent 
testing of the program, identification of weaknesses in the program, and 
changes in legal, regulatory or other requirements.
    1. Trading Desks: The banking entity must have written policies and 
procedures governing each trading desk that include a description of:
    i. The process for identifying, authorizing and documenting 
financial instruments each trading desk may purchase or sell, with 
separate documentation for market making-related activities conducted in 
reliance on Sec. 248.4(b) and for hedging activity conducted in reliance 
on Sec. 248.5;
    ii. A mapping for each trading desk to the division, business line, 
or other organizational structure that is responsible for managing and 
overseeing the trading desk's activities;
    iii. The mission (i.e., the type of trading activity, such as 
market-making, trading in sovereign debt, etc.) and strategy (i.e., 
methods for conducting authorized trading activities) of each trading 
desk;

[[Page 315]]

    iv. The activities that the trading desk is authorized to conduct, 
including (i) authorized instruments and products, and (ii) authorized 
hedging strategies, techniques and instruments;
    v. The types and amount of risks allocated by the banking entity to 
each trading desk to implement the mission and strategy of the trading 
desk, including an enumeration of material risks resulting from the 
activities in which the trading desk is authorized to engage (including 
but not limited to price risks, such as basis, volatility and 
correlation risks, as well as counterparty credit risk). Risk 
assessments must take into account both the risks inherent in the 
trading activity and the strength and effectiveness of controls designed 
to mitigate those risks;
    vi. How the risks allocated to each trading desk will be measured;
    vii. Why the allocated risks levels are appropriate to the 
activities authorized for the trading desk;
    viii. The limits on the holding period of, and the risk associated 
with, financial instruments under the responsibility of the trading 
desk;
    ix. The process for setting new or revised limits, as well as 
escalation procedures for granting exceptions to any limits or to any 
policies or procedures governing the desk, the analysis that will be 
required to support revising limits or granting exceptions, and the 
process for independently reviewing and documenting those exceptions and 
the underlying analysis;
    x. The process for identifying, documenting and approving new 
products, trading strategies, and hedging strategies;
    xi. The types of clients, customers, and counterparties with whom 
the trading desk may trade; and
    xii. The compensation arrangements, including incentive 
arrangements, for employees associated with the trading desk, which may 
not be designed to reward or incentivize prohibited proprietary trading 
or excessive or imprudent risk-taking.
    2. Description of risks and risk management processes: The 
compliance program for the banking entity must include a comprehensive 
description of the risk management program for the trading activity of 
the banking entity. The compliance program must also include a 
description of the governance, approval, reporting, escalation, review 
and other processes the banking entity will use to reasonably ensure 
that trading activity is conducted in compliance with section 13 of the 
BHC Act and this part. Trading activity in similar financial instruments 
should be subject to similar governance, limits, testing, controls, and 
review, unless the banking entity specifically determines to establish 
different limits or processes and documents those differences. 
Descriptions must include, at a minimum, the following elements:
    i. A description of the supervisory and risk management structure 
governing all trading activity, including a description of processes for 
initial and senior-level review of new products and new strategies;
    ii. A description of the process for developing, documenting, 
testing, approving and reviewing all models used for valuing, 
identifying and monitoring the risks of trading activity and related 
positions, including the process for periodic independent testing of the 
reliability and accuracy of those models;
    iii. A description of the process for developing, documenting, 
testing, approving and reviewing the limits established for each trading 
desk;
    iv. A description of the process by which a security may be 
purchased or sold pursuant to the liquidity management plan, including 
the process for authorizing and monitoring such activity to ensure 
compliance with the banking entity's liquidity management plan and the 
restrictions on liquidity management activities in this part;
    v. A description of the management review process, including 
escalation procedures, for approving any temporary exceptions or 
permanent adjustments to limits on the activities, positions, 
strategies, or risks associated with each trading desk; and
    vi. The role of the audit, compliance, risk management and other 
relevant units for conducting independent testing of trading and hedging 
activities, techniques and strategies.
    3. Authorized risks, instruments, and products. The banking entity 
must implement and enforce limits and internal controls for each trading 
desk that are reasonably designed to ensure that trading activity is 
conducted in conformance with section 13 of the BHC Act and this part 
and with the banking entity's written policies and procedures. The 
banking entity must establish and enforce risk limits appropriate for 
the activity of each trading desk. These limits should be based on 
probabilistic and non-probabilistic measures of potential loss (e.g., 
Value-at-Risk and notional exposure, respectively), and measured under 
normal and stress market conditions. At a minimum, these internal 
controls must monitor, establish and enforce limits on:
    i. The financial instruments (including, at a minimum, by type and 
exposure) that the trading desk may trade;
    ii. The types and levels of risks that may be taken by each trading 
desk; and
    iii. The types of hedging instruments used, hedging strategies 
employed, and the amount of risk effectively hedged.
    4. Hedging policies and procedures. The banking entity must 
establish, maintain, and enforce written policies and procedures 
regarding the use of risk-mitigating hedging instruments and strategies 
that, at a minimum, describe:

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    i. The positions, techniques and strategies that each trading desk 
may use to hedge the risk of its positions;
    ii. The manner in which the banking entity will identify the risks 
arising in connection with and related to the individual or aggregated 
positions, contracts or other holdings of the banking entity that are to 
be hedged and determine that those risks have been properly and 
effectively hedged;
    iii. The level of the organization at which hedging activity and 
management will occur;
    iv. The manner in which hedging strategies will be monitored and the 
personnel responsible for such monitoring;
    v. The risk management processes used to control unhedged or 
residual risks; and
    vi. The process for developing, documenting, testing, approving and 
reviewing all hedging positions, techniques and strategies permitted for 
each trading desk and for the banking entity in reliance on Sec. 248.5.
    5. Analysis and quantitative measurements. The banking entity must 
perform robust analysis and quantitative measurement of its trading 
activities that is reasonably designed to ensure that the trading 
activity of each trading desk is consistent with the banking entity's 
compliance program; monitor and assist in the identification of 
potential and actual prohibited proprietary trading activity; and 
prevent the occurrence of prohibited proprietary trading. Analysis and 
models used to determine, measure and limit risk must be rigorously 
tested and be reviewed by management responsible for trading activity to 
ensure that trading activities, limits, strategies, and hedging 
activities do not understate the risk and exposure to the banking entity 
or allow prohibited proprietary trading. This review should include 
periodic and independent back-testing and revision of activities, 
limits, strategies and hedging as appropriate to contain risk and ensure 
compliance. In addition to the quantitative measurements reported by any 
banking entity subject to Appendix A to this part, each banking entity 
must develop and implement, to the extent appropriate to facilitate 
compliance with this part, additional quantitative measurements 
specifically tailored to the particular risks, practices, and strategies 
of its trading desks. The banking entity's analysis and quantitative 
measurements must incorporate the quantitative measurements reported by 
the banking entity pursuant to Appendix A (if applicable) and include, 
at a minimum, the following:
    i. Internal controls and written policies and procedures reasonably 
designed to ensure the accuracy and integrity of quantitative 
measurements;
    ii. Ongoing, timely monitoring and review of calculated quantitative 
measurements;
    iii. The establishment of numerical thresholds and appropriate 
trading measures for each trading desk and heightened review of trading 
activity not consistent with those thresholds to ensure compliance with 
section 13 of the BHC Act and this part, including analysis of the 
measurement results or other information, appropriate escalation 
procedures, and documentation related to the review; and
    iv. Immediate review and compliance investigation of the trading 
desk's activities, escalation to senior management with oversight 
responsibilities for the applicable trading desk, timely notification to 
the Board, appropriate remedial action (e.g., divesting of impermissible 
positions, cessation of impermissible activity, disciplinary actions), 
and documentation of the investigation findings and remedial action 
taken when quantitative measurements or other information, considered 
together with the facts and circumstances, or findings of internal 
audit, independent testing or other review suggest a reasonable 
likelihood that the trading desk has violated any part of section 13 of 
the BHC Act or this part.
    6. Other Compliance Matters. In addition to the requirements 
specified above, the banking entity's compliance program must:
    i. Identify activities of each trading desk that will be conducted 
in reliance on exemptions contained in Secs. 248.4 through 248.6, 
including an explanation of:
    A. How and where in the organization the activity occurs; and
    B. Which exemption is being relied on and how the activity meets the 
specific requirements for reliance on the applicable exemption;
    ii. Include an explanation of the process for documenting, approving 
and reviewing actions taken pursuant to the liquidity management plan, 
where in the organization this activity occurs, the securities 
permissible for liquidity management, the process for ensuring that 
liquidity management activities are not conducted for the purpose of 
prohibited proprietary trading, and the process for ensuring that 
securities purchased as part of the liquidity management plan are highly 
liquid and conform to the requirements of this part;
    iii. Describe how the banking entity monitors for and prohibits 
potential or actual material exposure to high-risk assets or high-risk 
trading strategies presented by each trading desk that relies on the 
exemptions contained in Secs. 248.3(d)(3), and 248.4 through 248.6, 
which must take into account potential or actual exposure to:
    A. Assets whose values cannot be externally priced or, where 
valuation is reliant on pricing models, whose model inputs cannot be 
externally validated;
    B. Assets whose changes in value cannot be adequately mitigated by 
effective hedging;

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    C. New products with rapid growth, including those that do not have 
a market history;
    D. Assets or strategies that include significant embedded leverage;
    E. Assets or strategies that have demonstrated significant 
historical volatility;
    F. Assets or strategies for which the application of capital and 
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that result in large and significant 
concentrations to sectors, risk factors, or counterparties;
    iv. Establish responsibility for compliance with the reporting and 
recordkeeping requirements of subpart B and Sec. 248.20; and
    v. Establish policies for monitoring and prohibiting potential or 
actual material conflicts of interest between the banking entity and its 
clients, customers, or counterparties.
    7. Remediation of violations. The banking entity's compliance 
program must be reasonably designed and established to effectively 
monitor and identify for further analysis any trading activity that may 
indicate potential violations of section 13 of the BHC Act and this part 
and to prevent actual violations of section 13 of the BHC Act and this 
part. The compliance program must describe procedures for identifying 
and remedying violations of section 13 of the BHC Act and this part, and 
must include, at a minimum, a requirement to promptly document, address 
and remedy any violation of section 13 of the BHC Act or this part, and 
document all proposed and actual remediation efforts. The compliance 
program must include specific written policies and procedures that are 
reasonably designed to assess the extent to which any activity indicates 
that modification to the banking entity's compliance program is 
warranted and to ensure that appropriate modifications are implemented. 
The written policies and procedures must provide for prompt notification 
to appropriate management, including senior management and the board of 
directors, of any material weakness or significant deficiencies in the 
design or implementation of the compliance program of the banking 
entity.
    b. Covered Fund Activities or Investments. A banking entity must 
establish, maintain and enforce a compliance program that includes 
written policies and procedures that are appropriate for the types, 
size, complexity and risks of the covered fund and related activities 
conducted and investments made, by the banking entity.
    1. Identification of covered funds. The banking entity's compliance 
program must provide a process, which must include appropriate 
management review and independent testing, for identifying and 
documenting covered funds that each unit within the banking entity's 
organization sponsors or organizes and offers, and covered funds in 
which each such unit invests. In addition to the documentation 
requirements for covered funds, as specified under Sec. 248.20(e), the 
documentation must include information that identifies all pools that 
the banking entity sponsors or has an interest in and the type of 
exemption from the Commodity Exchange Act (whether or not the pool 
relies on section 4.7 of the regulations under the Commodity Exchange 
Act), and the amount of ownership interest the banking entity has in 
those pools.
    2. Identification of covered fund activities and investments. The 
banking entity's compliance program must identify, document and map each 
unit within the organization that is permitted to acquire or hold an 
interest in any covered fund or sponsor any covered fund and map each 
unit to the division, business line, or other organizational structure 
that will be responsible for managing and overseeing that unit's 
activities and investments.
    3. Explanation of compliance. The banking entity's compliance 
program must explain how:
    i. The banking entity monitors for and prohibits potential or actual 
material conflicts of interest between the banking entity and its 
clients, customers, or counterparties related to its covered fund 
activities and investments;
    ii. The banking entity monitors for and prohibits potential or 
actual transactions or activities that may threaten the safety and 
soundness of the banking entity related to its covered fund activities 
and investments; and
    iii. The banking entity monitors for and prohibits potential or 
actual material exposure to high-risk assets or high-risk trading 
strategies presented by its covered fund activities and investments, 
taking into account potential or actual exposure to:
    A. Assets whose values cannot be externally priced or, where 
valuation is reliant on pricing models, whose model inputs cannot be 
externally validated;
    B. Assets whose changes in values cannot be adequately mitigated by 
effective hedging;
    C. New products with rapid growth, including those that do not have 
a market history;
    D. Assets or strategies that include significant embedded leverage;
    E. Assets or strategies that have demonstrated significant 
historical volatility;
    F. Assets or strategies for which the application of capital and 
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that expose the banking entity to large and 
significant concentrations with respect to sectors, risk factors, or 
counterparties;

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    4. Description and documentation of covered fund activities and 
investments. For each organizational unit engaged in covered fund 
activities and investments, the banking entity's compliance program must 
document: i. The covered fund activities and investments that the unit 
is authorized to conduct;
    ii. The banking entity's plan for actively seeking unaffiliated 
investors to ensure that any investment by the banking entity conforms 
to the limits contained in Sec. 248.12 or registered in compliance with 
the securities laws and thereby exempt from those limits within the time 
periods allotted inSec. 248.12; and
    iii. How it complies with the requirements of subpart C.
    5. Internal Controls. A banking entity must establish, maintain, and 
enforce internal controls that are reasonably designed to ensure that 
its covered fund activities or investments comply with the requirements 
of section 13 of the BHC Act and this part and are appropriate given the 
limits on risk established by the banking entity. These written internal 
controls must be reasonably designed and established to effectively 
monitor and identify for further analysis any covered fund activity or 
investment that may indicate potential violations of section 13 of the 
BHC Act or this part. The internal controls must, at a minimum require:
    i. Monitoring and limiting the banking entity's individual and 
aggregate investments in covered funds;
    ii. Monitoring the amount and timing of seed capital investments for 
compliance with the limitations under subpart C (including but not 
limited to the redemption, sale or disposition requirements) of 
Sec. 248.12, and the effectiveness of efforts to seek unaffiliated 
investors to ensure compliance with those limits;
    iii. Calculating the individual and aggregate levels of ownership 
interests in one or more covered fund required by Sec. 248.12;
    iv. Attributing the appropriate instruments to the individual and 
aggregate ownership interest calculations above;
    v. Making disclosures to prospective and actual investors in any 
covered fund organized and offered or sponsored by the banking entity, 
as provided under Sec. 248.11(a)(8);
    vi. Monitoring for and preventing any relationship or transaction 
between the banking entity and a covered fund that is prohibited under 
Sec. 248.14, including where the banking entity has been designated as 
the sponsor, investment manager, investment adviser, or commodity 
trading advisor to a covered fund by another banking entity; and
    vii. Appropriate management review and supervision across legal 
entities of the banking entity to ensure that services and products 
provided by all affiliated entities comply with the limitation on 
services and products contained in Sec. 248.14.
    6. Remediation of violations. The banking entity's compliance 
program must be reasonably designed and established to effectively 
monitor and identify for further analysis any covered fund activity or 
investment that may indicate potential violations of section 13 of the 
BHC Act or this part and to prevent actual violations of section 13 of 
the BHC Act and this part. The banking entity's compliance program must 
describe procedures for identifying and remedying violations of section 
13 of the BHC Act and this part, and must include, at a minimum, a 
requirement to promptly document, address and remedy any violation of 
section 13 of the BHC Act or this part, including Sec. 248.21, and 
document all proposed and actual remediation efforts. The compliance 
program must include specific written policies and procedures that are 
reasonably designed to assess the extent to which any activity or 
investment indicates that modification to the banking entity's 
compliance program is warranted and to ensure that appropriate 
modifications are implemented. The written policies and procedures must 
provide for prompt notification to appropriate management, including 
senior management and the board of directors, of any material weakness 
or significant deficiencies in the design or implementation of the 
compliance program of the banking entity.

    III. Responsibility and Accountability for the Compliance Program

    a. A banking entity must establish, maintain, and enforce a 
governance and management framework to manage its business and employees 
with a view to preventing violations of section 13 of the BHC Act and 
this part. A banking entity must have an appropriate management 
framework reasonably designed to ensure that: appropriate personnel are 
responsible and accountable for the effective implementation and 
enforcement of the compliance program; a clear reporting line with a 
chain of responsibility is delineated; and the compliance program is 
reviewed periodically by senior management. The board of directors (or 
equivalent governance body) and senior management should have the 
appropriate authority and access to personnel and information within the 
organizations as well as appropriate resources to conduct their 
oversight activities effectively.
    1. Corporate governance. The banking entity must adopt a written 
compliance program approved by the board of directors, an appropriate 
committee of the board, or equivalent governance body, and senior 
management.
    2. Management procedures. The banking entity must establish, 
maintain, and enforce a governance framework that is reasonably designed 
to achieve compliance with section 13

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of the BHC Act and this part, which, at a minimum, provides for:
    i. The designation of appropriate senior management or committee of 
senior management with authority to carry out the management 
responsibilities of the banking entity for each trading desk and for 
each organizational unit engaged in covered fund activities;
    ii. Written procedures addressing the management of the activities 
of the banking entity that are reasonably designed to achieve compliance 
with section 13 of the BHC Act and this part, including: A. A 
description of the management system, including the titles, 
qualifications, and locations of managers and the specific 
responsibilities of each person with respect to the banking entity's 
activities governed by section 13 of the BHC Act and this part; and
    B. Procedures for determining compensation arrangements for traders 
engaged in underwriting or market making-related activities under 
Sec. 248.4 or risk-mitigating hedging activities under Sec. 248.5 so 
that such compensation arrangements are designed not to reward or 
incentivize prohibited proprietary trading and appropriately balance 
risk and financial results in a manner that does not encourage employees 
to expose the banking entity to excessive or imprudent risk.
    3. Business line managers. Managers with responsibility for one or 
more trading desks of the banking entity are accountable for the 
effective implementation and enforcement of the compliance program with 
respect to the applicable trading desk(s).
    4. The Board of directors, or similar corporate body, and senior 
management. The board of directors, or similar corporate body, and 
senior management are responsible for setting and communicating an 
appropriate culture of compliance with section 13 of the BHC Act and 
this part and ensuring that appropriate policies regarding the 
management of trading activities and covered fund activities or 
investments are adopted to comply with section 13 of the BHC Act and 
this part. The board of directors or similar corporate body (such as a 
designated committee of the board or an equivalent governance body) must 
ensure that senior management is fully capable, qualified, and properly 
motivated to manage compliance with this part in light of the 
organization's business activities and the expectations of the board of 
directors. The board of directors or similar corporate body must also 
ensure that senior management has established appropriate incentives and 
adequate resources to support compliance with this part, including the 
implementation of a compliance program meeting the requirements of this 
appendix into management goals and compensation structures across the 
banking entity.
    5. Senior management. Senior management is responsible for 
implementing and enforcing the approved compliance program. Senior 
management must also ensure that effective corrective action is taken 
when failures in compliance with section 13 of the BHC Act and this part 
are identified. Senior management and control personnel charged with 
overseeing compliance with section 13 of the BHC Act and this part 
should review the compliance program for the banking entity periodically 
and report to the board, or an appropriate committee thereof, on the 
effectiveness of the compliance program and compliance matters with a 
frequency appropriate to the size, scope, and risk profile of the 
banking entity's trading activities and covered fund activities or 
investments, which shall be at least annually.
    6. CEO attestation. Based on a review by the CEO of the banking 
entity, the CEO of the banking entity must, annually, attest in writing 
to the Board that the banking entity has in place processes to 
establish, maintain, enforce, review, test and modify the compliance 
program established under this Appendix and Sec. 248.20 of this part in 
a manner reasonably designed to achieve compliance with section 13 of 
the BHC Act and this part. In the case of a U.S. branch or agency of a 
foreign banking entity, the attestation may be provided for the entire 
U.S. operations of the foreign banking entity by the senior management 
officer of the United States operations of the foreign banking entity 
who is located in the United States.

                         IV. Independent Testing

    a. Independent testing must occur with a frequency appropriate to 
the size, scope, and risk profile of the banking entity's trading and 
covered fund activities or investments, which shall be at least 
annually. This independent testing must include an evaluation of:
    1. The overall adequacy and effectiveness of the banking entity's 
compliance program, including an analysis of the extent to which the 
program contains all the required elements of this appendix;
    2. The effectiveness of the banking entity's internal controls, 
including an analysis and documentation of instances in which such 
internal controls have been breached, and how such breaches were 
addressed and resolved; and
    3. The effectiveness of the banking entity's management procedures.
    b. A banking entity must ensure that independent testing regarding 
the effectiveness of the banking entity's compliance program is 
conducted by a qualified independent party, such as the banking entity's 
internal audit department, compliance personnel or risk managers 
independent of the organizational unit being tested, outside auditors, 
consultants, or other qualified independent parties. A banking entity 
must promptly

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take appropriate action to remedy any significant deficiencies or 
material weaknesses in its compliance program and to terminate any 
violations of section 13 of the BHC Act or this part.

                               V. Training

    Banking entities must provide adequate training to personnel and 
managers of the banking entity engaged in activities or investments 
governed by section 13 of the BHC Act or this part, as well as other 
appropriate supervisory, risk, independent testing, and audit personnel, 
in order to effectively implement and enforce the compliance program. 
This training should occur with a frequency appropriate to the size and 
the risk profile of the banking entity's trading activities and covered 
fund activities or investments.

                            VI. Recordkeeping

    Banking entities must create and retain records sufficient to 
demonstrate compliance and support the operations and effectiveness of 
the compliance program. A banking entity must retain these records for a 
period that is no less than 5 years or such longer period as required by 
the Board in a form that allows it to promptly produce such records to 
the Board on request.



PART 249_LIQUIDITY RISK MEASUREMENT STANDARDS (REGULATION WW)--Table of Contents



                      Subpart A_General Provisions

Sec.
249.1  Purpose and applicability.
249.2  Reservation of authority.
249.3  Definitions.
249.4  Certain operational requirements.

                   Subpart B_Liquidity Coverage Ratio

249.10  Liquidity coverage ratio.

                  Subpart C_High-Quality Liquid Assets

249.20  High-quality liquid asset criteria.
249.21  High-quality liquid asset amount.
249.22  Requirements for eligible high-quality liquid assets.

                    Subpart D_Total Net Cash Outflow

249.30  Total net cash outflow amount.
249.31  Determining maturity.
249.32  Outflow amounts.
249.33  Inflow amounts.

                 Subpart E_Liquidity Coverage Shortfall

249.40  Liquidity coverage shortfall: Supervisory framework.

                          Subpart F_Transitions

249.50  Transitions.

  Subpart G_Liquidity Coverage Ratio for Certain Bank Holding Companies

249.60  Applicability.
249.61  Liquidity coverage ratio.
249.62  High-quality liquid asset amount.
249.63  Total net cash outflow.
249.64  Disclosures.

Subparts H-I  [Reserved]

Subpart J--Disclosures.

249.90  Timing, method and retention of disclosures.
249.91  Disclosure requirements.

    Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1467a(g)(1), 1818, 
1828, 1831p-1, 1831o-1, 1844(b), 5365, 5366, 5368.

    Source: 79 FR 61523, 61539, Oct. 10, 2014, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 249 appear at 79 FR 
61539, Oct. 10, 2014.



                      Subpart A_General Provisions



Sec. 249.1  Purpose and applicability.

    (a) Purpose. This part establishes a minimum liquidity standard for 
certain Board-regulated institutions on a consolidated basis, as set 
forth herein.
    (b) Applicability. (1) A Board-regulated institution is subject to 
the minimum liquidity standard and other requirements of this part if:
    (i) It has total consolidated assets equal to $250 billion or more, 
as reported on the most recent year-end (as applicable):
    (A) Consolidated Financial Statements for Holding Companies 
reporting form (FR Y-9C), or, if the Board-regulated institution is not 
required to report on the FR Y-9C, its estimated total consolidated 
assets as of the most recent year end, calculated in accordance with the 
instructions to the FR Y-9C; or
    (B) Consolidated Report of Condition and Income (Call Report);
    (ii) It has total consolidated on-balance sheet foreign exposure at 
the most recent year-end equal to $10 billion or more (where total on-
balance sheet foreign exposure equals total cross-border claims less 
claims with a

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head office or guarantor located in another country plus redistributed 
guaranteed amounts to the country of the head office or guarantor plus 
local country claims on local residents plus revaluation gains on 
foreign exchange and derivative transaction products, calculated in 
accordance with the Federal Financial Institutions Examination Council 
(FFIEC) 009 Country Exposure Report);
    (iii) It is a depository institution that is a consolidated 
subsidiary of a company described in paragraphs (b)(1)(i) or (ii) of 
this section and has total consolidated assets equal to $10 billion or 
more, as reported on the most recent year-end Consolidated Report of 
Condition and Income;
    (iv) It is a covered nonbank company;
    (v) It is a covered depository institution holding company that 
meets the criteria in Sec. 249.60(a) but does not meet the criteria in 
paragraphs (b)(1)(i) or (ii) of this section, and is subject to 
complying with the requirements of this part in accordance with subpart 
G of this part; or
    (vi) The Board has determined that application of this part is 
appropriate in light of the Board-regulated institution's asset size, 
level of complexity, risk profile, scope of operations, affiliation with 
foreign or domestic covered entities, or risk to the financial system.
    (2) Subject to the transition periods set forth in subpart F of this 
part:
    (i) A Board-regulated institution that is subject to the minimum 
liquidity standard and other requirements of this part under paragraph 
(b)(1) of this section on September 30, 2014, must comply with the 
requirements of this part beginning on January 1, 2015;
    (ii) A Board-regulated institution that becomes subject to the 
minimum liquidity standard and other requirements of this part under 
paragraphs (b)(1)(i) through (iii) of this section after September 30, 
2014, must comply with the requirements of this part beginning on April 
1 of the year in which the Board-regulated institution becomes subject 
to the minimum liquidity standard and other requirements of this part, 
except:
    (A) From April 1 to December 31 of the year in which the Board-
regulated institution becomes subject to the minimum liquidity standard 
and other requirements of this part, the Board-regulated institution 
must calculate and maintain a liquidity coverage ratio monthly, on each 
calculation date that is the last business day of the applicable 
calendar month; and
    (B) Beginning January 1 of the year after the first year in which 
the Board-regulated institution becomes subject to the minimum liquidity 
standard and other requirements of this part under paragraph (b)(1) of 
this section, and thereafter, the Board-regulated institution must 
calculate and maintain a liquidity coverage ratio on each calculation 
date; and
    (iii) A Board-regulated institution that becomes subject to the 
minimum liquidity standard and other requirements of this part under 
paragraph (b)(1)(vi) of this section after September 30, 2014, must 
comply with the requirements of this part subject to a transition period 
specified by the Board.
    (3) This part does not apply to:
    (i) A bridge financial company as defined in 12 U.S.C. 5381(a)(3), 
or a subsidiary of a bridge financial company; or
    (ii) A new depository institution or a bridge depository 
institution, as defined in 12 U.S.C. 1813(i).
    (4) A Board-regulated institution subject to a minimum liquidity 
standard under this part shall remain subject until the Board determines 
in writing that application of this part to the Board-regulated 
institution is not appropriate in light of the Board-regulated 
institution's asset size, level of complexity, risk profile, scope of 
operations, affiliation with foreign or domestic covered entities, or 
risk to the financial system.
    (5) In making a determination under paragraphs (b)(1)(vi) or (4) of 
this section, the Board will apply, as appropriate, notice and response 
procedures in the same manner and to the same extent as the notice and 
response procedures set forth in 12 CFR 263.202.
    (c) Covered nonbank companies. The Board will establish a minimum 
liquidity standard for a designated company under this part by rule or 
order. In establishing such standard, the Board

[[Page 322]]

will consider the factors set forth in sections 165(a)(2) and (b)(3) of 
the Dodd-Frank Act and may tailor the application of the requirements of 
this part to the designated company based on the nature, scope, size, 
scale, concentration, interconnectedness, mix of the activities of the 
designated company or any other risk-related factor that the Board 
determines is appropriate.



Sec. 249.2  Reservation of authority.

    (a) The Board may require a Board-regulated institution to hold an 
amount of high-quality liquid assets (HQLA) greater than otherwise 
required under this part, or to take any other measure to improve the 
Board-regulated institution's liquidity risk profile, if the Board 
determines that the Board-regulated institution's liquidity requirements 
as calculated under this part are not commensurate with the Board-
regulated institution's liquidity risks. In making determinations under 
this section, the Board will apply notice and response procedures as set 
forth in 12 CFR 263.202.
    (b) Nothing in this part limits the authority of the Board under any 
other provision of law or regulation to take supervisory or enforcement 
action, including action to address unsafe or unsound practices or 
conditions, deficient liquidity levels, or violations of law.



Sec. 249.3  Definitions.

    For the purposes of this part:
    Affiliated depository institution means with respect to a Board-
regulated institution that is a depository institution, another 
depository institution that is a consolidated subsidiary of a bank 
holding company or savings and loan holding company of which the Board-
regulated institution is also a consolidated subsidiary.
    Asset exchange means a transaction in which, as of the calculation 
date, the counterparties have previously exchanged non-cash assets, and 
have each agreed to return such assets to each other at a future date. 
Asset exchanges do not include secured funding and secured lending 
transactions.
    Bank holding company is defined in section 2 of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1841 et seq.).
    Board means the Board of Governors of the Federal Reserve System.
    Board-regulated institution means a state member bank, covered 
depository institution holding company, or covered nonbank company.
    Brokered deposit means any deposit held at the Board-regulated 
institution that is obtained, directly or indirectly, from or through 
the mediation or assistance of a deposit broker as that term is defined 
in section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f(g)), 
and includes a reciprocal brokered deposit and a brokered sweep deposit.
    Brokered sweep deposit means a deposit held at the Board-regulated 
institution by a customer or counterparty through a contractual feature 
that automatically transfers to the Board-regulated institution from 
another regulated financial company at the close of each business day 
amounts identified under the agreement governing the account from which 
the amount is being transferred.
    Calculation date means any date on which a Board-regulated 
institution calculates its liquidity coverage ratio under Sec. 249.0.
    Client pool security means a security that is owned by a customer of 
the Board-regulated institution that is not an asset of the Board-
regulated institution, regardless of a Board-regulated institution's 
hypothecation rights with respect to the security.
    Collateralized deposit means:
    (1) A deposit of a public sector entity held at the Board-regulated 
institution that is secured under applicable law by a lien on assets 
owned by the Board-regulated institution and that gives the depositor, 
as holder of the lien, priority over the assets in the event the Board-
regulated institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding; or
    (2) A deposit of a fiduciary account held at the Board-regulated 
institution for which the Board-regulated institution is a fiduciary and 
sets aside assets owned by the Board-regulated institution as security 
under 12 CFR 9.10 (national bank) or 12 CFR 150.300 through 150.320 
(Federal savings associations) and that gives the depositor priority

[[Page 323]]

over the assets in the event the Board-regulated institution enters into 
receivership, bankruptcy, insolvency, liquidation, resolution, or 
similar proceeding.
    Committed means, with respect to a credit facility or liquidity 
facility, that under the terms of the legally binding written agreement 
governing the facility:
    (1) The Board-regulated institution may not refuse to extend credit 
or funding under the facility; or
    (2) The Board-regulated institution may refuse to extend credit 
under the facility (to the extent permitted under applicable law) only 
upon the satisfaction or occurrence of one or more specified conditions 
not including change in financial condition of the borrower, customary 
notice, or administrative conditions.
    Company means a corporation, partnership, limited liability company, 
depository institution, business trust, special purpose entity, 
association, or similar organization.
    Consolidated subsidiary means a company that is consolidated on the 
balance sheet of a Board-regulated institution or other company under 
GAAP.
    Controlled subsidiary means, with respect to a company or a Board-
regulated institution, a consolidated subsidiary or a company that 
otherwise meets the definition of ``subsidiary'' in section 2(d) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    Covered depository institution holding company means a top-tier bank 
holding company or savings and loan holding company domiciled in the 
United States other than:
    (1) A top-tier savings and loan holding company that is:
    (i) A grandfathered unitary savings and loan holding company as 
defined in section 10(c)(9)(A) of the Home Owners' Loan Act (12 U.S.C. 
1461 et seq.); and
    (ii) As of June 30 of the previous calendar year, derived 50 percent 
or more of its total consolidated assets or 50 percent of its total 
revenues on an enterprise-wide basis (as calculated under GAAP) from 
activities that are not financial in nature under section 4(k) of the 
Bank Holding Company Act (12 U.S.C. 1842(k));
    (2) A top-tier depository institution holding company that is an 
insurance underwriting company; or
    (3)(i) A top-tier depository institution holding company that, as of 
June 30 of the previous calendar year, held 25 percent or more of its 
total consolidated assets in subsidiaries that are insurance 
underwriting companies (other than assets associated with insurance for 
credit risk); and
    (ii) For purposes of paragraph 3(i) of this definition, the company 
must calculate its total consolidated assets in accordance with GAAP, or 
if the company does not calculate its total consolidated assets under 
GAAP for any regulatory purpose (including compliance with applicable 
securities laws), the company may estimate its total consolidated 
assets, subject to review and adjustment by the Board of Governors of 
the Federal Reserve System.
    Covered nonbank company means a designated company that the Board of 
Governors of the Federal Reserve System has required by rule or order to 
comply with the requirements of 12 CFR part 249.
    Credit facility means a legally binding agreement to extend funds if 
requested at a future date, including a general working capital facility 
such as a revolving credit facility for general corporate or working 
capital purposes. A credit facility does not include a legally binding 
written agreement to extend funds at a future date to a counterparty 
that is made for the purpose of refinancing the debt of the counterparty 
when it is unable to obtain a primary or anticipated source of funding. 
See liquidity facility.
    Customer short position means a legally binding written agreement 
pursuant to which the customer must deliver to the Board-regulated 
institution a non-cash asset that the customer has already sold.
    Deposit means ``deposit'' as defined in section 3(l) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(l)) or an equivalent liability of 
the Board-regulated institution in a jurisdiction outside of the United 
States.
    Depository institution is defined in section 3(c) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(c)).

[[Page 324]]

    Depository institution holding company means a bank holding company 
or savings and loan holding company.
    Deposit insurance means deposit insurance provided by the Federal 
Deposit Insurance Corporation under the Federal Deposit Insurance Act 
(12 U.S.C. 1811 et seq.).
    Derivative transaction means a financial contract whose value is 
derived from the values of one or more underlying assets, reference 
rates, or indices of asset values or reference rates. Derivative 
contracts include interest rate derivative contracts, exchange rate 
derivative contracts, equity derivative contracts, commodity derivative 
contracts, credit derivative contracts, forward contracts, and any other 
instrument that poses similar counterparty credit risks. Derivative 
contracts also include unsettled securities, commodities, and foreign 
currency exchange transactions with a contractual settlement or delivery 
lag that is longer than the lesser of the market standard for the 
particular instrument or five business days. A derivative does not 
include any identified banking product, as that term is defined in 
section 402(b) of the Legal Certainty for Bank Products Act of 2000 (7 
U.S.C. 27(b)), that is subject to section 403(a) of that Act (7 U.S.C. 
27a(a)).
    Designated company means a company that the Financial Stability 
Oversight Council has determined under section 113 of the Dodd-Frank Act 
(12 U.S.C. 5323) shall be supervised by the Board of Governors of the 
Federal Reserve System and for which such determination is still in 
effect.
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).
    Eligible HQLA means a high-quality liquid asset that meets the 
requirements set forth in Sec. 249.22.
    Fair value means fair value as determined under GAAP.
    Financial sector entity means an investment adviser, investment 
company, pension fund, non-regulated fund, regulated financial company, 
or identified company.
    Foreign withdrawable reserves means a Board-regulated institution's 
balances held by or on behalf of the Board-regulated institution at a 
foreign central bank that are not subject to restrictions on the Board-
regulated institution's ability to use the reserves.
    GAAP means generally accepted accounting principles as used in the 
United States.
    General obligation means a bond or similar obligation that is backed 
by the full faith and credit of a public sector entity.
    High-quality liquid asset (HQLA) means an asset that is a level 1 
liquid asset, level 2A liquid asset, or level 2B liquid asset, in 
accordance with the criteria set forth in Sec. 249.20.
    HQLA amount means the HQLA amount as calculated under Sec. 249.21.
    Identified company means any company that the Board has determined 
should be treated for the purposes of this part the same as a regulated 
financial company, investment company, non-regulated fund, pension fund, 
or investment adviser, based on activities similar in scope, nature, or 
operations to those entities.
    Individual means a natural person, and does not include a sole 
proprietorship.
    Investment adviser means a company registered with the SEC as an 
investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.) or foreign equivalents of such company.
    Investment company means a person or company registered with the SEC 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or 
foreign equivalents of such persons or companies.
    Liquid and readily-marketable means, with respect to a security, 
that the security is traded in an active secondary market with:
    (1) More than two committed market makers;
    (2) A large number of non-market maker participants on both the 
buying and selling sides of transactions;
    (3) Timely and observable market prices; and
    (4) A high trading volume.
    Liquidity facility means a legally binding written agreement to 
extend funds at a future date to a counterparty that is made for the 
purpose of refinancing the debt of the

[[Page 325]]

counterparty when it is unable to obtain a primary or anticipated source 
of funding. A liquidity facility includes an agreement to provide 
liquidity support to asset-backed commercial paper by lending to, or 
purchasing assets from, any structure, program or conduit in the event 
that funds are required to repay maturing asset-backed commercial paper. 
Liquidity facilities exclude facilities that are established solely for 
the purpose of general working capital, such as revolving credit 
facilities for general corporate or working capital purposes. If a 
facility has characteristics of both credit and liquidity facilities, 
the facility must be classified as a liquidity facility. See credit 
facility.
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the Multilateral Investment Guarantee 
Agency, the International Finance Corporation, the Inter-American 
Development Bank, the Asian Development Bank, the African Development 
Bank, the European Bank for Reconstruction and Development, the European 
Investment Bank, the European Investment Fund, the Nordic Investment 
Bank, the Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, and any other entity that provides 
financing for national or regional development in which the U.S. 
government is a shareholder or contributing member or which the Board 
determines poses comparable risk.
    Non-regulated fund means any hedge fund or private equity fund whose 
investment adviser is required to file SEC Form PF (Reporting Form for 
Investment Advisers to Private Funds and Certain Commodity Pool 
Operators and Commodity Trading Advisors), other than a small business 
investment company as defined in section 102 of the Small Business 
Investment Act of 1958 (15 U.S.C. 661 et seq.).
    Nonperforming exposure means an exposure that is past due by more 
than 90 days or nonaccrual.
    Operational deposit means unsecured wholesale funding or a 
collateralized deposit that is necessary for the Board-regulated 
institution to provide operational services as an independent third-
party intermediary, agent, or administrator to the wholesale customer or 
counterparty providing the unsecured wholesale funding or collateralized 
deposit. In order to recognize a deposit as an operational deposit for 
purposes of this part, a Board-regulated institution must comply with 
the requirements of Sec. 249.4(b) with respect to that deposit.
    Operational services means the following services, provided they are 
performed as part of cash management, clearing, or custody services:
    (1) Payment remittance;
    (2) Administration of payments and cash flows related to the 
safekeeping of investment assets, not including the purchase or sale of 
assets;
    (3) Payroll administration and control over the disbursement of 
funds;
    (4) Transmission, reconciliation, and confirmation of payment 
orders;
    (5) Daylight overdraft;
    (6) Determination of intra-day and final settlement positions;
    (7) Settlement of securities transactions;
    (8) Transfer of capital distributions and recurring contractual 
payments;
    (9) Customer subscriptions and redemptions;
    (10) Scheduled distribution of customer funds;
    (11) Escrow, funds transfer, stock transfer, and agency services, 
including payment and settlement services, payment of fees, taxes, and 
other expenses; and
    (12) Collection and aggregation of funds.
    Pension fund means an employee benefit plan as defined in paragraphs 
(3) and (32) of section 3 of the Employee Retirement Income and Security 
Act of 1974 (29 U.S.C. 1001 et seq.), a ``governmental plan'' (as 
defined in 29 U.S.C. 1002(32)) that complies with the tax deferral 
qualification requirements provided in the Internal Revenue Code, or any 
similar employee benefit plan established under the laws of a foreign 
jurisdiction.
    Public sector entity means a state, local authority, or other 
governmental subdivision below the U.S. sovereign entity level.

[[Page 326]]

    Publicly traded means, with respect to an equity security, that the 
equity security is traded on:
    (1) Any exchange registered with the SEC as a national securities 
exchange under section 6 of the Securities Exchange Act of 1934 (15 
U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a national securities 
regulatory authority; and
    (ii) Provides a liquid, two-way market for the security in question.
    Qualifying master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the Board-regulated institution the right 
to accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly upon 
an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case, any exercise of rights 
under the agreement will not be stayed or avoided under applicable law 
in the relevant jurisdictions, other than:
    (i) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act, Title II of the Dodd-Frank Act, or under 
any similar insolvency law applicable to GSEs, or laws of foreign 
jurisdictions that are substantially similar \1\ to the U.S. laws 
referenced in this paragraph (2)(i) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
---------------------------------------------------------------------------

    \1\ The Board expects to evaluate jointly with the OCC and Federal 
Deposit Insurance Corporation whether foreign special resolution regimes 
meet the requirements of this paragraph.
---------------------------------------------------------------------------

    (ii) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i) of this 
definition;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) In order to recognize an agreement as a qualifying master 
netting agreement for purposes of this subpart, a Board-regulated 
institution must comply with the requirements of Sec. 249.4(a) with 
respect to that agreement.
    Reciprocal brokered deposit means a brokered deposit that a Board-
regulated institution receives through a deposit placement network on a 
reciprocal basis, such that:
    (1) For any deposit received, the Board-regulated institution (as 
agent for the depositors) places the same amount with other depository 
institutions through the network; and
    (2) Each member of the network sets the interest rate to be paid on 
the entire amount of funds it places with other network members.
    Regulated financial company means:
    (1) A depository institution holding company or designated company;
    (2) A company included in the organization chart of a depository 
institution holding company on the Form FR Y-6, as listed in the 
hierarchy report of the depository institution holding company produced 
by the National Information Center (NIC) Web site,\2\ provided that the 
top-tier depository institution holding company is subject to a minimum 
liquidity standard under 12 CFR part 249;
---------------------------------------------------------------------------

    \2\ http://www.ffiec.gov/nicpubweb/nicweb/NicHome.aspx.
---------------------------------------------------------------------------

    (3) A depository institution; foreign bank; credit union; industrial 
loan company, industrial bank, or other similar institution described in 
section 2 of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 
1841 et seq.); national bank, state member bank, or state non-member 
bank that is not a depository institution;

[[Page 327]]

    (4) An insurance company;
    (5) A securities holding company as defined in section 618 of the 
Dodd-Frank Act (12 U.S.C. 1850a); broker or dealer registered with the 
SEC under section 15 of the Securities Exchange Act (15 U.S.C. 78o); 
futures commission merchant as defined in section 1a of the Commodity 
Exchange Act of 1936 (7 U.S.C. 1 et seq.); swap dealer as defined in 
section 1a of the Commodity Exchange Act (7 U.S.C. 1a); or security-
based swap dealer as defined in section 3 of the Securities Exchange Act 
(15 U.S.C. 78c);
    (6) A designated financial market utility, as defined in section 803 
of the Dodd-Frank Act (12 U.S.C. 5462); and
    (7) Any company not domiciled in the United States (or a political 
subdivision thereof) that is supervised and regulated in a manner 
similar to entities described in paragraphs (1) through (6) of this 
definition (e.g., a foreign banking organization, foreign insurance 
company, foreign securities broker or dealer or foreign financial market 
utility).
    (8) A regulated financial company does not include:
    (i) U.S. government-sponsored enterprises;
    (ii) Small business investment companies, as defined in section 102 
of the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);
    (iii) Entities designated as Community Development Financial 
Institutions (CDFIs) under 12 U.S.C. 4701 et seq. and 12 CFR part 1805; 
or
    (iv) Central banks, the Bank for International Settlements, the 
International Monetary Fund, or multilateral development banks.
    Reserve Bank balances means:
    (1) Balances held in a master account of the Board-regulated 
institution at a Federal Reserve Bank, less any balances that are 
attributable to any respondent of the Board-regulated institution if the 
Board-regulated institution is a correspondent for a pass-through 
account as defined in section 204.2(l) of Regulation D (12 CFR 
204.2(l));
    (2) Balances held in a master account of a correspondent of the 
Board-regulated institution that are attributable to the Board-regulated 
institution if the Board-regulated institution is a respondent for a 
pass-through account as defined in section 204.2(l) of Regulation D;
    (3) ``Excess balances'' of the Board-regulated institution as 
defined in section 204.2(z) of Regulation D (12 CFR 204.2(z)) that are 
maintained in an ``excess balance account'' as defined in section 
204.2(aa) of Regulation D (12 CFR 204.2(aa)) if the Board-regulated 
institution is an excess balance account participant; or
    (4) ``Term deposits'' of the Board-regulated institution as defined 
in section 204.2(dd) of Regulation D (12 CFR 204.2(dd)) if such term 
deposits are offered and maintained pursuant to terms and conditions 
that:
    (i) Explicitly and contractually permit such term deposits to be 
withdrawn upon demand prior to the expiration of the term, or that
    (ii) Permit such term deposits to be pledged as collateral for term 
or automatically-renewing overnight advances from the Federal Reserve 
Bank.
    Retail customer or counterparty means a customer or counterparty 
that is:
    (1) An individual;
    (2) A business customer, but solely if and to the extent that:
    (i) The Board-regulated institution manages its transactions with 
the business customer, including deposits, unsecured funding, and credit 
facility and liquidity facility transactions, in the same way it manages 
its transactions with individuals;
    (ii) Transactions with the business customer have liquidity risk 
characteristics that are similar to comparable transactions with 
individuals; and
    (iii) The total aggregate funding raised from the business customer 
is less than $1.5 million; or
    (3) A living or testamentary trust that:
    (i) Is solely for the benefit of natural persons;
    (ii) Does not have a corporate trustee; and
    (iii) Terminates within 21 years and 10 months after the death of 
grantors or beneficiaries of the trust living on the effective date of 
the trust or within 25 years, if applicable under state law.
    Retail deposit means a demand or term deposit that is placed with 
the

[[Page 328]]

Board-regulated institution by a retail customer or counterparty, other 
than a brokered deposit.
    Retail mortgage means a mortgage that is primarily secured by a 
first or subsequent lien on one-to-four family residential property.
    Savings and loan holding company means a savings and loan holding 
company as defined in section 10 of the Home Owners' Loan Act (12 U.S.C. 
1467a).
    SEC means the Securities and Exchange Commission.
    Secured funding transaction means any funding transaction that is 
subject to a legally binding agreement as of the calculation date and 
gives rise to a cash obligation of the Board-regulated institution to a 
counterparty that is secured under applicable law by a lien on assets 
owned by the Board-regulated institution, which gives the counterparty, 
as holder of the lien, priority over the assets in the event the Board-
regulated institution enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding. Secured funding 
transactions include repurchase transactions, loans of collateral to the 
Board-regulated institution's customers to effect short positions, other 
secured loans, and borrowings from a Federal Reserve Bank.
    Secured lending transaction means any lending transaction that is 
subject to a legally binding agreement of the calculation date and gives 
rise to a cash obligation of a counterparty to the Board-regulated 
institution that is secured under applicable law by a lien on assets 
owned by the counterparty, which gives the Board-regulated institution, 
as holder of the lien, priority over the assets in the event the 
counterparty enters into receivership, bankruptcy, insolvency, 
liquidation, resolution, or similar proceeding, including reverse 
repurchase transactions and securities borrowing transactions.
    Securities Exchange Act means the Securities Exchange Act of 1934 
(15 U.S.C. 78a et seq.).
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    Special purpose entity means a company organized for a specific 
purpose, the activities of which are significantly limited to those 
appropriate to accomplish a specific purpose, and the structure of which 
is intended to isolate the credit risk of the special purpose entity.
    Stable retail deposit means a retail deposit that is entirely 
covered by deposit insurance and:
    (1) Is held by the depositor in a transactional account; or
    (2) The depositor that holds the account has another established 
relationship with the Board-regulated institution such as another 
deposit account, a loan, bill payment services, or any similar service 
or product provided to the depositor that the Board-regulated 
institution demonstrates to the satisfaction of the Board would make 
deposit withdrawal highly unlikely during a liquidity stress event.
    State member bank means a state bank that is a member of the Federal 
Reserve System.
    Structured security means a security whose cash flow characteristics 
depend upon one or more indices or that has embedded forwards, options, 
or other derivatives or a security where an investor's investment return 
and the issuer's payment obligations are contingent on, or highly 
sensitive to, changes in the value of underlying assets, indices, 
interest rates, or cash flows.
    Structured transaction means a secured transaction in which 
repayment of obligations and other exposures to the transaction is 
largely derived, directly or indirectly, from the cash flow generated by 
the pool of assets that secures the obligations and other exposures to 
the transaction.
    Two-way market means a market where there are independent bona fide 
offers to buy and sell so that a price reasonably related to the last 
sales price or current bona fide competitive bid and offer quotations 
can be determined within one day and settled at that price within a 
relatively short time frame conforming to trade custom.
    U.S. government-sponsored enterprise means an entity established or 
chartered by the Federal government to

[[Page 329]]

serve public purposes specified by the United States Congress, but whose 
debt obligations are not explicitly guaranteed by the full faith and 
credit of the United States government.
    Unsecured wholesale funding means a liability or general obligation 
of the Board-regulated institution to a wholesale customer or 
counterparty that is not secured under applicable law by a lien on 
assets owned by the Board-regulated institution, including a wholesale 
deposit.
    Wholesale customer or counterparty means a customer or counterparty 
that is not a retail customer or counterparty.
    Wholesale deposit means a demand or term deposit that is provided by 
a wholesale customer or counterparty.

[79 FR 61523, 61539, Oct. 10, 2014, as amended at 79 FR 78296, Dec. 30, 
2014; 81 FR 21232, Apr. 11, 2016]



Sec. 249.4  Certain operational requirements.

    (a) Qualifying master netting agreements. In order to recognize an 
agreement as a qualifying master netting agreement as defined in 
Sec. 249.3, a Board-regulated institution must:
    (1) Conduct sufficient legal review to conclude with a well-founded 
basis (and maintain sufficient written documentation of that legal 
review) that:
    (i) The agreement meets the requirements of the definition of 
qualifying master netting agreement in Sec. 249.3; and
    (ii) In the event of a legal challenge (including one resulting from 
default or from receivership, bankruptcy, insolvency, liquidation, 
resolution, or similar proceeding) the relevant judicial and 
administrative authorities would find the agreement to be legal, valid, 
binding, and enforceable under the law of the relevant jurisdictions; 
and
    (2) Establish and maintain written procedures to monitor possible 
changes in relevant law and to ensure that the agreement continues to 
satisfy the requirements of the definition of qualifying master netting 
agreement in Sec. 249.3.
    (b) Operational deposits. In order to recognize a deposit as an 
operational deposit as defined in Sec. 249.3:
    (1) The related operational services must be performed pursuant to a 
legally binding written agreement, and:
    (i) The termination of the agreement must be subject to a minimum 30 
calendar-day notice period; or
    (ii) As a result of termination of the agreement or transfer of 
services to a third-party provider, the customer providing the deposit 
would incur significant contractual termination costs or switching costs 
(switching costs include significant technology, administrative, and 
legal service costs incurred in connection with the transfer of the 
operational services to a third-party provider);
    (2) The deposit must be held in an account designated as an 
operational account;
    (3) The customer must hold the deposit at the Board-regulated 
institution for the primary purpose of obtaining the operational 
services provided by the Board-regulated institution;
    (4) The deposit account must not be designed to create an economic 
incentive for the customer to maintain excess funds therein through 
increased revenue, reduction in fees, or other offered economic 
incentives;
    (5) The Board-regulated institution must demonstrate that the 
deposit is empirically linked to the operational services and that it 
has a methodology that takes into account the volatility of the average 
balance for identifying any excess amount, which must be excluded from 
the operational deposit amount;
    (6) The deposit must not be provided in connection with the Board-
regulated institution's provision of prime brokerage services, which, 
for the purposes of this part, are a package of services offered by the 
Board-regulated institution whereby the Board-regulated institution, 
among other services, executes, clears, settles, and finances 
transactions entered into by the customer or a third-party entity on 
behalf of the customer (such as an executing broker), and where the 
Board-regulated institution has a right to use or rehypothecate assets 
provided by the customer, including in connection with the extension of 
margin and other similar financing of the customer, subject to 
applicable law, and includes

[[Page 330]]

operational services provided to a non-regulated fund; and
    (7) The deposits must not be for arrangements in which the Board-
regulated institution (as correspondent) holds deposits owned by another 
depository institution bank (as respondent) and the respondent 
temporarily places excess funds in an overnight deposit with the Board-
regulated institution.



                   Subpart B_Liquidity Coverage Ratio



Sec. 249.10  Liquidity coverage ratio.

    (a) Minimum liquidity coverage ratio requirement. Subject to the 
transition provisions in subpart F of this part, a Board-regulated 
institution must calculate and maintain a liquidity coverage ratio that 
is equal to or greater than 1.0 on each business day in accordance with 
this part. A Board-regulated institution must calculate its liquidity 
coverage ratio as of the same time on each business day (elected 
calculation time). The Board-regulated institution must select this time 
by written notice to the Board prior to the effective date of this rule. 
The Board-regulated institution may not thereafter change its elected 
calculation time without prior written approval from the Board.
    (b) Calculation of the liquidity coverage ratio. A Board-regulated 
institution's liquidity coverage ratio equals:
    (1) The Board-regulated institution's HQLA amount as of the 
calculation date, calculated under subpart C of this part; divided by
    (2) The Board-regulated institution's total net cash outflow amount 
as of the calculation date, calculated under subpart D of this part.



                  Subpart C_High-Quality Liquid Assets



Sec. 249.20  High-quality liquid asset criteria.

    (a) Level 1 liquid assets. An asset is a level 1 liquid asset if it 
is one of the following types of assets:
    (1) Reserve Bank balances;
    (2) Foreign withdrawable reserves;
    (3) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury;
    (4) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of the Treasury) whose 
obligations are fully and explicitly guaranteed by the full faith and 
credit of the U.S. government, provided that the security is liquid and 
readily-marketable;
    (5) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a sovereign entity, 
the Bank for International Settlements, the International Monetary Fund, 
the European Central Bank, European Community, or a multilateral 
development bank, that is:
    (i) Assigned a zero percent risk weight under subpart D of 
Regulation Q (12 CFR part 217) as of the calculation date;
    (ii) Liquid and readily-marketable;
    (iii) Issued or guaranteed by an entity whose obligations have a 
proven record as a reliable source of liquidity in repurchase or sales 
markets during stressed market conditions; and
    (iv) Not an obligation of a financial sector entity and not an 
obligation of a consolidated subsidiary of a financial sector entity; or
    (6) A security issued by, or unconditionally guaranteed as to the 
timely payment of principal and interest by, a sovereign entity that is 
not assigned a zero percent risk weight under subpart D of Regulation Q 
(12 CFR part 217), where the sovereign entity issues the security in its 
own currency, the security is liquid and readily-marketable, and the 
Board-regulated institution holds the security in order to meet its net 
cash outflows in the jurisdiction of the sovereign entity, as calculated 
under subpart D of this part.
    (b) Level 2A liquid assets. An asset is a level 2A liquid asset if 
the asset is liquid and readily-marketable and is one of the following 
types of assets:
    (1) A security issued by, or guaranteed as to the timely payment of 
principal and interest by, a U.S. government-sponsored enterprise, that 
is investment grade under 12 CFR part 1 as

[[Page 331]]

of the calculation date, provided that the claim is senior to preferred 
stock; or
    (2) A security that is issued by, or guaranteed as to the timely 
payment of principal and interest by, a sovereign entity or multilateral 
development bank that is:
    (i) Not included in level 1 liquid assets;
    (ii) Assigned no higher than a 20 percent risk weight under subpart 
D of Regulation Q (12 CFR part 217) as of the calculation date;
    (iii) Issued or guaranteed by an entity whose obligations have a 
proven record as a reliable source of liquidity in repurchase or sales 
markets during stressed market conditions, as demonstrated by:
    (A) The market price of the security or equivalent securities of the 
issuer declining by no more than 10 percent during a 30 calendar-day 
period of significant stress, or
    (B) The market haircut demanded by counterparties to secured lending 
and secured funding transactions that are collateralized by the security 
or equivalent securities of the issuer increasing by no more than 10 
percentage points during a 30 calendar-day period of significant stress; 
and
    (iv) Not an obligation of a financial sector entity, and not an 
obligation of a consolidated subsidiary of a financial sector entity.
    (c) Level 2B liquid assets. An asset is a level 2B liquid asset if 
the asset is liquid and readily-marketable and is one of the following 
types of assets:
    (1) A corporate debt security that is:
    (i) Investment grade under 12 CFR part 1 as of the calculation date;
    (ii) Issued or guaranteed by an entity whose obligations have a 
proven record as a reliable source of liquidity in repurchase or sales 
markets during stressed market conditions, as demonstrated by:
    (A) The market price of the corporate debt security or equivalent 
securities of the issuer declining by no more than 20 percent during a 
30 calendar-day period of significant stress, or
    (B) The market haircut demanded by counterparties to secured lending 
and secured funding transactions that are collateralized by the 
corporate debt security or equivalent securities of the issuer 
increasing by no more than 20 percentage points during a 30 calendar-day 
period of significant stress; and
    (iii) Not an obligation of a financial sector entity and not an 
obligation of a consolidated subsidiary of a financial sector entity; or
    (2) A general obligation security issued by, or guaranteed as to the 
timely payment of principal and interest by, a public sector entity 
where the security is:
    (i) Investment grade under 12 CFR part 1 as of the calculation date;
    (ii) Issued or guaranteed by a public sector entity whose 
obligations have a proven record as a reliable source of liquidity in 
repurchase or sales markets during stressed market conditions, as 
demonstrated by:
    (A) The market price of the security or equivalent securities of the 
issuer declining by no more than 20 percent during a 30 calendar-day 
period of significant stress; or
    (B) The market haircut demanded by counterparties to secured lending 
and secured funding transactions that are collateralized by the security 
or equivalent securities of the issuer increasing by no more than 20 
percentage points during a 30 calendar-day period of significant stress; 
and
    (iii) Not an obligation of a financial sector entity and not an 
obligation of a consolidated subsidiary of a financial sector entity, 
except that a security will not be disqualified as a level 2B liquid 
asset solely because it is guaranteed by a financial sector entity or a 
consolidated subsidiary of a financial sector entity if the security 
would, if not guaranteed, meet the criteria in paragraphs (c)(2)(i) and 
(ii) of this section.
    (3) A publicly traded common equity share that is:
    (i) Included in:
    (A) The Russell 1000 Index; or
    (B) An index that a Board-regulated institution's supervisor in a 
foreign jurisdiction recognizes for purposes of including equity shares 
in level 2B liquid assets under applicable regulatory policy, if the 
share is held in that foreign jurisdiction;
    (ii) Issued in:
    (A) U.S. dollars; or

[[Page 332]]

    (B) The currency of a jurisdiction where the Board-regulated 
institution operates and the Board-regulated institution holds the 
common equity share in order to cover its net cash outflows in that 
jurisdiction, as calculated under subpart D of this part;
    (iii) Issued by an entity whose publicly traded common equity shares 
have a proven record as a reliable source of liquidity in repurchase or 
sales markets during stressed market conditions, as demonstrated by:
    (A) The market price of the security or equivalent securities of the 
issuer declining by no more than 40 percent during a 30 calendar-day 
period of significant stress, or
    (B) The market haircut demanded by counterparties to securities 
borrowing and lending transactions that are collateralized by the 
publicly traded common equity shares or equivalent securities of the 
issuer increasing by no more than 40 percentage points, during a 30 
calendar day period of significant stress;
    (iv) Not issued by a financial sector entity and not issued by a 
consolidated subsidiary of a financial sector entity;
    (v) If held by a depository institution, is not acquired in 
satisfaction of a debt previously contracted (DPC); and
    (vi) If held by a consolidated subsidiary of a depository 
institution, the depository institution can include the publicly traded 
common equity share in its level 2B liquid assets only if the share is 
held to cover net cash outflows of the depository institution's 
consolidated subsidiary in which the publicly traded common equity share 
is held, as calculated by the Board-regulated institution under subpart 
D of this part.

[79 FR 61523, 61539, Oct. 10, 2014, as amended at 81 FR 21232, Apr. 11, 
2016]



Sec. 249.21  High-quality liquid asset amount.

    (a) Calculation of the HQLA amount. As of the calculation date, a 
Board-regulated institution's HQLA amount equals:
    (1) The level 1 liquid asset amount; plus
    (2) The level 2A liquid asset amount; plus
    (3) The level 2B liquid asset amount; minus
    (4) The greater of:
    (i) The unadjusted excess HQLA amount; and
    (ii) The adjusted excess HQLA amount.
    (b) Calculation of liquid asset amounts--(1) Level 1 liquid asset 
amount. The level 1 liquid asset amount equals the fair value of all 
level 1 liquid assets held by the Board-regulated institution as of the 
calculation date that are eligible HQLA, less the amount of the reserve 
balance requirement under section 204.5 of Regulation D (12 CFR 204.5).
    (2) Level 2A liquid asset amount. The level 2A liquid asset amount 
equals 85 percent of the fair value of all level 2A liquid assets held 
by the Board-regulated institution as of the calculation date that are 
eligible HQLA.
    (3) Level 2B liquid asset amount. The level 2B liquid asset amount 
equals 50 percent of the fair value of all level 2B liquid assets held 
by the Board-regulated institution as of the calculation date that are 
eligible HQLA.
    (4) Public sector entity security liquid asset amount. The public 
sector entity security liquid asset amount equals 50 percent of the fair 
value of all general obligation securities issued by, or guaranteed as 
to the timely payment of principal and interest by, a public sector 
entity that are eligible HQLA.
    (c) Calculation of the unadjusted excess HQLA amount. As of the 
calculation date, the unadjusted excess HQLA amount equals:
    (1) The level 2 cap excess amount; plus
    (2) The level 2B cap excess amount; plus
    (3) The public sector entity security cap excess amount.
    (d) Calculation of the level 2 cap excess amount. As of the 
calculation date, the level 2 cap excess amount equals the greater of:
    (1) The level 2A liquid asset amount plus the level 2B liquid asset 
amount minus 0.6667 times the level 1 liquid asset amount; and
    (2) 0.
    (e) Calculation of the level 2B cap excess amount. As of the 
calculation date,

[[Page 333]]

the level 2B excess amount equals the greater of:
    (1) The level 2B liquid asset amount minus the level 2 cap excess 
amount minus 0.1765 times the sum of the level 1 liquid asset amount and 
the level 2A liquid asset amount; and
    (2) 0.
    (f) Calculation of the public sector entity security cap excess 
amount. As of the calculation date, the public security entity security 
cap excess amount equals the greater of:
    (1) The public sector entity security liquid asset amount minus the 
level 2 cap excess amount minus level 2B cap excess amount minus 0.0526 
times the total of:
    (i) The level 1 liquid asset amount; plus
    (ii) The level 2A liquid asset amount; plus
    (iii) The level 2B liquid asset amount; minus
    (iv) The public sector entity security liquid asset amount; and
    (2) 0.
    (g) Calculation of adjusted liquid asset amounts--(1) Adjusted level 
1 liquid asset amount. A Board-regulated institution's adjusted level 1 
liquid asset amount equals the fair value of all level 1 liquid assets 
that would be eligible HQLA and would be held by the Board-regulated 
institution upon the unwind of any secured funding transaction (other 
than a collateralized deposit), secured lending transaction, asset 
exchange, or collateralized derivatives transaction that matures within 
30 calendar days of the calculation date where the Board-regulated 
institution will provide an asset that is eligible HQLA and the 
counterparty will provide an asset that will be eligible HQLA; less the 
amount of the reserve balance requirement under section 204.5 of 
Regulation D (12 CFR 204.5).
    (2) Adjusted level 2A liquid asset amount. A Board-regulated 
institution's adjusted level 2A liquid asset amount equals 85 percent of 
the fair value of all level 2A liquid assets that would be eligible HQLA 
and would be held by the Board-regulated institution upon the unwind of 
any secured funding transaction (other than a collateralized deposit), 
secured lending transaction, asset exchange, or collateralized 
derivatives transaction that matures within 30 calendar days of the 
calculation date where the Board-regulated institution will provide an 
asset that is eligible HQLA and the counterparty will provide an asset 
that will be eligible HQLA.
    (3) Adjusted level 2B liquid asset amount. A Board-regulated 
institution's adjusted level 2B liquid asset amount equals 50 percent of 
the fair value of all level 2B liquid assets that would be eligible HQLA 
and would be held by the Board-regulated institution upon the unwind of 
any secured funding transaction (other than a collateralized deposit), 
secured lending transaction, asset exchange, or collateralized 
derivatives transaction that matures within 30 calendar days of the 
calculation date where the Board-regulated institution will provide an 
asset that is eligible HQLA and the counterparty will provide an asset 
that will be eligible HQLA.
    (4) Adjusted public sector entity security liquid asset amount. A 
Board-regulated institution's adjusted public sector entity security 
liquid asset amount equals 50 percent of the fair value of all general 
obligation securities issued by, or guaranteed as to the timely payment 
of principal and interest by, a public sector entity that would be 
eligible HQLA and would be held by the Board-regulated institution upon 
the unwind of any secured funding transaction (other than a 
collateralized deposit), secured lending transaction, asset exchange, or 
collateralized derivatives transaction that matures within 30 calendar 
days of the calculation date where the Board-regulated institution will 
provide an asset that is eligible HQLA and the counterparty will provide 
an asset that will be eligible HQLA.
    (h) Calculation of the adjusted excess HQLA amount. As of the 
calculation date, the adjusted excess HQLA amount equals:
    (1) The adjusted level 2 cap excess amount; plus
    (2) The adjusted level 2B cap excess amount; plus
    (3) The adjusted public sector entity security cap excess amount.

[[Page 334]]

    (i) Calculation of the adjusted level 2 cap excess amount. As of the 
calculation date, the adjusted level 2 cap excess amount equals the 
greater of:
    (1) The adjusted level 2A liquid asset amount plus the adjusted 
level 2B liquid asset amount minus 0.6667 times the adjusted level 1 
liquid asset amount; and
    (2) 0.
    (j) Calculation of the adjusted level 2B excess amount. As of the 
calculation date, the adjusted level 2B excess liquid asset amount 
equals the greater of:
    (1) The adjusted level 2B liquid asset amount minus the adjusted 
level 2 cap excess amount minus 0.1765 times the sum of the adjusted 
level 1 liquid asset amount and the adjusted level 2A liquid asset 
amount; and
    (2) 0.
    (k) Calculation of the adjusted public sector entity security cap 
excess amount. As of the calculation date, the adjusted public sector 
entity security cap excess amount equals the greater of:
    (1) The adjusted public sector entity security liquid asset amount 
minus the adjusted level 2 cap excess amount minus the adjusted level 2B 
cap excess amount minus 0.0526 times the total of:
    (i) The adjusted level 1 liquid asset amount; plus
    (ii) The adjusted level 2A liquid asset amount; plus
    (iii) The adjusted level 2B liquid asset amount; minus
    (iv) The adjusted public sector entity security liquid asset amount; 
and
    (2) 0.

[79 FR 61523, 61539, Oct. 10, 2014, as amended at 81 FR 21232, Apr. 11, 
2016]



Sec. 249.22  Requirements for eligible high-quality liquid assets.

    (a) Operational requirements for eligible HQLA. With respect to each 
asset that is eligible for inclusion in a Board-regulated institution's 
HQLA amount, a Board-regulated institution must meet all of the 
following operational requirements:
    (1) The Board-regulated institution must demonstrate the operational 
capability to monetize the HQLA by:
    (i) Implementing and maintaining appropriate procedures and systems 
to monetize any HQLA at any time in accordance with relevant standard 
settlement periods and procedures; and
    (ii) Periodically monetizing a sample of HQLA that reasonably 
reflects the composition of the Board-regulated institution's eligible 
HQLA, including with respect to asset type, maturity, and counterparty 
characteristics;
    (2) The Board-regulated institution must implement policies that 
require eligible HQLA to be under the control of the management function 
in the Board-regulated institution that is charged with managing 
liquidity risk, and this management function must evidence its control 
over the HQLA by either:
    (i) Segregating the HQLA from other assets, with the sole intent to 
use the HQLA as a source of liquidity; or
    (ii) Demonstrating the ability to monetize the assets and making the 
proceeds available to the liquidity management function without 
conflicting with a business or risk management strategy of the Board-
regulated institution;
    (3) The fair value of the eligible HQLA must be reduced by the 
outflow amount that would result from the termination of any specific 
transaction hedging eligible HQLA;
    (4) The Board-regulated institution must implement and maintain 
policies and procedures that determine the composition of its eligible 
HQLA on each calculation date, by:
    (i) Identifying its eligible HQLA by legal entity, geographical 
location, currency, account, or other relevant identifying factors as of 
the calculation date;
    (ii) Determining that eligible HQLA meet the criteria set forth in 
this section; and
    (iii) Ensuring the appropriate diversification of the eligible HQLA 
by asset type, counterparty, issuer, currency, borrowing capacity, or 
other factors associated with the liquidity risk of the assets; and
    (5) The Board-regulated institution must have a documented 
methodology that results in a consistent treatment for determining that 
the Board-regulated institution's eligible HQLA meet the requirements 
set forth in this section.

[[Page 335]]

    (b) Generally applicable criteria for eligible HQLA. A Board-
regulated institution's eligible HQLA must meet all of the following 
criteria:
    (1) The assets are unencumbered in accordance with the following 
criteria:
    (i) The assets are free of legal, regulatory, contractual, or other 
restrictions on the ability of the Board-regulated institution to 
monetize the assets; and
    (ii) The assets are not pledged, explicitly or implicitly, to secure 
or to provide credit enhancement to any transaction, but the assets may 
be considered unencumbered if the assets are pledged to a central bank 
or a U.S. government-sponsored enterprise where:
    (A) Potential credit secured by the assets is not currently extended 
to the Board-regulated institution or its consolidated subsidiaries; and
    (B) The pledged assets are not required to support access to the 
payment services of a central bank;
    (2) The asset is not:
    (i) A client pool security held in a segregated account; or
    (ii) An asset received from a secured funding transaction involving 
client pool securities that were held in a segregated account;
    (3) For eligible HQLA held in a legal entity that is a U.S. 
consolidated subsidiary of a Board-regulated institution:
    (i) If the U.S. consolidated subsidiary is subject to a minimum 
liquidity standard under this part, 12 CFR part 50, or 12 CFR part 329, 
the Board-regulated institution may include the eligible HQLA of the 
U.S. consolidated subsidiary in its HQLA amount up to:
    (A) The amount of net cash outflows of the U.S. consolidated 
subsidiary calculated by the U.S. consolidated subsidiary for its own 
minimum liquidity standard under this part, 12 CFR part 50, or 12 CFR 
part 329; plus
    (B) Any additional amount of assets, including proceeds from the 
monetization of assets, that would be available for transfer to the top-
tier Board-regulated institution during times of stress without 
statutory, regulatory, contractual, or supervisory restrictions, 
including sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 
371c and 12 U.S.C. 371c-1) and Regulation W (12 CFR part 223);
    (ii) If the U.S. consolidated subsidiary is not subject to a minimum 
liquidity standard under this part, or 12 CFR part 50, or 12 CFR part 
329, the Board-regulated institution may include the eligible HQLA of 
the U.S. consolidated subsidiary in its HQLA amount up to:
    (A) The amount of the net cash outflows of the U.S. consolidated 
subsidiary as of the 30th calendar day after the calculation date, as 
calculated by the Board-regulated institution for the Board-regulated 
institution's minimum liquidity standard under this part; plus
    (B) Any additional amount of assets, including proceeds from the 
monetization of assets, that would be available for transfer to the top-
tier Board-regulated institution during times of stress without 
statutory, regulatory, contractual, or supervisory restrictions, 
including sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 
371c and 12 U.S.C. 371c-1) and Regulation W (12 CFR part 223); and
    (4) For HQLA held by a consolidated subsidiary of the Board-
regulated institution that is organized under the laws of a foreign 
jurisdiction, the Board-regulated institution may include the eligible 
HQLA of the consolidated subsidiary organized under the laws of a 
foreign jurisdiction in its HQLA amount up to:
    (i) The amount of net cash outflows of the consolidated subsidiary 
as of the 30th calendar day after the calculation date, as calculated by 
the Board-regulated institution for the Board-regulated institution's 
minimum liquidity standard under this part; plus
    (ii) Any additional amount of assets that are available for transfer 
to the top-tier Board-regulated institution during times of stress 
without statutory, regulatory, contractual, or supervisory restrictions;
    (5) The Board-regulated institution must not include as eligible 
HQLA any assets, or HQLA resulting from transactions involving an asset 
that the Board-regulated institution received with rehypothecation 
rights, if the counterparty that provided the asset or the beneficial 
owner of the asset has a

[[Page 336]]

contractual right to withdraw the assets without an obligation to pay 
more than de minimis remuneration at any time during the 30 calendar 
days following the calculation date; and
    (6) The Board-regulated institution has not designated the assets to 
cover operational costs.
    (c) Securities of public sector entities as eligible HQLA. A Board-
regulated institution may include as eligible HQLA a general obligation 
security issued by, or guaranteed as to the timely payment of principal 
and interest by, a public sector entity to the extent that the fair 
value of the aggregate amount of securities of a single public sector 
entity issuer included as eligible HQLA is no greater than two times the 
average daily trading volume during the previous four quarters of all 
general obligation securities issued by that public sector entity.
    (d) Maintenance of U.S. eligible HQLA. A Board-regulated institution 
is generally expected to maintain as eligible HQLA an amount and type of 
eligible HQLA in the United States that is sufficient to meet its total 
net cash outflow amount in the United States under subpart D of this 
part.

[79 FR 61523, 61539, Oct. 10, 2014, as amended at 81 FR 21232, Apr. 11, 
2016]



                    Subpart D_Total Net Cash Outflow



Sec. 249.30  Total net cash outflow amount.

    (a) Calculation of total net cash outflow amount. As of the 
calculation date, a Board-regulated institution's total net cash outflow 
amount equals:
    (1) The sum of the outflow amounts calculated under Sec. 249.32(a) 
through (l); minus
    (2) The lesser of:
    (i) The sum of the inflow amounts calculated under Sec. 249.33(b) 
through (g); and
    (ii) 75 percent of the amount calculated under paragraph (a)(1) of 
this section; plus
    (3) The maturity mismatch add-on as calculated under paragraph (b) 
of this section.
    (b) Calculation of maturity mismatch add-on. (1) For purposes of 
this section:
    (i) The net cumulative maturity outflow amount for any of the 30 
calendar days following the calculation date is equal to the sum of the 
outflow amounts for instruments or transactions identified in 
Sec. 249.32(g), (h)(1), (h)(2), (h)(5), (j), (k), and (l) that have a 
maturity date prior to or on that calendar day minus the sum of the 
inflow amounts for instruments or transactions identified in 
Sec. 249.33(c), (d), (e), and (f) that have a maturity date prior to or 
on that calendar day.
    (ii) The net day 30 cumulative maturity outflow amount is equal to, 
as of the 30th day following the calculation date, the sum of the 
outflow amounts for instruments or transactions identified in 
Sec. 249.32(g), (h)(1), (h)(2), (h)(5), (j), (k), and (l) that have a 
maturity date 30 calendar days or less from the calculation date minus 
the sum of the inflow amounts for instruments or transactions identified 
in Sec. 249.33(c), (d), (e), and (f) that have a maturity date 30 
calendar days or less from the calculation date.
    (2) As of the calculation date, a Board-regulated institution's 
maturity mismatch add-on is equal to:
    (i) The greater of:
    (A) 0; and
    (B) The largest net cumulative maturity outflow amount as calculated 
under paragraph (b)(1)(i) of this section for any of the 30 calendar 
days following the calculation date; minus
    (ii) The greater of:
    (A) 0; and
    (B) The net day 30 cumulative maturity outflow amount as calculated 
under paragraph (b)(1)(ii) of this section.
    (3) Other than the transactions identified in Sec. 249.32(h)(2), 
(h)(5), or (j) or Sec. 249.33(d) or (f), the maturity of which is 
determined under Sec. 249.31(a), transactions that have no maturity date 
are not included in the calculation of the maturity mismatch add-on.



Sec. 249.31  Determining maturity.

    (a) For purposes of calculating its liquidity coverage ratio and the 
components thereof under this subpart, a Board-regulated institution 
shall assume an asset or transaction matures:
    (1) With respect to an instrument or transaction subject to 
Sec. 249.32, on the

[[Page 337]]

earliest possible contractual maturity date or the earliest possible 
date the transaction could occur, taking into account any option that 
could accelerate the maturity date or the date of the transaction as 
follows:
    (i) If an investor or funds provider has an option that would reduce 
the maturity, the Board-regulated institution must assume that the 
investor or funds provider will exercise the option at the earliest 
possible date;
    (ii) If an investor or funds provider has an option that would 
extend the maturity, the Board-regulated institution must assume that 
the investor or funds provider will not exercise the option to extend 
the maturity;
    (iii) If the Board-regulated institution has an option that would 
reduce the maturity of an obligation, the Board-regulated institution 
must assume that the Board-regulated institution will exercise the 
option at the earliest possible date, except if either of the following 
criteria are satisfied, in which case the maturity of the obligation for 
purposes of this part will be the original maturity date at issuance:
    (A) The original maturity of the obligation is greater than one year 
and the option does not go into effect for a period of 180 days 
following the issuance of the instrument; or
    (B) The counterparty is a sovereign entity, a U.S. government-
sponsored enterprise, or a public sector entity.
    (iv) If the Board-regulated institution has an option that would 
extend the maturity of an obligation it issued, the Board-regulated 
institution must assume the Board-regulated institution will not 
exercise that option to extend the maturity; and
    (v) If an option is subject to a contractually defined notice 
period, the Board-regulated institution must determine the earliest 
possible contractual maturity date regardless of the notice period.
    (2) With respect to an instrument or transaction subject to 
Sec. 249.33, on the latest possible contractual maturity date or the 
latest possible date the transaction could occur, taking into account 
any option that could extend the maturity date or the date of the 
transaction as follows:
    (i) If the borrower has an option that would extend the maturity, 
the Board-regulated institution must assume that the borrower will 
exercise the option to extend the maturity to the latest possible date;
    (ii) If the borrower has an option that would reduce the maturity, 
the Board-regulated institution must assume that the borrower will not 
exercise the option to reduce the maturity;
    (iii) If the Board-regulated institution has an option that would 
reduce the maturity of an instrument or transaction, the Board-regulated 
institution must assume the Board-regulated institution will not 
exercise the option to reduce the maturity;
    (iv) If the Board-regulated institution has an option that would 
extend the maturity of an instrument or transaction, the Board-regulated 
institution must assume the Board-regulated institution will exercise 
the option to extend the maturity to the latest possible date; and
    (v) If an option is subject to a contractually defined notice 
period, the Board-regulated institution must determine the latest 
possible contractual maturity date based on the borrower using the 
entire notice period.
    (3) With respect to a transaction subject to Sec. 249.33(f)(1)(iii) 
through (vii) (secured lending transactions) or Sec. 249.33(f)(2)(ii) 
through (x) (asset exchanges), to the extent the transaction is secured 
by collateral that has been pledged in connection with either a secured 
funding transaction or asset exchange that has a remaining maturity of 
30 calendar days or less as of the calculation date, the maturity date 
is the later of the maturity date determined under paragraph (a)(2) of 
this section for the secured lending transaction or asset exchange or 
the maturity date determined under paragraph (a)(1) of this section for 
the secured funding transaction or asset exchange for which the 
collateral has been pledged.
    (4) With respect to a transaction that has no maturity date, is not 
an operational deposit, and is subject to the provisions of 
Sec. 249.32(h)(2), (h)(5), (j), or (k) or Sec. 249.33(d) or (f), the 
maturity date is the first calendar day after the calculation date. Any 
other transaction that has no maturity date and is

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subject to the provisions of Sec. 249.32 must be considered to mature 
within 30 calendar days of the calculation date.
    (5) With respect to a transaction subject to the provisions of 
Sec. 249.33(g), on the date of the next scheduled calculation of the 
amount required under applicable legal requirements for the protection 
of customer assets with respect to each broker-dealer segregated 
account, in accordance with the Board-regulated institution's normal 
frequency of recalculating such requirements.
    (b) [Reserved]



Sec. 249.32  Outflow amounts.

    (a) Retail funding outflow amount. A Board-regulated institution's 
retail funding outflow amount as of the calculation date includes 
(regardless of maturity or collateralization):
    (1) 3 percent of all stable retail deposits held at the Board-
regulated institution;
    (2) 10 percent of all other retail deposits held at the Board-
regulated institution;
    (3) 20 percent of all deposits placed at the Board-regulated 
institution by a third party on behalf of a retail customer or 
counterparty that are not brokered deposits, where the retail customer 
or counterparty owns the account and the entire amount is covered by 
deposit insurance;
    (4) 40 percent of all deposits placed at the Board-regulated 
institution by a third party on behalf of a retail customer or 
counterparty that are not brokered deposits, where the retail customer 
or counterparty owns the account and where less than the entire amount 
is covered by deposit insurance; and
    (5) 40 percent of all funding from a retail customer or counterparty 
that is not:
    (i) A retail deposit;
    (ii) A brokered deposit provided by a retail customer or 
counterparty; or
    (iii) A debt instrument issued by the Board-regulated institution 
that is owned by a retail customer or counterparty (see paragraph 
(h)(2)(ii) of this section).
    (b) Structured transaction outflow amount. If the Board-regulated 
institution is a sponsor of a structured transaction where the issuing 
entity is not consolidated on the Board-regulated institution's balance 
sheet under GAAP, the structured transaction outflow amount for each 
such structured transaction as of the calculation date is the greater 
of:
    (1) 100 percent of the amount of all debt obligations of the issuing 
entity that mature 30 calendar days or less from such calculation date 
and all commitments made by the issuing entity to purchase assets within 
30 calendar days or less from such calculation date; and
    (2) The maximum contractual amount of funding the Board-regulated 
institution may be required to provide to the issuing entity 30 calendar 
days or less from such calculation date through a liquidity facility, a 
return or repurchase of assets from the issuing entity, or other funding 
agreement.
    (c) Net derivative cash outflow amount. The net derivative cash 
outflow amount as of the calculation date is the sum of the net 
derivative cash outflow amount for each counterparty. The net derivative 
cash outflow amount does not include forward sales of mortgage loans and 
any derivatives that are mortgage commitments subject to paragraph (d) 
of this section. The net derivative cash outflow amount for a 
counterparty is the sum of:
    (1) The amount, if greater than zero, of contractual payments and 
collateral that the Board-regulated institution will make or deliver to 
the counterparty 30 calendar days or less from the calculation date 
under derivative transactions other than transactions described in 
paragraph (c)(2) of this section, less the contractual payments and 
collateral that the Board-regulated institution will receive from the 
counterparty 30 calendar days or less from the calculation date under 
derivative transactions other than transactions described in paragraph 
(c)(2) of this section, provided that the derivative transactions are 
subject to a qualifying master netting agreement; and
    (2) The amount, if greater than zero, of contractual principal 
payments that the Board-regulated institution will make to the 
counterparty 30 calendar

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days or less from the calculation date under foreign currency exchange 
derivative transactions that result in the full exchange of contractual 
cash principal payments in different currencies within the same business 
day, less the contractual principal payments that the Board-regulated 
institution will receive from the counterparty 30 calendar days or less 
from the calculation date under foreign currency exchange derivative 
transactions that result in the full exchange of contractual cash 
principal payments in different currencies within the same business day.
    (d) Mortgage commitment outflow amount. The mortgage commitment 
outflow amount as of a calculation date is 10 percent of the amount of 
funds the Board-regulated institution has contractually committed for 
its own origination of retail mortgages that can be drawn upon 30 
calendar days or less from such calculation date.
    (e) Commitment outflow amount. (1) A Board-regulated institution's 
commitment outflow amount as of the calculation date includes:
    (i) Zero percent of the undrawn amount of all committed credit and 
liquidity facilities extended by a Board-regulated institution that is a 
depository institution to an affiliated depository institution that is 
subject to a minimum liquidity standard under this part;
    (ii) 5 percent of the undrawn amount of all committed credit and 
liquidity facilities extended by the Board-regulated institution to 
retail customers or counterparties;
    (iii) 10 percent of the undrawn amount of all committed credit 
facilities extended by the Board-regulated institution to a wholesale 
customer or counterparty that is not a financial sector entity or a 
consolidated subsidiary thereof, including a special purpose entity 
(other than those described in paragraph (e)(1)(viii) of this section) 
that is a consolidated subsidiary of such wholesale customer or 
counterparty;
    (iv) 30 percent of the undrawn amount of all committed liquidity 
facilities extended by the Board-regulated institution to a wholesale 
customer or counterparty that is not a financial sector entity or a 
consolidated subsidiary thereof, including a special purpose entity 
(other than those described in paragraph (e)(1)(viii) of this section) 
that is a consolidated subsidiary of such wholesale customer or 
counterparty;
    (v) 50 percent of the undrawn amount of all committed credit and 
liquidity facilities extended by the Board-regulated institution to 
depository institutions, depository institution holding companies, and 
foreign banks, but excluding commitments described in paragraph 
(e)(1)(i) of this section;
    (vi) 40 percent of the undrawn amount of all committed credit 
facilities extended by the Board-regulated institution to a financial 
sector entity or a consolidated subsidiary thereof, including a special 
purpose entity (other than those described in paragraph (e)(1)(viii) of 
this section) that is a consolidated subsidiary of a financial sector 
entity, but excluding other commitments described in paragraph (e)(1)(i) 
or (v) of this section;
    (vii) 100 percent of the undrawn amount of all committed liquidity 
facilities extended by the Board-regulated institution to a financial 
sector entity or a consolidated subsidiary thereof, including a special 
purpose entity (other than those described in paragraph (e)(1)(viii) of 
this section) that is a consolidated subsidiary of a financial sector 
entity, but excluding other commitments described in paragraph (e)(1)(i) 
or (v) of this section and liquidity facilities included in paragraph 
(b)(2) of this section;
    (viii) 100 percent of the undrawn amount of all committed credit and 
liquidity facilities extended to a special purpose entity that issues or 
has issued commercial paper or securities (other than equity securities 
issued to a company of which the special purpose entity is a 
consolidated subsidiary) to finance its purchases or operations, and 
excluding liquidity facilities included in paragraph (b)(2) of this 
section; and
    (ix) 100 percent of the undrawn amount of all other committed credit 
or liquidity facilities extended by the Board-regulated institution.
    (2) For the purposes of this paragraph (e), the undrawn amount of a 
committed credit facility or committed liquidity facility is the entire 
unused

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amount of the facility that could be drawn upon within 30 calendar days 
of the calculation date under the governing agreement, less the amount 
of level 1 liquid assets and the amount of level 2A liquid assets 
securing the facility.
    (3) For the purposes of this paragraph (e), the amount of level 1 
liquid assets and level 2A liquid assets securing a committed credit or 
liquidity facility is the fair value of level 1 liquid assets and 85 
percent of the fair value of level 2A liquid assets that are required to 
be pledged as collateral by the counterparty to secure the facility, 
provided that:
    (i) The assets pledged upon a draw on the facility would be eligible 
HQLA; and
    (ii) The Board-regulated institution has not included the assets as 
eligible HQLA under subpart C of this part as of the calculation date.
    (f) Collateral outflow amount. The collateral outflow amount as of 
the calculation date includes:
    (1) Changes in financial condition. 100 percent of all additional 
amounts of collateral the Board-regulated institution could be 
contractually required to pledge or to fund under the terms of any 
transaction as a result of a change in the Board-regulated institution's 
financial condition;
    (2) Derivative collateral potential valuation changes. 20 percent of 
the fair value of any collateral securing a derivative transaction 
pledged to a counterparty by the Board-regulated institution that is not 
a level 1 liquid asset;
    (3) Potential derivative valuation changes. The absolute value of 
the largest 30-consecutive calendar day cumulative net mark-to-market 
collateral outflow or inflow realized during the preceding 24 months 
resulting from derivative transaction valuation changes;
    (4) Excess collateral. 100 percent of the fair value of collateral 
that:
    (i) The Board-regulated institution could be required by contract to 
return to a counterparty because the collateral pledged to the Board-
regulated institution exceeds the current collateral requirement of the 
counterparty under the governing contract;
    (ii) Is not segregated from the Board-regulated institution's other 
assets such that it cannot be rehypothecated; and
    (iii) Is not already excluded as eligible HQLA by the Board-
regulated institution under Sec. 249.22(b)(5);
    (5) Contractually required collateral. 100 percent of the fair value 
of collateral that the Board-regulated institution is contractually 
required to pledge to a counterparty and, as of such calculation date, 
the Board-regulated institution has not yet pledged;
    (6) Collateral substitution. (i) Zero percent of the fair value of 
collateral pledged to the Board-regulated institution by a counterparty 
where the collateral qualifies as level 1 liquid assets and eligible 
HQLA and where, under the contract governing the transaction, the 
counterparty may replace the pledged collateral with other assets that 
qualify as level 1 liquid assets, without the consent of the Board-
regulated institution;
    (ii) 15 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty, where the collateral 
qualifies as level 1 liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that qualify as level 2A liquid assets, 
without the consent of the Board-regulated institution;
    (iii) 50 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 1 liquid assets and eligible HQLA and where under, 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that qualify as level 2B liquid assets, 
without the consent of the Board-regulated institution;
    (iv) 100 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 1 liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that do not qualify as HQLA, without the 
consent of the Board-regulated institution;

[[Page 341]]

    (v) Zero percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 2A liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that qualify as level 1 or level 2A 
liquid assets, without the consent of the Board-regulated institution;
    (vi) 35 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 2A liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that qualify as level 2B liquid assets, 
without the consent of the Board-regulated institution;
    (vii) 85 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 2A liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that do not qualify as HQLA, without the 
consent of the Board-regulated institution;
    (viii) Zero percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 2B liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with other assets that qualify as HQLA, without the 
consent of the Board-regulated institution; and
    (ix) 50 percent of the fair value of collateral pledged to the 
Board-regulated institution by a counterparty where the collateral 
qualifies as level 2B liquid assets and eligible HQLA and where, under 
the contract governing the transaction, the counterparty may replace the 
pledged collateral with assets that do not qualify as HQLA, without the 
consent of the Board-regulated institution.
    (g) Brokered deposit outflow amount for retail customers or 
counterparties. The brokered deposit outflow amount for retail customers 
or counterparties as of the calculation date includes:
    (1) 100 percent of all brokered deposits at the Board-regulated 
institution provided by a retail customer or counterparty that are not 
described in paragraphs (g)(5) through (9) of this section and which 
mature 30 calendar days or less from the calculation date;
    (2) 10 percent of all brokered deposits at the Board-regulated 
institution provided by a retail customer or counterparty that are not 
described in paragraphs (g)(5) through (9) of this section and which 
mature later than 30 calendar days from the calculation date;
    (3) 20 percent of all brokered deposits at the Board-regulated 
institution provided by a retail customer or counterparty that are not 
described in paragraphs (g)(5) through (9) of this section and which are 
held in a transactional account with no contractual maturity date, where 
the entire amount is covered by deposit insurance;
    (4) 40 percent of all brokered deposits at the Board-regulated 
institution provided by a retail customer or counterparty that are not 
described in paragraphs (g)(5) through (9) of this section and which are 
held in a transactional account with no contractual maturity date, where 
less than the entire amount is covered by deposit insurance;
    (5) 10 percent of all reciprocal brokered deposits at the Board-
regulated institution provided by a retail customer or counterparty, 
where the entire amount is covered by deposit insurance;
    (6) 25 percent of all reciprocal brokered deposits at the Board-
regulated institution provided by a retail customer or counterparty, 
where less than the entire amount is covered by deposit insurance;
    (7) 10 percent of all brokered sweep deposits at the Board-regulated 
institution provided by a retail customer or counterparty:
    (i) That are deposited in accordance with a contract between the 
retail customer or counterparty and the Board-regulated institution, a 
controlled subsidiary of the Board-regulated institution, or a company 
that is a controlled

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subsidiary of the same top-tier company of which the Board-regulated 
institution is a controlled subsidiary; and
    (ii) Where the entire amount of the deposits is covered by deposit 
insurance;
    (8) 25 percent of all brokered sweep deposits at the Board-regulated 
institution provided by a retail customer or counterparty:
    (i) That are not deposited in accordance with a contract between the 
retail customer or counterparty and the Board-regulated institution, a 
controlled subsidiary of the Board-regulated institution, or a company 
that is a controlled subsidiary of the same top-tier company of which 
the Board-regulated institution is a controlled subsidiary; and
    (ii) Where the entire amount of the deposits is covered by deposit 
insurance; and
    (9) 40 percent of all brokered sweep deposits at the Board-regulated 
institution provided by a retail customer or counterparty where less 
than the entire amount of the deposit balance is covered by deposit 
insurance.
    (h) Unsecured wholesale funding outflow amount. A Board-regulated 
institution's unsecured wholesale funding outflow amount, for all 
transactions that mature within 30 calendar days or less of the 
calculation date, as of the calculation date includes:
    (1) For unsecured wholesale funding that is not an operational 
deposit and is not provided by a financial sector entity or consolidated 
subsidiary of a financial sector entity:
    (i) 20 percent of all such funding, where the entire amount is 
covered by deposit insurance and the funding is not a brokered deposit;
    (ii) 40 percent of all such funding, where:
    (A) Less than the entire amount is covered by deposit insurance; or
    (B) The funding is a brokered deposit;
    (2) 100 percent of all unsecured wholesale funding that is not an 
operational deposit and is not included in paragraph (h)(1) of this 
section, including:
    (i) Funding provided by a company that is a consolidated subsidiary 
of the same top-tier company of which the Board-regulated institution is 
a consolidated subsidiary; and
    (ii) Debt instruments issued by the Board-regulated institution, 
including such instruments owned by retail customers or counterparties;
    (3) 5 percent of all operational deposits, other than operational 
deposits that are held in escrow accounts, where the entire deposit 
amount is covered by deposit insurance;
    (4) 25 percent of all operational deposits not included in paragraph 
(h)(3) of this section; and
    (5) 100 percent of all unsecured wholesale funding that is not 
otherwise described in this paragraph (h).
    (i) Debt security buyback outflow amount. A Board-regulated 
institution's debt security buyback outflow amount for debt securities 
issued by the Board-regulated institution that mature more than 30 
calendar days after the calculation date and for which the Board-
regulated institution or a consolidated subsidiary of the Board-
regulated institution is the primary market maker in such debt 
securities includes:
    (1) 3 percent of all such debt securities that are not structured 
securities; and
    (2) 5 percent of all such debt securities that are structured 
securities.
    (j) Secured funding and asset exchange outflow amount. (1) A Board-
regulated institution's secured funding outflow amount, for all 
transactions that mature within 30 calendar days or less of the 
calculation date, as of the calculation date includes:
    (i) Zero percent of all funds the Board-regulated institution must 
pay pursuant to secured funding transactions, to the extent that the 
funds are secured by level 1 liquid assets;
    (ii) 15 percent of all funds the Board-regulated institution must 
pay pursuant to secured funding transactions, to the extent that the 
funds are secured by level 2A liquid assets;
    (iii) 25 percent of all funds the Board-regulated institution must 
pay pursuant to secured funding transactions with sovereign entities, 
multilateral development banks, or U.S. government-sponsored enterprises 
that are assigned a risk weight of 20 percent under subpart D of 
Regulation Q (12 CFR part

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217), to the extent that the funds are not secured by level 1 or level 
2A liquid assets;
    (iv) 50 percent of all funds the Board-regulated institution must 
pay pursuant to secured funding transactions, to the extent that the 
funds are secured by level 2B liquid assets;
    (v) 50 percent of all funds received from secured funding 
transactions that are customer short positions where the customer short 
positions are covered by other customers' collateral and the collateral 
does not consist of HQLA; and
    (vi) 100 percent of all other funds the Board-regulated institution 
must pay pursuant to secured funding transactions, to the extent that 
the funds are secured by assets that are not HQLA.
    (2) If an outflow rate specified in paragraph (j)(1) of this section 
for a secured funding transaction is greater than the outflow rate that 
the Board-regulated institution is required to apply under paragraph (h) 
of this section to an unsecured wholesale funding transaction that is 
not an operational deposit with the same counterparty, the Board-
regulated institution may apply to the secured funding transaction the 
outflow rate that applies to an unsecured wholesale funding transaction 
that is not an operational deposit with that counterparty, except in the 
case of:
    (i) Secured funding transactions that are secured by collateral that 
was received by the Board-regulated institution under a secured lending 
transaction or asset exchange, in which case the Board-regulated 
institution must apply the outflow rate specified in paragraph (j)(1) of 
this section for the secured funding transaction; and
    (ii) Collateralized deposits that are operational deposits, in which 
case the Board-regulated institution may apply to the operational 
deposit amount, as calculated in accordance with Sec. 249.4(b), the 
operational deposit outflow rate specified in paragraph (h)(3) or (4) of 
this section, as applicable, if such outflow rate is lower than the 
outflow rate specified in paragraph (j)(1) of this section.
    (3) A Board-regulated institution's asset exchange outflow amount, 
for all transactions that mature within 30 calendar days or less of the 
calculation date, as of the calculation date includes:
    (i) Zero percent of the fair value of the level 1 liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive level 1 
liquid assets from the asset exchange counterparty;
    (ii) 15 percent of the fair value of the level 1 liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive level 
2A liquid assets from the asset exchange counterparty;
    (iii) 50 percent of the fair value of the level 1 liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive level 
2B liquid assets from the asset exchange counterparty;
    (iv) 100 percent of the fair value of the level 1 liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive assets 
that are not HQLA from the asset exchange counterparty;
    (v) Zero percent of the fair value of the level 2A liquid assets 
that Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where Board-regulated institution will receive level 1 or 
level 2A liquid assets from the asset exchange counterparty;
    (vi) 35 percent of the fair value of the level 2A liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive level 
2B liquid assets from the asset exchange counterparty;

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    (vii) 85 percent of the fair value of the level 2A liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive assets 
that are not HQLA from the asset exchange counterparty;
    (viii) Zero percent of the fair value of the level 2B liquid assets 
the Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive HQLA 
from the asset exchange counterparty; and
    (ix) 50 percent of the fair value of the level 2B liquid assets the 
Board-regulated institution must post to a counterparty pursuant to 
asset exchanges, not described in paragraphs (j)(3)(x) through (xiii) of 
this section, where the Board-regulated institution will receive assets 
that are not HQLA from the asset exchange counterparty;
    (x) Zero percent of the fair value of the level 1 liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
an asset exchange where the Board-regulated institution has 
rehypothecated the assets posted by the asset exchange counterparty, 
and, as of the calculation date, the assets will not be returned to the 
Board-regulated institution within 30 calendar days;
    (xi) 15 percent of the fair value of the level 2A liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
an asset exchange where the Board-regulated institution has 
rehypothecated the assets posted by the asset exchange counterparty, 
and, as of the calculation date, the assets will not be returned to the 
Board-regulated institution within 30 calendar days;
    (xii) 50 percent of the fair value of the level 2B liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
an asset exchange where the Board-regulated institution has 
rehypothecated the assets posted by the asset exchange counterparty, 
and, as of the calculation date, the assets will not be returned to the 
Board-regulated institution within 30 calendar days; and
    (xiii) 100 percent of the fair value of the non-HQLA the Board-
regulated institution will receive from a counterparty pursuant to an 
asset exchange where the Board-regulated institution has rehypothecated 
the assets posted by the asset exchange counterparty, and, as of the 
calculation date, the assets will not be returned to the Board-regulated 
institution within 30 calendar days.
    (k) Foreign central bank borrowing outflow amount. A Board-regulated 
institution's foreign central bank borrowing outflow amount is, in a 
foreign jurisdiction where the Board-regulated institution has borrowed 
from the jurisdiction's central bank, the outflow amount assigned to 
borrowings from central banks in a minimum liquidity standard 
established in that jurisdiction. If the foreign jurisdiction has not 
specified a central bank borrowing outflow amount in a minimum liquidity 
standard, the foreign central bank borrowing outflow amount must be 
calculated in accordance with paragraph (j) of this section.
    (l) Other contractual outflow amount. A Board-regulated 
institution's other contractual outflow amount is 100 percent of funding 
or amounts, with the exception of operating expenses of the Board-
regulated institution (such as rents, salaries, utilities, and other 
similar payments), payable by the Board-regulated institution to 
counterparties under legally binding agreements that are not otherwise 
specified in this section.
    (m) Excluded amounts for intragroup transactions. The outflow 
amounts set forth in this section do not include amounts arising out of 
transactions between:
    (1) The Board-regulated institution and a consolidated subsidiary of 
the Board-regulated institution; or
    (2) A consolidated subsidiary of the Board-regulated institution and 
another consolidated subsidiary of the Board-regulated institution.



Sec. 249.33  Inflow amounts.

    (a) The inflows in paragraphs (b) through (g) of this section do not 
include:

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    (1) Amounts the Board-regulated institution holds in operational 
deposits at other regulated financial companies;
    (2) Amounts the Board-regulated institution expects, or is 
contractually entitled to receive, 30 calendar days or less from the 
calculation date due to forward sales of mortgage loans and any 
derivatives that are mortgage commitments subject to Sec. 249.32(d);
    (3) The amount of any credit or liquidity facilities extended to the 
Board-regulated institution;
    (4) The amount of any asset that is eligible HQLA and any amounts 
payable to the Board-regulated institution with respect to that asset;
    (5) Any amounts payable to the Board-regulated institution from an 
obligation of a customer or counterparty that is a nonperforming asset 
as of the calculation date or that the Board-regulated institution has 
reason to expect will become a nonperforming exposure 30 calendar days 
or less from the calculation date; and
    (6) Amounts payable to the Board-regulated institution with respect 
to any transaction that has no contractual maturity date or that matures 
after 30 calendar days of the calculation date (as determined by 
Sec. 249.31).
    (b) Net derivative cash inflow amount. The net derivative cash 
inflow amount as of the calculation date is the sum of the net 
derivative cash inflow amount for each counterparty. The net derivative 
cash inflow amount does not include amounts excluded from inflows under 
paragraph (a)(2) of this section. The net derivative cash inflow amount 
for a counterparty is the sum of:
    (1) The amount, if greater than zero, of contractual payments and 
collateral that the Board-regulated institution will receive from the 
counterparty 30 calendar days or less from the calculation date under 
derivative transactions other than transactions described in paragraph 
(b)(2) of this section, less the contractual payments and collateral 
that the Board-regulated institution will make or deliver to the 
counterparty 30 calendar days or less from the calculation date under 
derivative transactions other than transactions described in paragraph 
(b)(2) of this section, provided that the derivative transactions are 
subject to a qualifying master netting agreement; and
    (2) The amount, if greater than zero, of contractual principal 
payments that the Board-regulated institution will receive from the 
counterparty 30 calendar days or less from the calculation date under 
foreign currency exchange derivative transactions that result in the 
full exchange of contractual cash principal payments in different 
currencies within the same business day, less the contractual principal 
payments that the Board-regulated institution will make to the 
counterparty 30 calendar days or less from the calculation date under 
foreign currency exchange derivative transactions that result in the 
full exchange of contractual cash principal payments in different 
currencies within the same business day.
    (c) Retail cash inflow amount. The retail cash inflow amount as of 
the calculation date includes 50 percent of all payments contractually 
payable to the Board-regulated institution from retail customers or 
counterparties.
    (d) Unsecured wholesale cash inflow amount. The unsecured wholesale 
cash inflow amount as of the calculation date includes:
    (1) 100 percent of all payments contractually payable to the Board-
regulated institution from financial sector entities, or from a 
consolidated subsidiary thereof, or central banks; and
    (2) 50 percent of all payments contractually payable to the Board-
regulated institution from wholesale customers or counterparties that 
are not financial sector entities or consolidated subsidiaries thereof, 
provided that, with respect to revolving credit facilities, the amount 
of the existing loan is not included in the unsecured wholesale cash 
inflow amount and the remaining undrawn balance is included in the 
outflow amount under Sec. 249.32(e)(1).
    (e) Securities cash inflow amount. The securities cash inflow amount 
as of the calculation date includes 100 percent of all contractual 
payments due to the Board-regulated institution on securities it owns 
that are not eligible HQLA.

[[Page 346]]

    (f) Secured lending and asset exchange cash inflow amount. (1) A 
Board-regulated institution's secured lending cash inflow amount as of 
the calculation date includes:
    (i) Zero percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions, 
including margin loans extended to customers, to the extent that the 
payments are secured by collateral that has been rehypothecated in a 
transaction and, as of the calculation date, will not be returned to the 
Board-regulated institution within 30 calendar days;
    (ii) 100 percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions not 
described in paragraph (f)(1)(vii) of this section, to the extent that 
the payments are secured by assets that are not eligible HQLA, but are 
still held by the Board-regulated institution and are available for 
immediate return to the counterparty at any time;
    (iii) Zero percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions not 
described in paragraphs (f)(1)(i) or (ii) of this section, to the extent 
that the payments are secured by level 1 liquid assets;
    (iv) 15 percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions not 
described in paragraphs (f)(1)(i) or (ii) of this section, to the extent 
that the payments are secured by level 2A liquid assets;
    (v) 50 percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions not 
described in paragraphs (f)(1)(i) or (ii) of this section, to the extent 
that the payments are secured by level 2B liquid assets;
    (vi) 100 percent of all contractual payments due to the Board-
regulated institution pursuant to secured lending transactions not 
described in paragraphs (f)(1)(i), (ii), or (vii) of this section, to 
the extent that the payments are secured by assets that are not HQLA; 
and
    (vii) 50 percent of all contractual payments due to the Board-
regulated institution pursuant to collateralized margin loans extended 
to customers, not described in paragraph (f)(1)(i) of this section, 
provided that the loans are secured by assets that are not HQLA.
    (2) A Board-regulated institution's asset exchange inflow amount as 
of the calculation date includes:
    (i) Zero percent of the fair value of assets the Board-regulated 
institution will receive from a counterparty pursuant to asset 
exchanges, to the extent that the asset received by the Board-regulated 
institution from the counterparty has been rehypothecated in a 
transaction and, as of the calculation date, will not be returned to the 
Board-regulated institution within 30 calendar days;
    (ii) Zero percent of the fair value of level 1 liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post level 1 liquid assets to 
the asset exchange counterparty;
    (iii) 15 percent of the fair value of level 1 liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post level 2A liquid assets 
to the asset exchange counterparty;
    (iv) 50 percent of the fair value of level 1 liquid assets the 
Board-regulated institution will receive from counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post level 2B liquid assets 
to the asset exchange counterparty;
    (v) 100 percent of the fair value of level 1 liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post assets that are not HQLA 
to the asset exchange counterparty;
    (vi) Zero percent of the fair value of level 2A liquid assets the 
Board-regulated institution will receive from a

[[Page 347]]

counterparty pursuant to asset exchanges, not described in paragraph 
(f)(2)(i) of this section, where the Board-regulated institution must 
post level 1 or level 2A liquid assets to the asset exchange 
counterparty;
    (vii) 35 percent of the fair value of level 2A liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post level 2B liquid assets 
to the asset exchange counterparty;
    (viii) 85 percent of the fair value of level 2A liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post assets that are not HQLA 
to the asset exchange counterparty;
    (ix) Zero percent of the fair value of level 2B liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post assets that are HQLA to 
the asset exchange counterparty; and
    (x) 50 percent of the fair value of level 2B liquid assets the 
Board-regulated institution will receive from a counterparty pursuant to 
asset exchanges, not described in paragraph (f)(2)(i) of this section, 
where the Board-regulated institution must post assets that are not HQLA 
to the asset exchange counterparty.
    (g) Broker-dealer segregated account inflow amount. A Board-
regulated institution's broker-dealer segregated account inflow amount 
is the fair value of all assets released from broker-dealer segregated 
accounts maintained in accordance with statutory or regulatory 
requirements for the protection of customer trading assets, provided 
that the calculation of the broker-dealer segregated account inflow 
amount, for any transaction affecting the calculation of the segregated 
balance (as required by applicable law), shall be consistent with the 
following:
    (1) In calculating the broker-dealer segregated account inflow 
amount, the Board-regulated institution must calculate the fair value of 
the required balance of the customer reserve account as of 30 calendar 
days from the calculation date by assuming that customer cash and 
collateral positions have changed consistent with the outflow and inflow 
calculations required under Secs. 249.32 and 249.33.
    (2) If the fair value of the required balance of the customer 
reserve account as of 30 calendar days from the calculation date, as 
calculated consistent with the outflow and inflow calculations required 
under Secs. 249.32 and 249.33, is less than the fair value of the 
required balance as of the calculation date, the difference is the 
segregated account inflow amount.
    (3) If the fair value of the required balance of the customer 
reserve account as of 30 calendar days from the calculation date, as 
calculated consistent with the outflow and inflow calculations required 
under Secs. 249.32 and 249.33, is more than the fair value of the 
required balance as of the calculation date, the segregated account 
inflow amount is zero.
    (h) Other cash inflow amounts. A Board-regulated institution's 
inflow amount as of the calculation date includes zero percent of other 
cash inflow amounts not included in paragraphs (b) through (g) of this 
section.
    (i) Excluded amounts for intragroup transactions. The inflow amounts 
set forth in this section do not include amounts arising out of 
transactions between:
    (1) The Board-regulated institution and a consolidated subsidiary of 
the Board-regulated institution; or
    (2) A consolidated subsidiary of the Board-regulated institution and 
another consolidated subsidiary of the Board-regulated institution.



                 Subpart E_Liquidity Coverage Shortfall



Sec. 249.40  Liquidity coverage shortfall: Supervisory framework.

    (a) Notification requirements. A Board-regulated institution must 
notify the Board on any business day when its liquidity coverage ratio 
is calculated to be less than the minimum requirement in Sec. 249.10.

[[Page 348]]

    (b) Liquidity plan. (1) For the period during which a Board-
regulated institution must calculate a liquidity coverage ratio on the 
last business day of each applicable calendar month under subparts F or 
G of this part, if the Board-regulated institution's liquidity coverage 
ratio is below the minimum requirement in Sec. 249.10 for any 
calculation date that is the last business day of the applicable 
calendar month, or if the Board has determined that the Board-regulated 
institution is otherwise materially noncompliant with the requirements 
of this part, the Board-regulated institution must promptly consult with 
the Board to determine whether the Board-regulated institution must 
provide to the Board a plan for achieving compliance with the minimum 
liquidity requirement in Sec. 249.10 and all other requirements of this 
part.
    (2) For the period during which a Board-regulated institution must 
calculate a liquidity coverage ratio each business day under subpart F 
of this part, if a Board-regulated institution's liquidity coverage 
ratio is below the minimum requirement in Sec. 249.10 for three 
consecutive business days, or if the Board has determined that the 
Board-regulated institution is otherwise materially noncompliant with 
the requirements of this part, the Board-regulated institution must 
promptly provide to the Board a plan for achieving compliance with the 
minimum liquidity requirement in Sec. 249.10 and all other requirements 
of this part.
    (3) The plan must include, as applicable:
    (i) An assessment of the Board-regulated institution's liquidity 
position;
    (ii) The actions the Board-regulated institution has taken and will 
take to achieve full compliance with this part, including:
    (A) A plan for adjusting the Board-regulated institution's risk 
profile, risk management, and funding sources in order to achieve full 
compliance with this part; and
    (B) A plan for remediating any operational or management issues that 
contributed to noncompliance with this part;
    (iii) An estimated time frame for achieving full compliance with 
this part; and
    (iv) A commitment to report to the Board no less than weekly on 
progress to achieve compliance in accordance with the plan until full 
compliance with this part is achieved.
    (c) Supervisory and enforcement actions. The Board may, at its 
discretion, take additional supervisory or enforcement actions to 
address noncompliance with the minimum liquidity standard and other 
requirements of this part.

[79 FR 61523, 61539, Oct. 10, 2014, as amended at 79 FR 61540, Oct. 10, 
2014]



                          Subpart F_Transitions



Sec. 249.50  Transitions.

    (a) Covered depository institution holding companies with $700 
billion or more in total consolidated assets or $10 trillion or more in 
assets under custody. For any depository institution holding company 
that has total consolidated assets equal to $700 billion or more, as 
reported on the company's most recent Consolidated Financial Statements 
for Holding Companies (FR Y-9C), or $10 trillion or more in assets under 
custody, as reported on the company's most recent Banking Organization 
Systemic Risk Report (FR Y-15), and any depository institution that is a 
consolidated subsidiary of such depository institution holding company 
that has total consolidated assets equal to $10 billion or more, as 
reported on the most recent year-end Consolidated Report of Condition 
and Income:
    (1) Beginning January 1, 2015, through June 30, 2015, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio monthly, on each calculation date that is the last business day of 
the applicable calendar month, in accordance with this part, that is 
equal to or greater than 0.80.
    (2) Beginning July 1, 2015 through December 31, 2015, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio on each calculation date in accordance with this part that is 
equal to or greater than 0.80.
    (3) Beginning January 1, 2016, through December 31, 2016, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio on each calculation date in accordance

[[Page 349]]

with this part that is equal to or greater than 0.90.
    (4) On January 1, 2017, and thereafter, the Board-regulated 
institution must calculate and maintain a liquidity coverage ratio on 
each calculation date that is equal to or greater than 1.0.
    (b) Other Board-regulated institutions. For any Board-regulated 
institution subject to a minimum liquidity standard under this part not 
described in paragraph (a) of this section:
    (1) Beginning January 1, 2015, through December 31, 2015, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio monthly, on each calculation date that is the last business day of 
the applicable calendar month, in accordance with this part, that is 
equal to or greater than 0.80.
    (2) Beginning January 1, 2016, through June 30, 2016, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio monthly, on each calculation date that is the last business day of 
the applicable calendar month, in accordance with this part, that is 
equal to or greater than 0.90.
    (3) Beginning July 1, 2016, through December 31, 2016, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio on each calculation date in accordance with this part that is 
equal to or greater than 0.90.
    (4) On January 1, 2017, and thereafter, the Board-regulated 
institution must calculate and maintain a liquidity coverage ratio on 
each calculation date that is equal to or greater than 1.0.



  Subpart G_Liquidity Coverage Ratio for Certain Bank Holding Companies

    Source: 79 FR 61540, Oct. 10, 2014, unless otherwise noted.



Sec. 249.60  Applicability.

    (a) Scope. This subpart applies to a covered depository institution 
holding company domiciled in the United States that has total 
consolidated assets equal to $50 billion or more, based on the average 
of the Board-regulated institution's four most recent FR Y-9Cs (or, if a 
savings and loan holding company is not required to report on the FR Y-
9C, based on the average of its estimated total consolidated assets for 
the most recent four quarters, calculated in accordance with the 
instructions to the FR Y-9C) and does not meet the applicability 
criteria set forth in Sec. 249.1(b).
    (b) Applicable provisions. Except as otherwise provided in this 
subpart, the provisions of subparts A through E of this part apply to 
covered depository institution holding companies that are subject to 
this subpart.
    (c) Applicability. Subject to the transition periods set forth in 
Sec. 249.61:
    (1) A Board-regulated institution that meets the threshold for 
applicability of this subpart under paragraph (a) of this section on 
September 30, 2014, must comply with the requirements of this subpart 
beginning on January 1, 2015; and
    (2) A Board-regulated institution that first meets the threshold for 
applicability of this subpart under paragraph (a) of this section after 
September 30, 2014, must comply with the requirements of this subpart 
beginning on the first day of the first quarter after which it meets the 
threshold set forth in paragraph (a).

    Effective Date Note: At 81 FR 94929, Dec. 27, 2016, Sec. 249.60 was 
amended by revising paragraph (c)(2), effective Apr. 1, 2017. For the 
convenience of the user, the revised text is set forth as follows:



Sec. 249.60  Applicability.

                                * * * * *

    (c) * * *
    (2) A Board-regulated institution that first meets the threshold for 
applicability of this subpart under paragraph (a) of this section after 
September 30, 2014, must comply with the requirements of this subpart 
one year after the date it meets the threshold set forth in paragraph 
(a); except that a Board-regulated institution that met the 
applicability criteria in Sec. 249.1(b) immediately prior to meeting 
this threshold must comply with the requirements of this subpart 
beginning on the first day of the first quarter after which it meets the 
threshold set forth in paragraph (a) of this section.



Sec. 249.61  Liquidity coverage ratio.

    (a) Calculation of liquidity coverage ratio. A Board-regulated 
institution subject to this subpart must calculate

[[Page 350]]

and maintain a liquidity coverage ratio in accordance with Sec. 249.10 
and this subpart, provided however, that such Board-regulated 
institution shall only be required to maintain a liquidity coverage 
ratio that is equal to or greater than 1.0 on last business day of the 
applicable calendar month. A Board-regulated institution subject to this 
subpart must calculate its liquidity coverage ratio as of the same time 
on each calculation day (elected calculation time). The Board-regulated 
institution must select this time by written notice to the Board prior 
to the effective date of this rule. The Board-regulated institution may 
not thereafter change its elected calculation time without prior written 
approval from the Board.
    (b) Transitions. For any Board-regulated institution subject to a 
minimum liquidity standard under this subpart:
    (1) Beginning January 1, 2016, through December 31, 2016, the Board-
regulated institution must calculate and maintain a liquidity coverage 
ratio monthly, on each calculation date, in accordance with this 
subpart, that is equal to or greater than 0.90.
    (2) Beginning January 1, 2017 and thereafter, the Board-regulated 
institution must calculate and maintain a liquidity coverage ratio 
monthly, on each calculation date, in accordance with this subpart, that 
is equal to or greater than 1.0.



Sec. 249.62  High-quality liquid asset amount.

    A covered depository institution holding company subject to this 
subpart must calculate its HQLA amount in accordance with subpart C of 
this part.



Sec. 249.63  Total net cash outflow.

    (a) A covered depository institution holding company subject to this 
subpart must calculate its cash outflows and inflows in accordance with 
subpart D of this part, provided, however, that as of the calculation 
date, the total net cash outflow amount of a covered depository 
institution subject to this subpart equals 70 percent of:
    (1) The sum of the outflow amounts calculated under Sec. 249.32(a) 
through (l); less:
    (2) The lesser of:
    (i) The sum of the inflow amounts under Sec. 249.33(b) through (g); 
and
    (ii) 75 percent of the amount in paragraph (a)(1) of this section as 
calculated for that calendar day.
    (b) [Reserved]



Sec. 249.64  Disclosures.

    (a) Effective October 1, 2018, a covered depository institution 
holding company subject to this subpart must disclose publicly the 
information required under subpart J of this part each calendar quarter, 
except as provided in paragraph (b) of this section.
    (b) Effective 18 months after a covered depository institution 
holding company first becomes subject to this subpart pursuant to 
Sec. 249.60(c)(2), the covered depository institution holding company 
must provide the disclosures required under subpart J of this part each 
calendar quarter.

    Effective Date Note: At 81 FR 94929, Dec. 27, 2016, Sec. 249.64 was 
added, effective Apr. 1, 2017.

Subparts H-I [Reserved]



                          Subpart J_Disclosures

    Effective Date Note: At 81 FR 94929, Dec. 27, 2016, subpart J to 
part 249 was added, effective Apr. 1, 2017.



Sec. 249.90  Timing, method and retention of disclosures.

    (a) Applicability. A covered depository institution holding company 
or covered nonbank company that is subject to the minimum liquidity 
standards and other requirements of this part under Sec. 249.1 must 
disclose publicly all the information required under this subpart.
    (b) Timing of disclosure. (1) A covered depository institution 
holding company or covered nonbank company subject to this subpart must 
provide timely public disclosures each calendar quarter of all the 
information required under this subpart.
    (2) A covered depository institution holding company or covered 
nonbank company subject to this subpart must provide the disclosures 
required by this subpart for the calendar quarter beginning on:

[[Page 351]]

    (i) April 1, 2017, and thereafter if the covered depository 
institution holding company is subject to the transition period under 
Sec. 249.50(a); or
    (ii) April 1, 2018, and thereafter if the covered depository 
institution holding company or covered nonbank holding company is 
subject to the transition period under Sec. 249.50(b).
    (3) A covered depository institution holding company or covered 
nonbank company that is subject to the minimum liquidity standard and 
other requirements of this part pursuant to Sec. 249.1(b)(2)(ii), must 
provide the disclosures required by this subpart for the first calendar 
quarter beginning no later than the date it is first required to comply 
with the requirements of this part pursuant to Sec. 249.1(b)(2)(ii).
    (c) Disclosure method. A covered depository institution holding 
company or covered nonbank company subject to this subpart must disclose 
publicly, in a direct and prominent manner, the information required 
under this subpart on its public internet site or in its public 
financial or other public regulatory reports.
    (d) Availability. The disclosures provided under this subpart must 
remain publicly available for at least five years after the initial 
disclosure date.



Sec. 249.91  Disclosure requirements.

    (a) General. A covered depository institution holding company or 
covered nonbank company subject to this subpart must disclose publicly 
the information required by paragraph (b) of this section in the format 
provided in the following table.

             Table 1 to Sec.  249.91(a)--Disclosure Template
------------------------------------------------------------------------
                                              Average         Average
XX/XX/XXXX to YY/YY/YYYY (in millions of    unweighted       weighted
              U.S. dollars)                   amount          amount
------------------------------------------------------------------------
High-Quality Liquid Assets:
    1. Total eligible high-quality
     liquid assets (HQLA), of which:
    2. Eligible level 1 liquid assets...
    3. Eligible level 2A liquid assets..
    4. Eligible level 2B liquid assets..
Cash Outflow Amounts:
    5. Deposit outflow from retail
     customers and counterparties, of
     which:
    6. Stable retail deposit outflow....
    7. Other retail funding outflow.....
    8. Brokered deposit outflow.........
    9. Unsecured wholesale funding
     outflow, of which:
    10. Operational deposit outflow.....
    11. Non-operational funding outflow.
    12. Unsecured debt outflow..........
    13. Secured wholesale funding and
     asset exchange outflow.............
    14. Additional outflow requirements,
     of which:
    15. Outflow related to derivative
     exposures and other collateral
     requirements.......................
    16. Outflow related to credit and
     liquidity facilities including
     unconsolidated structured
     transactions and mortgage
     commitments........................
    17. Other contractual funding
     obligation outflow.................
    18. Other contingent funding
     obligations outflow................
    19. Total Cash Outflow..............
Cash Inflow Amounts:
    20. Secured lending and asset
     exchange cash inflow...............
    21. Retail cash inflow..............
    22. Unsecured wholesale cash inflow.
    23. Other cash inflows, of which:...
    24. Net derivative cash inflow......
    25. Securities cash inflow..........
    26. Broker-dealer segregated account
     inflow.............................
    27. Other cash inflow...............
    28. Total Cash Inflow...............
------------------------------------------------------------------------
           Average Amount \1\
------------------------------------------------------------------------
    29. HQLA Amount.....................
    30. Total Net Cash Outflow Amount
     Excluding the Maturity Mismatch Add-
     on.................................
    31. Maturity Mismatch Add-on........
        32. Total Net Cash Outflow
         Amount.........................

[[Page 352]]

 
    33. Liquidity Coverage Ratio (%)....
------------------------------------------------------------------------
\1\ The amounts reported in this column may not equal the calculation of
  those amounts using component amounts reported in rows 1-28 due to
  technical factors such as the application of the level 2 liquid asset
  caps, the total inflow cap, and for depository institution holding
  companies subject to subpart G, the application of the modification to
  total net cash outflows.

    (b) Calculation of disclosed average amounts--(1) General. (i) A 
covered depository institution holding company or covered nonbank 
company subject to this subpart must calculate its disclosed average 
amounts:
    (A) On a consolidated basis and presented in millions of U.S. 
dollars or as a percentage, as applicable; and
    (B) With the exception of amounts disclosed pursuant to paragraphs 
(c)(1), (c)(5), (c)(9), (c)(14), (c)(19), (c)(23), and (c)(28) of this 
section, as simple averages of daily amounts over the calendar quarter;
    (ii) A covered depository institution holding company that is 
required to calculate its liquidity coverage ratio on a monthly basis 
pursuant to Sec. 249.61 must calculate its disclosed average amounts as 
provided in paragraph (b)(1)(i), except that those amounts must be 
calculated as simple averages of monthly amounts over a calendar 
quarter;
    (iii) A covered depository institution holding company or covered 
nonbank company subject to this subpart must disclose the beginning date 
and end date for each calendar quarter.
    (2) Calculation of average unweighted amounts. (i) A covered 
depository institution holding company or covered nonbank company 
subject to this subpart must calculate the average unweighted amount of 
HQLA as the average amount of eligible HQLA that meet the requirements 
specified in Secs. 249.20 and 249.22 and is calculated prior to applying 
the haircuts required under Sec. 249.21(b) to the amounts of eligible 
HQLA.
    (ii) A covered depository institution holding company or covered 
nonbank company subject to this subpart must calculate the average 
unweighted amount of cash outflows and cash inflows before applying the 
outflow and inflow rates specified in Secs. 249.32 and 249.33, 
respectively.
    (3) Calculation of average weighted amounts. (i) A covered 
depository institution holding company or covered nonbank company 
subject to this subpart must calculate the average weighted amount of 
HQLA after applying the haircuts required under Sec. 249.21(b) to the 
amounts of eligible HQLA.
    (ii) A covered depository institution holding company or covered 
nonbank company subject to this subpart must calculate the average 
weighted amount of cash outflows and cash inflows after applying the 
outflow and inflow rates specified in Secs. 249.32 and 249.33, 
respectively.
    (c) Quantitative disclosures. A covered depository institution 
holding company or covered nonbank company subject to this subpart must 
disclose all the information required under Table 1 to Sec. 249.91(a)--
Disclosure Template, including:
    (1) The sum of the average unweighted amounts and average weighted 
amounts calculated under paragraphs (c)(2) through (4) of this section 
(row 1);
    (2) The average unweighted amount and average weighted amount of 
level 1 liquid assets that are eligible HQLA under Sec. 249.21(b)(1) 
(row 2);
    (3) The average unweighted amount and average weighted amount of 
level 2A liquid assets that are eligible HQLA under Sec. 249.21(b)(2) 
(row 3);
    (4) The average unweighted amount and average weighted amount of 
level 2B liquid assets that are eligible HQLA under Sec. 249.21(b)(3) 
(row 4);
    (5) The sum of the average unweighted amounts and average weighted 
amounts of cash outflows calculated under paragraphs (c)(6) through (8) 
of this section (row 5);

[[Page 353]]

    (6) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(a)(1) (row 6);
    (7) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(a)(2) through (5) (row 7);
    (8) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(g) (row 8);
    (9) The sum of the average unweighted amounts and average weighted 
amounts of cash outflows calculated under paragraphs (c)(10) through 
(12) of this section (row 9);
    (10) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(h)(3) and (4) (row 10);
    (11) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(h)(1), (2), and (5), excluding 
(h)(2)(ii) (row 11);
    (12) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(h)(2)(ii) (row 12);
    (13) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(j) and (k) (row 13);
    (14) The sum of the average unweighted amounts and average weighted 
amounts of cash outflows calculated under paragraphs (c)(15) and (16) of 
this section (row 14);
    (15) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(c) and (f) (row 15);
    (16) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(b), (d), and (e) (row 16);
    (17) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(l) (row 17);
    (18) The average unweighted amount and average weighted amount of 
cash outflows under Sec. 249.32(i) (row 18);
    (19) The sum of average unweighted amounts and average weighted 
amounts of cash outflows calculated under paragraphs (c)(5), (9), (13), 
(14), (17), and (18) of this section (row 19);
    (20) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(f) (row 20);
    (21) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(c) (row 21);
    (22) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(d) (row 22);
    (23) The sum of average unweighted amounts and average weighted 
amounts of cash inflows calculated under paragraphs (c)(24) through (27) 
of this section (row 23);
    (24) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(b) (row 24);
    (25) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(e) (row 25);
    (26) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(g) (row 26);
    (27) The average unweighted amount and average weighted amount of 
cash inflows under Sec. 249.33(h) (row 27);
    (28) The sum of average unweighted amounts and average weighted 
amounts of cash inflows reported under paragraphs (c)(20) through (23) 
of this section (row 28);
    (29) The average amount of the HQLA amounts as calculated under 
Sec. 249.21(a) (row 29);
    (30) The average amount of the total net cash outflow amounts 
excluding the maturity mismatch add-on as calculated under 
Sec. 249.30(a)(1) and (2) (row 30);
    (31) The average amount of the maturity mismatch add-ons as 
calculated under Sec. 249.30(b) (row 31);
    (32) The average amount of the total net cash outflow amounts as 
calculated under Sec. 249.30 or Sec. 249.63, as applicable (row 32);
    (33) The average of the liquidity coverage ratios as calculated 
under Sec. 249.10(b) (row 33).
    (d) Qualitative disclosures. (1) A covered depository institution 
holding company or covered nonbank company subject to this subpart must 
provide a qualitative discussion of the factors that have a significant 
effect on its liquidity coverage ratio, which may include the following:
    (i) The main drivers of the liquidity coverage ratio;
    (ii) Changes in the liquidity coverage ratio over time and causes of 
such changes;

[[Page 354]]

    (iii) The composition of eligible HQLA;
    (iv) Concentration of funding sources;
    (v) Derivative exposures and potential collateral calls;
    (vi) Currency mismatch in the liquidity coverage ratio; or
    (vii) The centralized liquidity management function of the covered 
depository institution holding company or covered nonbank company and 
its interaction with other functional areas of the covered depository 
institution holding company or covered nonbank company.
    (2) If a covered depository institution holding company or covered 
nonbank company subject to this subpart believes that the qualitative 
discussion required in paragraph (d)(1) of this section would prejudice 
seriously its position by resulting in public disclosure of specific 
commercial or financial information that is either proprietary or 
confidential in nature, the covered depository institution holding 
company or covered nonbank company is not required to include those 
specific items in its qualitative discussion, but must provide more 
general information about the items that had a significant effect on its 
liquidity coverage ratio, together with the fact that, and the reason 
why, more specific information was not discussed.



PART 250_MISCELLANEOUS INTERPRETATIONS--Table of Contents



                             Interpretations

Sec.
250.141  Member bank purchase of stock of ``operations subsidiaries.''
250.142  Meaning of ``obligor or maker'' in determining limitation on 
          securities investments by member State banks.
250.143  Member bank purchase of stock of foreign operations 
          subsidiaries.
250.160  Federal funds transactions.
250.163  Inapplicability of amount limitations to ``ineligible 
          acceptances.''
250.164  Bankers' acceptances.
250.165  Bankers' acceptances: definition of participations.
250.166  Treatment of mandatory convertible debt and subordinated notes 
          of state member banks and bank holding companies as 
          ``capital''.
250.180  Reports of changes in control of management.
250.181  Reports of change in control of bank management incident to a 
          merger.
250.182  Terms defining competitive effects of proposed mergers.
250.200  Investment in bank premises by holding company banks.
250.220  Whether member bank acting as trustee is prohibited by section 
          20 of the Banking Act of 1933 from acquiring majority of 
          shares of mutual fund.
250.221  Issuance and sale of short-term debt obligations by bank 
          holding companies.
250.260  Miscellaneous interpretations; gold coin and bullion.

         Interpretations of Section 32 of the Glass-Steagall Act

250.400  Service of open-end investment company.
250.401  Director serving member bank and closed-end investment company 
          being organized.
250.402  Service as officer, director, or employee of licensee 
          corporation under the Small Business Investment Act of 1958.
250.403  Service of member bank and real estate investment company.
250.404  Serving as director of member bank and corporation selling own 
          stock.
250.405  No exception granted a special or limited partner.
250.406  Serving member bank and investment advisor with mutual fund 
          affiliation.
250.407  Interlocking relationship involving securities affiliate of 
          brokerage firm.
250.408  Short-term negotiable notes of banks not securities under 
          section 32, Banking Act of 1933.
250.409  Investment for own account affects applicability of section 32.
250.410  Interlocking relationships between bank and its commingled 
          investment account.
250.411  Interlocking relationships between member bank and variable 
          annuity insurance company.
250.412  Interlocking relationships between member bank and insurance 
          company-mutual fund complex.
250.413  ``Bank-eligible'' securities activities.

    Authority: 12 U.S.C. 78, 248(i), 371c(f) and 371c-1(e).

    Source: 33 FR 9866, July 10, 1968, unless otherwise noted.

                             Interpretations



Sec. 250.141  Member bank purchase of stock of ``operations subsidiaries.''

    (a) The Board of Governors has reexamined its position that the so-
called ``stock-purchase prohibition'' of section 5136 of the Revised 
Statutes (12 U.S.C. 24), which is made applicable to

[[Page 355]]

member State banks by the 20th paragraph of section 9 of the Federal 
Reserve Act (12 U.S.C. 335), forbids the purchase by a member bank ``for 
its own account of any shares of stock of any corporation'' (the 
statutory language), except as specifically permitted by provisions of 
Federal law or as comprised within the concept of ``such incidental 
powers as shall be necessary to carry on the business of banking'', 
referred to in the first sentence of paragraph ``Seventh'' of R.S. 5136.
    (b) In 1966 the Board expressed the view that said incidental powers 
do not permit member banks to purchase stock of ``operations 
subsidiaries''--that is, organizations designed to serve, in effect, as 
separately-incorporated departments of the bank, performing, at 
locations at which the bank is authorized to engage in business, 
functions that the bank is empowered to perform directly. (See 1966 
Federal Reserve Bulletin 1151.)
    (c) The Board now considers that the incidental powers clause 
permits a bank to organize its operations in the manner that it believes 
best facilitates the performance thereof. One method of organization is 
through departments; another is through separate incorporation of 
particular operations. In other words, a wholly owned subsidiary 
corporation engaged in activities that the bank itself may perform is 
simply a convenient alternative organizational arrangement.
    (d) Reexamination of the apparent purposes and legislative history 
of the stock-purchase prohibition referred to above has led the Board to 
conclude that such prohibition should not be interpreted to preclude a 
member bank from adopting such an organizational arrangement unless its 
use would be inconsistent with other Federal law, either statutory or 
judicial.
    (e) In view of the relationship between the operation of certain 
subsidiaries and the branch banking laws, the Board has also reexamined 
its rulings on what constitutes ``money lent'' for the purposes of 
section 5155 of the Revised Statutes (12 U.S.C. 36), which provides that 
``The termbranch * * * shall be held to include any branch bank, branch 
office, branch agency, additional office, or any branch place of 
business * * * at which deposits are received, or checks paid, or money 
lent.'' \1\
---------------------------------------------------------------------------

    \1\ In the Board's judgment, the statutory enumeration of three 
specific functions that establish branch status is not meant to be 
exclusive but to assure that offices at which any of these functions is 
performed are regarded as branches by the bank regulatory authorities. 
In applying the statute the emphasis should be to assure that 
significant banking functions are made available to the public only at 
governmentally authorized offices.
---------------------------------------------------------------------------

    (f) The Board noted in its 1967 interpretation that offices that are 
open to the public and staffed by employees of the bank who regularly 
engage in soliciting borrowers, negotiating terms, and processing 
applications for loans (so-called loan production offices) constitute 
branches. (1967 Federal Reserve Bulletin 1334.) The Board also noted 
that later in that year it considered the question whether a bank 
holding company may acquire the stock of a so-called mortgage company on 
the basis that the company would be engaged in ``furnishing services to 
or performing services for such bank holding company or its banking 
subsidiaries'' (the so-called servicing exemption of section 4(c)(1)(C) 
of the Bank Holding Company Act; 12 U.S.C. 1843). In concluding 
affirmatively, the Board stated that ``the appropriate test for 
determining whether the company may be considered as within the 
servicing exemption is whether the company will perform as principal any 
banking activities--such as receiving deposits, paying checks, extending 
credit, conducting a trust department, and the like. In other words, if 
the mortgage company is to act merely as an adjunct to a bank for the 
purpose of facilitating the bank's operations, the company may 
appropriately be considered as within the scope of the servicing 
exemption.'' (1967 Federal Reserve Bulletin 1911; 12 CFR 225.122.)
    (g) The Board believes that the purposes of the branch banking laws 
and the servicing exemption are related. Generally, what constitutes a 
branch does not constitute a servicing organization and, vice versa, an 
office that only performs servicing functions should not be considered a 
branch. (See

[[Page 356]]

1958 Federal Reserve Bulletin 431, last paragraph; 12 CFR 225.104(e).) 
When viewed together, the above-cited interpretations on loan production 
offices and mortgage companies represent a departure from this 
principle. In reconsidering the laws involved, the Board has concluded 
that a test similar to that adopted with respect to the servicing 
exemption under the Bank Holding Company Act is appropriate for use in 
determining whether or not what constitutes money [is] lent at a 
particular office, for the purpose of the Federal branch banking laws.
    (h) Accordingly, the Board considers that the following activities, 
individually or collectively, do not constitute the lending of money 
within the meaning of section 5155 of the revised statutes: Soliciting 
loans on behalf of a bank (or a branch thereof), assembling credit 
information, making property inspections and appraisals, securing title 
information, preparing applications for loans (including making 
recommendations with respect to action thereon), soliciting investors to 
purchase loans from the bank, seeking to have such investors contract 
with the bank for the servicing of such loans, and other similar agent-
type activities. When loans are approved and funds disbursed solely at 
the main office or a branch of the bank, an office at which only 
preliminary and servicing steps are taken is not a place where money 
[is] lent. Because preliminary and servicing steps of the kinds 
described do not constitute the performance of significant banking 
functions of the type that Congress contemplated should be performed 
only at governmentally approved offices, such office is accordingly not 
a branch.
    (i) To summarize the foregoing, the Board has concluded that, 
insofar as Federal law is concerned, a member bank may purchase for its 
own account shares of a corporation to perform, at locations at which 
the bank is authorized to engage in business, functions that the bank is 
empowered to perform directly. Also, a member bank may establish and 
operate, at any location in the United States, a loan production office 
of the type described herein. Such offices may be established and 
operated by the bank either directly, or indirectly through a wholly-
owned subsidiary corporation.
    (j) This interpretation supersedes both the Board's 1966 ruling on 
operations subsidiaries and its 1967 ruling on loan production offices, 
referred to above.

(12 U.S.C. 24, 36, 321, 335)

[33 FR 11813, Aug. 21, 1968; 43 FR 53414, Nov. 16, 1978]



Sec. 250.142  Meaning of ``obligor or maker'' in determining limitation 
on securities investments by member State banks.

    (a) From time to time the New York State Dormitory Authority offers 
issues of bonds with respect to each of which a different educational 
institution enters into an agreement to make rental payments to the 
Authority sufficient to cover interest and principal thereon when due. 
The Board of Governors of the Federal Reserve System has been asked 
whether a member State bank may invest up to 10 percent of its capital 
and surplus in each such issue.
    (b) Paragraph Seventh of section 5136 of the U.S. Revised Statutes 
(12 U.S.C. 24) provides that ``In no event shall the total amount of the 
investment securities of any one obligor or maker, held by [a national 
bank] for its own account, exceed at any time 10 per centum of its 
capital stock * * * and surplus fund''. That limitation is made 
applicable to member State banks by the 20th paragraph of section 9 of 
the Federal Reserve Act (12 U.S.C. 335).
    (c) The Board considers that, within the meaning of these provisions 
of law, obligor does not include any person that acts solely as a 
conduit for transmission of funds received from another source, 
irrespective of a promise by such person to pay principal or interest on 
the obligation. While an obligor does not cease to be such merely 
because a third person has agreed to pay the obligor amounts sufficient 
to cover principal and interest on the obligations when due, a person 
that promises to pay an obligation, but as a practical matter has no 
resources with which to assume payment of the obligation except the 
amounts received from such third person, is not an obligor within the 
meaning of section 5136.

[[Page 357]]

    (d) Review of the New York Dormitory Authority Act (N.Y. Public 
Authorities Law sections 1675-1690), the Authority's interpretation 
thereof, and materials with respect to the Authority's ``Revenue Bonds, 
Mills College of Education Issue, Series A'' indicates that the 
Authority is not an obligor on those and similar bonds. Although the 
Authority promises to make all payments of principal and interest, a 
bank that invests in such bonds cannot be reasonably considered as doing 
so in reliance on the promise and responsibility of the Authority. 
Despite the Authority's obligation to make payments on the bonds, if the 
particular college fails to perform its agreement to make rental 
payments to the Authority sufficient to cover all payments of bond 
principal and interest when due, as a practical matter the sole source 
of funds for payments to the bondholder is the particular college. The 
Authority has general borrowing power but no resources from which to 
assure repayment of any borrowing except from the particular colleges, 
and rentals received from one college may not be used to service bonds 
issued for another.
    (e) Accordingly, the Board has concluded that each college for which 
the Authority issues obligations is the sole obligor thereon. A member 
State bank may therefore invest an amount up to 10 percent of its 
capital and surplus in the bonds of a particular college that are 
eligible investments under the Investment Securities Regulation of the 
Comptroller of the Currency (12 CFR Part 1), whether issued directly or 
indirectly through the Dormitory Authority.

(12 U.S.C. 24, 335)



Sec. 250.143  Member bank purchase of stock of foreign operations subsidiaries.

    (a) In a previous interpretation, the Board determined that a State 
member bank would not violate the ``stock-purchase prohibition'' of 
section 5136 of the Revised Statutes (12 U.S.C. 24 ] 7) by purchasing 
and holding the shares of a corporation which performs ``at locations at 
which the bank is authorized to engage in business, functions that the 
bank is empowered to perform directly''. \1\ (1968 Federal Reserve 
Bulletin 681, 12 CFR 250.141). The Board of Governors has been asked by 
a State member bank whether, under that interpretation, the bank may 
establish such a so-called operations subsidiary outside the United 
States.
---------------------------------------------------------------------------

    \1\ National banking associations are prohibited by section 5136 of 
the Revised Statutes from purchasing and holding shares of any 
corporation except those corporations whose shares are specifically made 
eligible by statute. This prohibition is made applicable to State member 
banks by section 9 ] 20 of the Federal Reserve Act (12 U.S.C. 335).
---------------------------------------------------------------------------

    (b) In the above interpretation the Board viewed the creation of a 
wholly-owned subsidiary which engaged in activities that the bank itself 
could perform directly as an alternative organizational arrangement that 
would be permissible for member banks unless ``its use would be 
inconsistent with other Federal law, either statutory or judicial''.
    (c) In the Board's judgment, the use by member banks of operations 
subsidiaries outside the United States would be clearly inconsistent 
with the statutory scheme of the Federal Reserve Act governing the 
foreign investments and operations of member banks. It is clear that 
Congress has given member banks the authority to conduct operations and 
make investments outside the United States only through gradually 
adopting a series of specific statutory amendments to the Federal 
Reserve Act, each of which has been carefully drawn to give the Board 
approval, supervisory, and regulatory authority over those operations 
and investments.
    (d) As part of the original Federal Reserve Act, national banks 
were, with the Board's permission, given the power to establish foreign 
branches. \2\

[[Page 358]]

In 1916, Congress amended the Federal Reserve Act to permit national 
banks to invest in international or foreign banking corporations known 
as Agreement Corporations, because such corporations were required to 
enter into an agreement or understanding with the Board to restrict 
their operations. Subject to such limitations or restrictions as the 
Board may prescribe, such Agreement corporations may principally engage 
in international or foreign banking, or banking in a dependency or 
insular possession of the United States, either directly or through the 
agency, ownership or control of local institutions in foreign countries, 
or in such dependencies or insular possessions of the United States. In 
1919 the enactment of section 25(a) of the Federal Reserve Act (the 
``Edge Act'') permitted national banks to invest in federally chartered 
international or foreign banking corporations (so-called Edge 
Corporations) which may engage in international or foreign banking or 
other international or foreign financial operations, or in banking or 
other financial operations in a dependency or insular possession of the 
United States, either directly or through the ownership or control of 
local institutions in foreign countries, or in such dependencies or 
insular possessions. Edge Corporations may only purchase and hold stock 
in certain foreign subsidiaries with the consent of the Board. And in 
1966, Congress amended section 25 of the Federal Reserve Act to allow 
national banks to invest directly in the shares of a foreign bank. In 
the Board's judgment, the above statutory scheme of the Federal Reserve 
Act evidences a clear Congressional intent that member banks may only 
purchase and hold stock in subsidiaries located outside the United 
States through the prescribed statutory provisions of sections 25 and 
25(a) of the Federal Reserve Act. It is through these statutorily 
prescribed forms of organization that member banks must conduct their 
operations outside the United States.
---------------------------------------------------------------------------

    \2\ Under section 9 of the Federal Reserve Act, State member banks, 
subject, of course, to any necessary approval from their State banking 
authority, may establish foreign branches on the same terms and subject 
to the same limitations and restrictions as are applicable to the 
establishment of branches by national banks (12 U.S.C. 321). State 
member banks may also purchase and hold shares of stock in Edge or 
Agreement Corporations and foreign banks because national banks, as a 
result of specific statutory exceptions to the stock purchase 
prohibitions of section 5136, can purchase and hold stock in these 
Corporations or banks.
---------------------------------------------------------------------------

    (e) To summarize, the Board has concluded that a member bank may 
only organize and operate operations subsidiaries at locations in the 
United States. Investments by member banks in foreign subsidiaries must 
be made either with the Board's permission under section 25 of the 
Federal Reserve Act or, with the Board's consent, through an Edge 
Corporation subsidiary under section 25(a) of the Federal Reserve Act or 
through an Agreement Corporation subsidiary under section 25 of the 
Federal Reserve Act. In addition, it should be noted that bank holding 
companies may acquire the shares of certain foreign subsidiaries with 
the Board's approval under section 4(c)(13) of the Bank Holding Company 
Act. These statutory sections taken together already give member banks a 
great deal of organizational flexibility in conducting their operations 
abroad.

(Interprets and applies 12 U.S.C. 24, 335)

[40 FR 12252, Mar. 18, 1975]



Sec. 250.160  Federal funds transactions.

    (a) It is the position of the Board of Governors of the Federal 
Reserve System that, for purposes of provisions of law administered by 
the Board, a transaction in Federal funds involves a loan on the part of 
the selling bank and a borrowing on the part of the purchasing bank.
    (b) [Reserved]

(12 U.S.C. 371c)

[33 FR 9866, July 10, 1968, as amended at 67 FR 76622, Dec. 12, 2002]



Sec. 250.163  Inapplicability of amount limitations to ``ineligible acceptances.''

    (a) Since 1923, the Board has been of the view that ``the acceptance 
power of State member banks is not necessarily confined to the 
provisions of section 13 (of the Federal Reserve Act), inasmuch as the 
laws of many States confer broader acceptance powers upon their State 
banks, and certain State member banks may, therefore, legally make 
acceptances of kinds which are not eligible for rediscount, but which 
may be eligible for purchase by Federal reserve banks under section 
14.'' 1923 FR bulletin 316, 317.
    (b) In 1963, the Comptroller of the Currency ruled that ``[n]ational 
banks

[[Page 359]]

are not limited in the character of acceptances which they may make in 
financing credit transactions, and bankers' acceptances may be used for 
such purpose, since the making of acceptances is an essential part of 
banking authorized by 12 U.S.C. 24.'' Comptroller's manual 7.7420. 
Therefore, national banks are authorized by the Comptroller to make 
acceptances under 12 U.S.C. 24, although the acceptances are not the 
type described in section 13 of the Federal Reserve Act.
    (c) A review of the legislative history surrounding the enactment of 
the acceptance provisions of section 13, reveals that Congress believed 
in 1913, that it was granting to national banks a power which they would 
not otherwise possess and had not previously possessed. See remarks of 
Congressmen Phelan, Helvering, Saunders, and Glass, 51 Cong. Rec. 4676, 
4798, 4885, and 5064 (September 10, 12, 13, and 17 of 1913). 
Nevertheless, the courts have long recognized the evolutionary nature of 
banking and of the scope of the ``incidental powers'' clause of 12 
U.S.C. 24. See Merchants Bank v. State Bank, 77 U.S. 604 (1870) 
(upholding the power of a national bank to certify a check under the 
``incidental powers'' clause of 12 U.S.C. 24).
    (d) It now appears that, based on the Board's 1923 ruling, and the 
Comptroller's 1963 ruling, both State member banks and national banks 
may make acceptances which are not of the type described in section 13 
of the Federal Reserve Act. Yet, this appears to be a development that 
Congress did not contemplate when it drafted the acceptance provisions 
of section 13.
    (e) The question is presented whether the amount limitations of 
section 13 should apply to acceptances made by a member bank that are 
not of the type described in section 13. (The amount limitations are of 
two kinds:
    (1) A limitation on the amount that may be accepted for any one 
customer, and
    (2) A limitation on the aggregate amount of acceptances that a 
member bank may make.)


In interpreting any Federal statutory provision, the primary guide is 
the intent of Congress, yet, as noted earlier, Congress did not 
contemplate in 1913, the development of so-called ``ineligible 
acceptances.'' (Although there is some indication that Congress did 
contemplate State member banks' making acceptances of a type not 
described in section 13 [remarks of Congressman Glass, 51 Cong. Rec. 
5064], the primary focus of congressional attention was on the 
acceptance powers of national banks.) In the absence of an indication of 
congressional intent, we are left to reach an interpretation that is in 
harmony with the language of the statutory provisions and with the 
purposes of the Federal Reserve Act.
    (f) Section 13 authorizes acceptances of two types. The seventh 
paragraph of section 13 (12 U.S.C. 372) authorizes certain acceptances 
that arise out of specific transactions in goods. (These acceptances are 
sometimes referred to as ``commercial acceptances.'') The 12th paragraph 
of section 13 authorizes member banks to make acceptances ``for the 
purpose of furnishing dollar exchange as required by the usages of 
trade'' in foreign transactions. (Such acceptances are referred to as 
``dollar exchange acceptances.'') In the 12th paragraph, there is a 10 
percent limit on the amount of dollar exchange acceptances that may be 
accepted for any one customer (unless adequately secured) and a 
limitation on the aggregate amount of dollar exchange acceptances that a 
member bank may make. (The 12th paragraph, in imposing these 
limitations, refers to the acceptance of ``such drafts or bills of 
exchange referred to (in) this paragraph.'') Similarly, the seventh 
paragraph imposes on commercial acceptances a parallel 10 percent per-
customer limitation, and limitations on the aggregate amount of 
commercial acceptances. (In the case of the aggregate limitations, the 
seventh paragraph states that ``no bank shall accept such bills to an 
amount'' in excess of the aggregate limit; the reference to ``such 
bills'' makes clear that the limitation is only in respect of drafts or 
bills of exchange of the specific type described in the seventh 
paragraph.)
    (g) Based on the language and parallel structure of the 7th and 12th 
paragraphs of section 13, and in the absence of a statement of 
congressional intent in the legislative history, the Board

[[Page 360]]

concludes that the per-customer and aggregate limitations of the 12th 
paragraph apply only to acceptances of the type described in that 
paragraph (dollar exchange acceptances), and the per-customer and 
aggregate limitations of the 7th paragraph (12 U.S.C. 372) apply only to 
acceptances of the type described in that paragraph.

(Interprets and applies 12 U.S.C. 372 and the 12th paragraph of sec. 13 
of the Federal Reserve Act, which paragraph is omitted from the United 
States Code)

[38 FR 13728, May 25, 1973]



Sec. 250.164  Bankers' acceptances.

    (a) Section 207 of the Bank Export Services Act (title II of Pub. L. 
97-290) (``BESA'') raised the limits on the aggregate amount of eligible 
bankers' acceptances (``BAs'') that may be created by an individual 
member bank from 50 per cent (or 100 per cent with the permission of the 
Board) of its paid up and unimpaired capital stock and surplus 
(``capital'') to 150 per cent (or 200 per cent with the permission of 
the Board) of its capital. Section 207 also prohibits a member bank from 
creating eligible BAs for any one person in the aggregate in excess of 
10 per cent of the institution's capital. This section of the BESA 
applies the same limits applicable to member banks to U.S. branches and 
agencies of foreign banks that are subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (12 U.S.C. 3105). The 
Board is clarifying the proper meaning of the seventh paragraph of 
section 13 of the Federal Reserve Act, as amended by the BESA.
    (b)(1) This section of the BESA provides that any portion of an 
eligible BA created by an institution subject to the BA limitations 
contained therein (``covered bank'') that is conveyed through a 
participation to another covered bank shall not be included in the 
calculation of the creating bank's BA limits. The amount of the 
participation is to be applied to the calculation of the BA limits 
applicable to the covered bank receiving the participation. Although a 
covered bank that has reached its 150 or 200 percent limit can continue 
to create eligible acceptances by conveying participations to other 
covered banks, Congress has in effect imposed an aggregate limit on the 
eligible acceptances that may be created by all covered banks equal to 
the sum of 150 or 200 percent of the capital of all covered banks.
    (2) The Board has clarified that under the statute an eligible BA 
created by a covered bank that is conveyed through a participation to an 
institution that is not subject to the limitations of this section of 
the BESA continues to be included in the calculation of the limits 
applicable to the creating covered bank. This will ensure that the total 
amount of eligible BAs that may be created by covered banks does not 
exceed the limitations established by Congress. In addition, this 
ensures that participations in acceptances are not used as a device for 
the avoidance of reserve requirements. Finally, this promotes the 
Congressional intent, with respect to covered banks, that foreign and 
domestic banks be on an equal footing and under the same legal 
requirements.
    (3) In addition, the amount of a participation received by a covered 
bank from an institution not covered by the limitations of the Act is to 
be included in the calculation of the limits applicable to the covered 
bank receiving the participation. This result is based upon the language 
of the statute which includes within a covered bank's limits on eligible 
BAs outstanding the amount of participations received by the covered 
bank. This provision reflects Congressional intent that a covered bank 
not be obligated on eligible bankers' acceptances, and participations 
therein, for an amount in excess of 150 or 200 percent of the 
institution's capital.
    (c) The statute also provides that eligible acceptances growing out 
of domestic transactions are not to exceed 50 percent of the aggregate 
of all eligible acceptances authorized for covered banks. The Board has 
clarified that this 50 percent limitation is applicable to the maximum 
permissible amount of eligible BAs (150 or 200 percent of capital), 
regardless of the bank's amount of eligible acceptances outstanding. The 
statutory language prior to the

[[Page 361]]

BESA amendment made clear that covered banks could issue eligible 
acceptances growing out of domestic transactions up to 50 percent of the 
amount of the total permissible eligible acceptances the bank could 
issue. The legislative history of the BESA indicates no intent to change 
this domestic acceptance limitation.
    (d) The statute also provides that for the purpose of the 
limitations applicable to U.S. branches and agencies of foreign banks, a 
branch's or agency's capital is to be calculated as the dollar 
equivalent of the capital stock and surplus of the parent foreign bank 
as determined by the Board. The Board has clarified that for purposes of 
calculating the BA limits applicable to U.S. branches and agencies of 
foreign banks, the identity of the parent foreign bank is generally the 
same as for reserve requirement purposes; that is, the bank entity that 
owns the branch or agency most directly. The Board has also clarified 
that the procedures currently used for purposes of reporting to the 
Board on the Annual Report of Foreign Banking Organizations, Form FR Y-
7, are also to be used in the calculation of the acceptance limits 
applicable to U.S. branches and agencies of foreign banks. (The FR Y-7 
generally requires financial statements prepared in accordance with 
local accounting practices and an explanation of the accounting 
terminology and the major features of the accounting standards used in 
the preparation of the financial statements.) Conversions to the dollar 
equivalent of the worldwide capital of the foreign bank should be made 
periodically, but in no event less frequently than quarterly. In this 
regard, the Board recognizes the need to be flexible in dealing with the 
effect of foreign exchange rate fluctuations on the calculation of the 
worldwide capital of the parent foreign bank. Each foreign bank is to be 
responsible for coordinating the BA activity of its U.S. branches and 
agencies (including the aggregation of such activity) and establishing 
procedures that ensure that examiners will be able readily to determine 
compliance with the BESA limits.

(Sec. 13, Federal Reserve Act (12 U.S.C. 372))

[48 FR 28975, June 24, 1983]



Sec. 250.165  Bankers' acceptances: definition of participations.

    (a)(1) Section 207 of the Bank Export Services Act (Title II of Pub. 
L. 97-290) (``BESA'') raised the limits on the aggregate amount of 
eligible bankers' acceptances (``BAs'') that may be created by a member 
bank from 50 percent (or 100 percent with the permission of the Board) 
of its paid up and unimpaired capital stock and surplus (``capital'') to 
150 percent (or 200 percent with the permission of the Board) of its 
capital. Section 207 also prohibits a member bank from creating eligible 
BAs for any one person in the aggregate in excess of 10 percent of the 
institution's capital. Eligible BAs growing out of domestic transactions 
are not to exceed 50 percent of the aggregate of all eligible 
acceptances authorized for a member bank. This section of the BESA 
applies the same limits applicable to member banks to U.S. branches and 
agencies of foreign banks that are subject to reserve requirements under 
section 7 of the International Banking Act of 1978 (12 U.S.C. 3105). \1\
---------------------------------------------------------------------------

    \1\ The institutions subject to the BA limitations of BESA will 
hereinafter be referred to as ``covered banks.''
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    (2) This section of the BESA also provides that any portion of an 
eligible BA created by a covered bank (``senior bank'') that is conveyed 
through a ``participation agreement'' to another covered bank (``junior 
bank'') shall not be included in the calculation of the senior bank's 
bankers' acceptance limits established by section 207 of BESA. \2\ 
However, the amount of the participation is to be included in the BA 
limits applicable to the junior bank. The language of the statute does 
not define

[[Page 362]]

what constitutes a participation agreement for purposes of the 
applicability of the BESA limitations. However, the statute does 
authorize the Board to further define any of the terms used in section 
207 of the BESA (12 U.S.C. 372(g)). The Board is clarifying the term 
participation for purposes of the BA limitations of the BESA.
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    \2\ The use of the terms senior bank and junior bank has no 
implications regarding priority of claims. These terms merely represent 
a shorthand method of identifying the depository institution that has 
created the acceptance and conveyed the participation (senior bank) and 
the depository institution that has received the participation (junior 
bank).
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    (b) The legislative history of section 207 of the BESA indicates 
that Congress intended that the junior bank be obligated to the senior 
bank in the event that the account party defaults on its obligation to 
pay, but that the junior bank need not also be obligated to pay the 
holder of the acceptance at the time the BA is presented for payment. H. 
Rep. No. 97-629, 97th Cong., 2nd Sess. 15 (1982); 128 Cong. Rec. H 4647 
(daily ed. July 27, 1982) (remarks by Rep. Barnard): and 128 Cong. Rec. 
H 8462 (daily ed. October 1, 1982) (remarks by Rep. Barnard). The 
legislative history also indicates that Congress intended that eligible 
BAs in which participations had been conveyed not be required to 
indicate the name(s) (or interest(s)) of the junior bank(s) on the 
acceptance in order for the BA to be excluded from the BESA limitations 
applicable to the senior bank. 128 Cong. Rec. S 12237 (daily ed. 
September 24, 1982) (remarks of Senators Heinz and Garn): and 128 Cong. 
Rec. H 4647 (daily ed. July 27, 1982) (remarks of Rep. Barnard).
    (c)(1) In view of Congressional intent with regard to what 
constitutes a participation in an eligible BA, the Board has determined 
that, for purposes of the BESA limits, a participation must satisfy the 
following two minimum requirements:
    (i) A written agreement entered into between the junior and senior 
bank under which the junior bank acquires the senior bank's claim 
against the account party to the extent of the amount of the 
participation that is enforceable in the event that the account party 
fails to perform in accordance with the terms of the acceptance; and
    (ii) The agreement between the junior and senior bank provides that 
the senior bank obtains a claim against the junior bank to the extent of 
the amount of the participation that is enforceable in the event the 
account party fails to perform in accordance with the terms of the 
acceptance.
    (2) Consistent with Congressional intent, the minimum requirements 
do not require the junior bank to be obligated to pay the holder of the 
acceptance at the time the BA is presented for payment. Similarly, the 
minimum requirements do not require the name(s) or interest(s) of the 
junior bank(s) to appear on the face of the acceptance.
    (3) An eligible BA that is conveyed through a participation that 
does not satisfy these minimum requirements would continue to be 
included in the BA limits applicable to the senior bank. Further, an 
eligible BA conveyed to a covered bank through a participation that 
provided for additional rights and obligations among the parties would 
be excluded from the BESA limitations of the senior bank provided the 
minimum requirements were satisfied.
    (4) A participation structured pursuant to these minimum 
requirements would be as follows: Upon the conveyance of the 
participation, the senior bank retains its entire obligation to pay the 
holder of the BA at maturity. The senior bank has a claim against the 
junior bank to the extent of the amount of the participation that is 
enforceable in the event the account party fails to perform in 
accordance with the terms of the acceptance. Similarly, the junior bank 
has a corresponding claim against the account party to the extent of the 
amount of the participation that is enforceable in the event the account 
party fails to perform in accordance with the terms of the acceptance.
    (d)(1) The Board is not requiring the senior bank and the account 
party specifically to agree that the senior bank's rights are assignable 
because the Board believes such rights to be assignable even in the 
absence of an explicit agreement.
    (2) The junior and senior banks may contract among themselves as to 
which party(ies) have the responsibility for administering the 
arrangement, enforcing claims, or exercising remedies.
    (e) The Board recognizes that both the junior bank's claim on the 
account party and the senior bank's claim on

[[Page 363]]

the junior bank involve risk. Therefore, it is essential that these 
risks be assessed by the banks involved in accordance with prudent and 
sound banking practices. The examiners will in the normal course of the 
examination process review the risk assessment procedures instituted by 
the banks. The junior bank should review the creditworthiness of each 
account party when the junior bank acquires a participation and the 
senior bank should review on an ongoing basis the creditworthiness of 
the junior bank. Junior bank agreement to rely exclusively upon the 
credit judgment of the senior bank and purchase on an ongoing basis from 
the senior bank all participations in BAs regardless of the identity of 
the account party is not appropriate in view of the risks involved. 
However, in those cases involving a participation between a parent bank 
and its Edge affiliate where the credit review for both entities is 
performed by the parent bank, the Edge Corporation should maintain 
documentation indicating that it concurs with the parent bank's analysis 
and that the acceptance participation is appropriate for inclusion in 
the Edge Corporation's portfolio.
    (f) Similarly, the Board has determined that it is appropriate to 
include the risks incurred by the senior bank in assessing the senior 
bank's capital and the risks incurred by the junior bank in assessing 
the junior bank's capital.
    (g) In view of this clarification of the issues relating to 
participations in BAs, the Board encourages the private sector to 
develop standardized forms for BAs and participations therein that 
clearly delineate the rights and responsibilities of the relevant 
parties.

(Sec. 13, Federal Reserve Act (12 U.S.C. 372))

[48 FR 57109, Dec. 28, 1983]



Sec. 250.166  Treatment of mandatory convertible debt and subordinated 
notes of state member banks and bank holding companies as ``capital''.

    (a) General. Under the Board's risk-based capital guidelines, state 
member banks and bank holding companies may include in Tier 2 capital 
subordinated debt and mandatory convertible debt that meets certain 
criteria. The purpose of this interpretation is to clarify these 
criteria. This interpretation should be read with those guidelines, 
particularly with paragraphs II.c. through II.e. of appendix A of 12 CFR 
part 208 if the issuer is a state member bank and with paragraphs 
II.A.2.c. and II.A.2.d. of appendix A of 12 CFR part 225 if the issuer 
is a bank holding company.
    (b) Criteria for subordinated debt included in capital--(1) 
Characteristics. To be included in Tier 2 capital under the Board's 
risk-based capital guidelines for state member banks and bank holding 
companies, subordinated debt must be subordinated in right of payment to 
the claims of the issuer's general creditors \1\ and, for banks, to the 
claims of depositors as well; must be unsecured; must state clearly on 
its face that it is not a deposit and is not insured by a federal 
agency; must have a minimum average maturity of five years; \2\ must not 
contain provisions that permit debtholders to accelerate payment of 
principal prior to maturity except in the event of bankruptcy of or the 
appointment of a receiver for the issuing organization; must not contain 
or be covered by any covenants, terms, or restrictions that are 
inconsistent with safe and sound banking practice; and must not be 
credit sensitive.
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    \1\ The risk-based capital guidelines for bank holding companies 
state that bank holding company debt must be subordinated to all senior 
indebtedness of the company. To meet this requirement, the debt should 
be subordinated to all general creditors.
    \2\ The ``average maturity'' of an obligation or issue repayable in 
scheduled periodic payments shall be the weighted average of the 
maturities of all such scheduled payments.
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    (2) Acceleration clauses. (i) In order to be included in Tier 2 
capital, the appendices provide that subordinated debt instruments must 
have an original weighted average maturity of at least five years. For 
this purpose, maturity is defined as the earliest possible date on which 
the holder can put the instrument back to the issuing banking 
organization. Since acceleration clauses permit the holder to put the 
debt back upon the occurrence of certain events, which could happen at 
any time after the instrument is issued,

[[Page 364]]

subordinated debt that includes provisions permitting acceleration upon 
events other than bankruptcy or reorganization under Chapters 7 
(Liquidation) and 11 (Reorganization) of the Bankruptcy Code, in the 
case of a bank holding company, or insolvency--i.e., the appointment of 
a receiver--in the case of a state member bank, does not qualify for 
inclusion in Tier 2 capital.
    (ii) Further, subordinated debt whose terms provide for acceleration 
upon the occurrence of events other than bankruptcy or the appointment 
of a receiver does not qualify as Tier 2 capital. For example, the terms 
of some subordinated debt issues would permit debtholders to accelerate 
repayment if the issuer failed to pay principal or interest on the 
subordinated debt issue when due (or within a certain timeframe after 
the due date), failed to make mandatory sinking fund deposits, defaulted 
on any other debt, failed to honor covenants, or if an institution 
affiliated with the issuer entered into bankruptcy or receivership. Some 
banking organizations have also issued, or proposed to issue, 
subordinated debt that would allow debtholders to accelerate repayment 
if, for example, the banking organization failed to maintain certain 
prescribed minimum capital ratios or rates of return, or if the amount 
of nonperforming assets or charge-offs of the banking organization 
exceeded a certain level.
    (iii) These and other similar acceleration clauses raise significant 
supervisory concerns because repayment of the debt could be accelerated 
at a time when an organization may be experiencing financial 
difficulties. Acceleration of the debt could restrict the ability of the 
organization to resolve its problems in the normal course of business 
and could cause the organization involuntarily to enter into bankruptcy 
or receivership. Furthermore, since such acceleration clauses could 
allow the holders of subordinated debt to be paid ahead of general 
creditors or depositors, their inclusion in a debt issue throws into 
question whether the debt is, in fact, subordinated.
    (iv) Subordinated debt issues whose terms state that the debtholders 
may accelerate the repayment of principal only in the event of 
bankruptcy or receivership of the issuer do not permit the holders of 
the debt to be paid before general creditors or depositors and do not 
raise supervisory concerns because the acceleration does not occur until 
the institution has failed. Accordingly, debt issues that permit 
acceleration of principal only in the event of bankruptcy (liquidation 
or reorganization) in the case of bank holding companies and 
receivership in the case of banks may generally be classified as 
capital.
    (3) Provisions inconsistent with safe and sound banking practices. 
(i) The risk-based capital guidelines state that instruments included in 
capital may not contain or be covered by any covenants, terms, or 
restrictions that are inconsistent with safe and sound banking practice. 
As a general matter, capital instruments should not contain terms that 
could adversely affect liquidity or unduly restrict management's 
flexibility to run the organization, particularly in times of financial 
difficulty, or that could limit the regulator's ability to resolve 
problem bank situations. For example, some subordinated debt includes 
covenants that would not allow the banking organization to make 
additional secured or senior borrowings. Other covenants would prohibit 
a banking organization from disposing of a major subsidiary or 
undergoing a change in control. Such covenants could restrict the 
banking organization's ability to raise funds to meet its liquidity 
needs. In addition, such terms or conditions limit the ability of bank 
supervisors to resolve problem bank situations through a change in 
control.
    (ii) Certain other provisions found in subordinated debt may provide 
protection to investors in subordinated debt without adversely affecting 
the overall benefits of the instrument to the organization. For example, 
some instruments include covenants that may require the banking 
organization to:
    (A) Maintain an office or agency where securities may be presented,
    (B) Hold payments on the securities in trust,
    (C) Preserve the rights and franchises of the company,
    (D) Pay taxes and assessments before they become delinquent,

[[Page 365]]

    (E) Provide an annual statement of compliance on whether the company 
has observed all conditions of the debt agreement, or
    (F) Maintain its properties in good condition. Such covenants, as 
long as they do not unduly restrict the activity of the banking 
organization, generally would be acceptable in qualifying subordinated 
debt, provided that failure to meet them does not give the holders of 
the debt the right to accelerate the debt. \3\
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    \3\ This notice does not attempt to list or address all clauses 
included in subordinated debt; rather, it is intended to give general 
supervisory guidance regarding the types of clauses that could raise 
supervisory concerns. Issuers of subordinated debt may need to consult 
further with Federal Reserve staff about other subordinated debt 
provisions not specifically discussed above to determine whether such 
provisions are appropriate in a debt capital instrument.
---------------------------------------------------------------------------

    (4) Credit sensitive features. Credit sensitive subordinated debt 
(including mandatory convertible securities) where payments are tied to 
the financial condition of the borrower generally do not qualify for 
inclusion in capital. Interest rate payments may be linked to the 
financial condition of an institution through various ways, such as 
through an auction rate mechanism, a preset schedule that either 
mandates interest rate increases as the credit rating of the institution 
declines or automatically increases them over the passage of time, \4\ 
or that raises the interest rate if payment is not made in a timely 
fashion. \5\ As the financial condition of an organization declines, it 
is faced with higher and higher payments on its credit sensitive 
subordinated debt at a time when it most needs to conserve its 
resources. Thus, credit sensitive debt does not provide the support 
expected of a capital instrument to an institution whose financial 
condition is deteriorating; rather, the credit sensitive feature can 
accelerate depletion of the institution's resources and increase the 
likelihood of default on the debt.
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    \4\ Although payments on debt whose interest rate increases over 
time on the surface may not appear to be directly linked to the 
financial condition of the issuing organization, such debt (sometimes 
referred to as expanding or exploding rate debt) has a strong potential 
to be credit sensitive in substance. Organizations whose financial 
condition has strengthened are more likely to be able to refinance the 
debt at a rate lower than that mandated by the preset increase, whereas 
institutions whose condition has deteriorated are less likely to be able 
to do so. Moreover, just when these latter institutions would be in the 
most need of conserving capital, they would be under strong pressure to 
redeem the debt as an alternative to paying higher rates and, thus, 
would accelerate depletion of their resources.
    \5\ While such terms may be acceptable in perpetual preferred stock 
qualifying as Tier 2 capital, it would be inconsistent with safe and 
sound banking practice to include debt with such terms in Tier 2 
capital. The organization does not have the option, as it does with 
auction rate preferred stock issues, of eliminating the higher payments 
on the subordinated debt without going into default.
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    (c) Criteria for mandatory convertible debt included in capital. 
Mandatory convertible debt included in capital must meet all the 
criteria cited above for subordinated debt with the exception of the 
minimum maturity requirement. \6\ Since mandatory convertible debt 
eventually converts to an equity instrument, it has no minimum maturity 
requirement. Such debt, however, is subject to a maximum maturity 
requirement of 12 years.
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    \6\ Mandatory convertible debt is subordinated debt that contains 
provisions committing the issuing organization to repay the principal 
from the proceeds of future equity issues.
---------------------------------------------------------------------------

    (d) Previously issued subordinated debt. Subordinated debt including 
mandatory convertible debt that has been issued prior to the date of 
this interpretation and that contains provisions permitting acceleration 
for reasons other than bankruptcy or receivership of the issuing 
institution; includes other questionable terms or conditions; or that is 
credit sensitive will not automatically be excluded from capital. 
Rather, such debt will be considered on a case-by-case basis to 
determine whether it qualifies as Tier 2 capital. As a general matter, 
subordinated debt issued prior to the release of this interpretation and 
containing such provisions or features may qualify as Tier 2 capital so 
long as these terms:
    (1) have been commonly used by banking organizations,

[[Page 366]]

    (2) do not provide an unreasonably high degree of protection to the 
holder in cases not involving bankruptcy or receivership, and
    (3) do not effectively allow the holder to stand ahead of the 
general creditors of the issuing institution in cases of bankruptcy or 
receivership.
    Subordinated debt containing provisions that permit the holders of 
the debt to accelerate payment of principal when the banking 
organization begins to experience difficulties, for example, when it 
fails to meet certain financial ratios, such as capital ratios or rates 
of return, does not meet these three criteria. Consequently, 
subordinated debt issued prior to the release of this interpretation 
containing such provisions may not be included within Tier 2 capital.
    (e) Limitations on the amount of subordinated debt in capital--(1) 
Basic limitation. The amount of subordinated debt an institution may 
include in Tier 2 capital is limited to 50 percent of the amount of the 
institution's Tier 1 capital. The amount of a subordinated debt issue 
that may be included in Tier 2 capital is discounted as it approaches 
maturity; one-fifth of the original amount of the instrument, less any 
redemptions, is excluded each year from Tier 2 capital during the last 
five years prior to maturity. If the instrument has a serial redemption 
feature such that, for example, half matures in seven years and half 
matures in ten years, the issuing organization should begin discounting 
the seven-year portion after two years and the ten-year portion after 
five years.
    (2) Treatment of debt with dedicated proceeds. If a banking 
organization has issued common or preferred stock and dedicated the 
proceeds to the redemption of a mandatory convertible debt security, 
that portion of the security covered by the amount of the proceeds so 
dedicated is considered to be ordinary subordinated debt for capital 
purposes, provided the proceeds are not placed in a sinking fund, trust 
fund, or similar segregated account or are not used in the interim for 
some other purpose. Thus, dedicated portions of mandatory convertible 
debt securities are subject, like other subordinated debt, to the 50 
percent sublimit within Tier 2 capital, as well as to discounting in the 
last five years of life. Undedicated portions of mandatory convertible 
debt may be included in Tier 2 capital without any sublimit and are not 
subject to discounting.
    (3) Treatment of debt with segregated funds. In some cases, the 
provisions in mandatory convertible debt issues may require the issuing 
banking organization to set up a sinking fund, trust fund, or similar 
segregated account to hold the proceeds from the sale of equity 
securities dedicated to pay off the principal of the mandatory 
convertible debt at maturity. The portion of mandatory convertibles 
covered by the amount of proceeds deposited in such a segregated fund is 
considered secured and, thus, may not be included in capital at all, let 
alone be treated as subordinated debt that is subject to the 50 percent 
sublimit within Tier 2 capital. The maintenance of such separate 
segregated funds for the redemption of mandatory convertible debt 
exceeds the requirements of appendix B to Regulation Y. Accordingly, if 
a banking organization, with the agreement of its debtholders, seeks 
Federal Reserve approval to eliminate such a fund, approval normally 
would be given unless supervisory concerns warrant otherwise.
    (f) Redemption of subordinated debt prior to maturity--(1) By state 
member banks. State member banks must obtain approval from the 
appropriate Reserve Bank prior to redeeming before maturity subordinated 
debt or mandatory convertible debt included in capital. \7\ A Reserve 
Bank will not approve such early redemption unless it is satisfied that 
the capital position of the bank will be adequate after the proposed 
redemption.
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    \7\ Some agreements governing mandatory convertible debt issued 
prior to the risk-based capital guidelines provide that the bank may 
redeem the notes if they no longer count as primary capital as defined 
in appendix B to Regulation Y. Such a provision does not obviate the 
requirement to receive Federal Reserve approval prior to redemption.
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    (2) By bank holding companies. While bank holding companies are not 
formally required to obtain approval prior to redeeming subordinated 
debt, the risk-based capital guidelines state that

[[Page 367]]

bank holding companies should consult with the Federal Reserve before 
redeeming any capital instruments prior to stated maturity. This also 
applies to any redemption of mandatory convertible debt with proceeds of 
an equity issuance that were dedicated to the redemption of that debt. 
Accordingly, a bank holding company should consult with its Reserve Bank 
prior to redeeming subordinated debt or dedicated portions of mandatory 
convertible debt included in capital. A Reserve Bank generally will not 
acquiesce to such a redemption unless it is satisfied that the capital 
position of the bank holding company would be adequate after the 
proposed redemption.
    (3) Special concerns involving mandatory convertible debt. 
Consistent with appendix B to Regulation Y, bank holding companies 
wishing to redeem before maturity undedicated portions of mandatory 
convertible debt included in capital are required to receive prior 
Federal Reserve approval, unless the redemption is effected with the 
proceeds from the sale or common or perpetual preferred stock. An 
organization planning to effect such a redemption with the proceeds from 
the sale of common or perpetual preferred stock is advised to consult 
informally with its Reserve Bank in order to avoid the possibility of 
taking an action that could result in weakening its capital position. A 
Reserve Bank will not approve the redemption of mandatory convertible 
securities, or acquiesce in such a redemption effected with the sale of 
common or perpetual preferred stock, unless it is satisfied that the 
capital position of the bank holding company will be satisfactory after 
the redemption. \8\
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    \8\ The guidance contained in this paragraph applies to mandatory 
convertible debt issued prior to the risk-based capital guidelines that 
state that the banking organization may redeem the notes if they no 
longer count as primary capital as defined in appendix B to Regulation 
Y. Such provisions do not obviate the need to consult with, or obtain 
approval from, the Federal Reserve prior to redemption of the debt.

[57 FR 40598, Sept. 4, 1992]



Sec. 250.180  Reports of changes in control of management.

    (a) Under a statute enacted September 12, 1964 (Pub. L. 88-593; 78 
Stat. 940) all insured banks are required to report promptly (1) changes 
in the outstanding voting stock of the bank which will result in control 
or in a change in control of the bank and (2) any instances where the 
bank makes a loan or loans, secured, or to be secured, by 25 percent or 
more of the outstanding voting stock of an insured bank.
    (b) Reports concerning changes in control of a State member bank are 
to be made by the president or other chief executive officer of the 
bank, and shall be submitted to the Federal Reserve Bank of its 
district.
    (c) Reports concerning loans by an insured bank on the stock of a 
State member bank are to be made by the president or other chief 
executive officer of the lending bank, and shall be submitted to the 
Federal Reserve Bank of the State member bank on the stock of which the 
loan was made.
    (d) Paragraphs 3 and 4 of this legislation specify the information 
required in the reports which, in cases involving State member banks, 
should be addressed to the Vice President in Charge of Examinations of 
the appropriate Federal Reserve Bank.

(12 U.S.C. 1817)



Sec. 250.181  Reports of change in control of bank management
incident to a merger.

    (a) A State member bank has inquired whether Pub. L. 88-593 (78 
Stat. 940) requires reports of change in control of bank management in 
situations where the change occurs as an incident in a merger.
    (b) Under the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), no bank 
with Federal deposit insurance may merge or consolidate with, or acquire 
the assets of, or assume the liability to pay deposits in, any other 
insured bank without prior approval of the appropriate Federal bank 
supervisory agency. Where the bank resulting from any such transaction 
is a State member bank, the Board of Governors is the agency that must 
pass on the transaction. In the course of consideration

[[Page 368]]

of such an application, the Board would, of necessity, acquire knowledge 
of any change in control of management that might result. Information 
concerning any such change in control of management is supplied with 
each merger application and, in the circumstances, it is the view of the 
Board that the receipt of such information in connection with a merger 
application constitutes compliance with Pub. L. 88-593. However, once a 
merger has been approved and completely effectuated, the resulting bank 
would thereafter be subject to the reporting requirements of Pub. L. 88-
593.

(12 U.S.C. 1817)



Sec. 250.182  Terms defining competitive effects of proposed mergers.

    Under the Bank Merger Act (12 U.S.C. 1828(c)), a Federal Banking 
agency receiving a merger application must request the views of the 
other two banking agencies and the Department of Justice on the 
competitive factors involved. Standard descriptive terms are used by the 
Board, the Federal Deposit Insurance Corporation, and the Comptroller of 
the Currency. The terms and their definitions are as follows:
    (a) The term monopoly means that the proposed transaction must be 
disapproved in accordance with 12 U.S.C. 1828(c)(5)(A).
    (b) The term substantially adverse means that the proposed 
transaction would have anticompetitive effects which preclude approval 
unless the anticompetitive effects are clearly outweighed in the public 
interest by the probable effect of the transaction in meeting the 
convenience and needs of the community to be served as specified in 12 
U.S.C. 1828(c)(5)(B).
    (c) The term adverse means that proposed transaction would have 
anticompetitive effects which would be material to the decision but 
which would not preclude approval.
    (d) The term no significant effect means that the anticompetitive 
effects of the proposed transaction, if any, would not be material to 
the decision.

(12 U.S.C. 1828(c))

[45 FR 45257, July 3, 1980]



Sec. 250.200  Investment in bank premises by holding company banks.

    (a) The Board of Governors has been asked whether, in determining 
under section 24A of the Federal Reserve Act (12 U.S.C. 371d) how much 
may be invested in bank premises without prior Board approval, a State 
member bank, which is owned by a registered bank holding company, is 
required to include indebtedness of a corporation, wholly owned by the 
holding company, that is engaged in holding premises of banks in the 
holding company system.
    (b) Section 24A provides, in part, as follows:

    Hereafter * * * no State member bank, without the approval of the 
Board of Governors of the Federal Reserve System, shall (1) invest in 
bank premises, or in the stock, bonds, debentures, or other such 
obligations of any corporation holding the premises of such bank or (2) 
make loans to or upon the security of the stock of any such corporation, 
if the aggregate of all such investments and loans, together with the 
amount of any indebtedness incurred by any such corporation which is an 
affiliate of the bank, as defined in section 2 of the Banking Act of 
1933, as amended [12 U.S.C. 221a], will exceed the amount of the capital 
stock of such banks.

    (c) A corporation that is owned by a holding company is an 
``affiliate of each of the holding company's majority-owned banks as 
that term is defined in said section 2. Therefore, under the explicit 
provisions of section 24A, each State member bank, any part of whose 
premises is owned by such an affiliate, must include the affiliate's 
total indebtedness in determining whether a proposed premises investment 
by the bank would cause the aggregate figure to exceed the amount of the 
bank's capital stock, so that the Board's prior approval would be 
required. Where the affiliate holds the premises of a number of the 
holding company's banks, the amount of the affiliate's indebtedness may 
be so large that Board approval is required for every proposed 
investment in bank premises by each majority-owned State member bank, to 
which the entire indebtedness of the affiliate is required to be 
attributed. The Board believes that, in these circumstances, individual 
approvals are not essential to effectuate the purpose of section 24A, 
which is to safeguard the soundness

[[Page 369]]

and liquidity of member banks, and that the protection sought by 
Congress can be achieved by a suitably circumscribed general approval.
    (d) Accordingly the Board hereby grants general approval for any 
investment or loan (as described in section 24A) by any State member 
bank, the majority of the stock of which is owned by a registered bank 
holding company, if the proposed investment or loan will not cause 
either (1) all such investments and loans by the member bank (together 
with the indebtedness of any bank premises subsidiary thereof) to exceed 
100 percent of the bank's capital stock, or (2) the aggregate of such 
investments and loans by all of the holding company's subsidiary banks 
(together with the indebtedness of any bank premises affiliates thereof) 
to exceed 100 percent of the aggregate capital stock of said banks.

(12 U.S.C. 221a, 371d)



Sec. 250.220  Whether member bank acting as trustee is prohibited by 
section 20 of the Banking Act of 1933 from acquiring majority of shares 
of mutual fund.

    (a) The Board recently considered whether section 20 of the Banking 
Act of 1933 (12 U.S.C. 377) would prohibit a member bank, while acting 
as trustee of a tax exempt employee benefit trust or trusts, from, under 
the following circumstances, acquiring a majority of the shares of an 
open-end investment company (``Fund'') registered under the Investment 
Company Act of 1940, or more than 50 percent of the number of Fund's 
shares voted at the preceding election of directors of the Fund.
    (b) The bank has acted as trustee, since December 1963, pursuant to 
a trust agreement with a county medical society to administer its group 
retirement program, under which individual members of the society could 
participate in accordance with the provisions of the Self-Employed 
Individuals Tax Retirement Act of 1962 (commonly referred to as ``H.R. 
10'').
    (c) Under the trust agreement as presently constituted, each 
employer, who is a participating member of the medical society, directs 
the bank to invest his contributions to the retirement plan in such 
proportions as he may elect in insurance or annuity contracts or in a 
diversified portfolio of securities and other property. The diversified 
portfolio held by the bank is invested and administered by the bank 
solely at the direction of a committee of the medical society.
    (d) It has now been proposed that the trust agreement be amended to 
provide that all investments constituting the trust fund, apart from 
insurance and annuity contracts, will be made exclusively in shares of a 
single open-end investment company to be named in the trust agreement 
and that the assets constituting the diversified portfolio now held by 
the bank, as trustee, will be exchanged for the Fund's shares. The bank 
will, in addition to holding the shares of the Fund, allocate income and 
dividends to the accounts of the various participants in the retirement 
program, invest and reinvest income and dividends, and perform other 
ministerial functions.
    (e) In addition, it is proposed to amend the trust agreement so that 
voting of the shares held by the bank as trustee will be controlled 
exclusively by the participants. Under the proposed amendment, the bank 
will sign all proxies prior to mailing them to the participants,

    it being intended that the Participant(s) shall vote the proxies 
notwithstanding the fact that the Trustee is the owner of the shares * * 
*.

    (f) The bank believes that amendments are now under consideration 
that will also require investment of the assets of these plans 
exclusively in the Fund's shares. Accordingly, the bank may eventually 
own the Fund's shares in several separate trust accounts and in an 
aggregate amount equal to a majority of the Fund's shares.
    (g) Section 20 of the Banking Act of 1933 provides in relevant part 
that

    no member bank shall be affiliated in any manner described in 
section 2(b) hereof with any corporation * * * engaged principally in 
the issue, flotation, underwriting, public sale, or distribution at 
wholesale or retail or through syndicate participation of stocks * * * 
or other securities: * * *.

    (h) Section 2(b) defines the term affiliate to include


[[Page 370]]


    any corporation, business trust, association or other similar 
organization (1) Of which a member bank, directly or indirectly, owns or 
controls either a majority of the voting shares or more than 50 per 
centum of the number of shares voted for the election of its directors, 
trustees, or other persons exercising similar functions at the preceding 
election, or controls in any manner the election of a majority of its 
directors, trustees, or other persons exercising similar functions; * * 
*.

    (i) The Board has previously taken the position, in an 
interpretation involving the term affiliate under the Banking Act of 
1933, that it would not require a member bank to obtain and publish a 
report of a corporation the majority of the stock of which is held by 
the member bank as executor or trustee, provided that the member bank 
holds such stock subject to control by a court or by a beneficiary or 
other principal and that the member bank may not lawfully exercise 
control of such stock independently of any order or direction of a 
court, beneficiary or other principal. 1933 Federal Reserve Bulletin 
651. The rationale of that interpretation--which was reaffirmed by the 
Board in 1957--would appear to be equally applicable to the facts in the 
present case. In the circumstances, and on the basis of the Board's 
understanding that the bank will not vote any of Fund's shares or 
control in any manner the election of any of its directors, trustees, or 
other persons exercising similar functions, the Board has concluded that 
the situation in question would not fall within the purpose or coverage 
of section 20 of the Banking Act of 1933 and, therefore, would not 
involve a violation of the statute.



Sec. 250.221  Issuance and sale of short-term debt obligations by
bank holding companies.

    (a) The opinion of the Board of Governors of the Federal Reserve 
System has been requested recently with respect to the proposed sale of 
``thrift notes'' by a bank holding company for the purpose of supplying 
capital to its wholly-owned nonbanking subsidiaries.
    (b) The thrift notes would bear the name of the holding company, 
which in the case presented, was substantially similar to the name of 
its affiliated banks. It was proposed that they be issued in 
denominations of $50 to $100 and initially be of 12-month or less 
maturities. There would be no maximum amount of the issue. Interest 
rates would be variable according to money market conditions but would 
presumably be at rates somewhat above those permitted by Regulation Q 
ceilings. There would be no guarantee or indemnity of the notes by any 
of the banks in the holding company system and, if required to do so, 
the holding company would place on the face of the notes a negative 
representation that the purchase price was not a deposit, nor an 
indirect obligation of banks in the holding company system, nor covered 
by deposit insurance.
    (c) The notes would be generally available for sale to members of 
the public, but only at offices of the holding company and its 
nonbanking subsidiaries. Although offices of the holding company may be 
in the same building or quarters as its banking offices, they would be 
physically separated from the banking offices. Sales would be made only 
by officers or employees of the holding company and its nonbanking 
subsidiaries. Initially, the notes would only be offered in the State in 
which the holding company was principally doing business, thereby 
complying with the exemption provided by section 3(a)(11) of the 
Securities Act of 1933 (15 U.S.C. 77c) for ``intra-state'' offerings. If 
it was decided to offer the notes on an interstate basis, steps would be 
taken to register the notes under the Securities Act of 1933. Funds from 
the sale of the notes would be used only to supply the financial needs 
of the nonbanking subsidiaries of the holding company. These nonbank 
subsidiaries are, at present, a small loan company, a mortgage banking 
company and a factoring company. In no instance would the proceeds from 
the sale of the notes be used in the bank subsidiaries of the holding 
company nor to maintain the availability of funds in its bank 
subsidiaries.
    (d) The sale of the thrift notes, in the specific manner proposed, 
is an activity described in section 20 of the Banking Act of 1933 (12 
U.S.C. 377), that is, ``the issue, flotation, underwriting, public sale 
or distribution * * * of * * *

[[Page 371]]

notes, or other securities''. Briefly stated, this statute prohibits a 
member bank to be affiliated with a company ``engaged principally'' in 
such activity. Since the continued issuance and sale of such securities 
would be necessary to permit maintenance of the holding company's 
activities without substantial contraction and would be an integral part 
of its operations, the Board concluded that the issuance and sale of 
such notes would constitute a principal activity of a holding company 
within the spirit and purpose of the statute. (For prior Board decisions 
in this connection, see 1934 Federal Reserve Bulletin 485, 12 CFR 
218.104, 12 CFR 218.105 and 12 CFR 218.101.)
    (e) In reaching this conclusion, the Board distinguished the 
proposed activity from the sale of short-term notes commonly known as 
commercial paper, which is a recognized form of financing for bank 
holding companies. For purposes of this interpretation, commercial paper 
may be defined as notes, with maturities not exceeding nine months, the 
proceeds of which are to be used for current transactions, which are 
usually sold to sophisticated institutional investors, rather than to 
members of the general public, in minimum denominations of $10,000 
(although sometimes they may be sold in minimum denominations of 
$5,000). Commercial paper is exempt from registration under the 
Securities Act of 1933 by reason of the exemption provided by section 
3(a)(3) thereof (15 U.S.C. 77c). That exemption is inapplicable where 
the securities are sold to the general public (17 CFR 231.4412). The 
reasons for such exemption, taken together with the abuses that gave 
rise to the passage of the Banking Act of 1933 (``the Glass-Steagall 
Act''), have led the Board to conclude that the issuance of commercial 
paper by a bank holding company is not an activity intended to be 
included within the scope of section 20.

(Interprets and applies 12 U.S.C. 377 and 1843)

[Reg. Y, 38 FR 35231, Dec. 26, 1973]



Sec. 250.260  Miscellaneous interpretations; gold coin and bullion.

    The Board has received numerous inquiries from member banks relating 
to the repeal of the ban on ownership of gold by United States citizens. 
Listed below are questions and answers which affect member banks and 
relate to the responsibilities of the Federal Reserve System.
    (a) May gold in the form of coins or bullion be counted as vault 
cash in order to satisfy reserve requirements? No. Section 19(c) of the 
Federal Reserve Act requires that reserve balances be satisfied either 
by a balance maintained at the Federal Reserve Bank or by vault cash, 
consisting of United States currency and coin. Gold in bullion form is 
not United States currency. Since the bullion value of United States 
gold coins far exceeds their face value, member banks would not in 
practice distribute them over the counter at face value to satisfy 
customer demands.
    (b) Will the Federal Reserve Banks perform services for member banks 
with respect to gold, such as safekeeping or assaying? No.
    (c) Will a Federal Reserve Bank accept gold as collateral for an 
advance to a member bank under section 10(b) of the Federal Reserve Act? 
No.

[39 FR 45254, Dec. 31, 1974]

         Interpretations of Section 32 of the Glass-Steagall Act



Sec. 250.400  Service of open-end investment company.

    An open-end investment company is defined in section 5(a)(1) of the 
Investment Company Act of 1940 as a company ``which is offering for sale 
or has outstanding any redeemable security of which it is the issuer.'' 
Section 2(a)(31) of said act provides that a redeemable security means 
``any security, other than short-term paper, under the terms of which 
the holder, upon its presentation to the issuer or to a person 
designated by the issuer, is entitled (whether absolutely or only out of 
surplus) to receive approximately his proportionate share of the 
issuer's current net assets, or the cash equivalent thereof.''


It is customary for such companies to have but one class of securities, 
namely, capital stock, and it is apparent that the more or less 
continued process of redemption of the stock issued by such a company 
would restrict and

[[Page 372]]

contract its activities if it did not continue to issue its stock. Thus, 
the issuance and sale of its stock is essential to the maintenance of 
the company's size and to the continuance of operations without 
substantial contraction, and therefore the issue and sale of its stock 
constitutes one of the primary activities of such a company.


Accordingly, it is the opinion of the Board that if such a company is 
issuing or offering its redeemable stock for sale, it is ``primarily 
engaged in the issue * * * public sale, or distribution, * * * of 
securities'' and that section 32 of the Banking Act of 1933, as amended, 
prohibits an officer, director or employee of any such company from 
serving at the same time as an officer, director or employee of any 
member bank. It is the Board's view that this is true even though the 
shares are sold to the public through independent organizations with the 
result that the investment company does not derive any direct profit 
from the sales.


If, however, the company has ceased to issue or offer any of its stock 
for sale, the company would not be engaged in the issue or distribution 
of its stock, and, therefore, the prohibition contained in section 32 
would be inapplicable unless the company were primarily engaged in the 
underwriting, public sale or distribution of securities other than its 
own stock.

[16 FR 4963, May 26, 1951. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.401  Director serving member bank and closed-end investment 
company being organized.

    (a) The Board has previously expressed the opinion (Sec. 218.101) 
that section 32 of the Banking Act of 1933 (12 U.S.C. 78) is applicable 
to a director of a member bank serving as a director of an open-end 
investment company, because the more or less continued process of 
redemption of the stock issued by such company makes the issuance and 
sale of its stock essential to the maintenance of the company's size and 
to the continuance of operations, with the result that the issuance and 
sale of its stock constitutes one of the primary activities of such a 
company. The Board also stated that if the company had ceased to issue 
or offer any of its stock for sale, the company would not be engaged in 
the issuance or distribution of its stock and therefore the prohibitions 
of section 32 would not be applicable. Subsequently, the Board expressed 
the opinion that section 32 would not be applicable in the case of a 
closed-end investment company.
    (b) The Board has recently stated that it believed that a closed-end 
company which was in process of organization and was actively engaged in 
issuing and selling its shares was in the same position relative to 
section 32 as an open-end company, and that the section would be 
applicable while this activity continued.

[25 FR 3464, Apr. 21, 1960. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.402  Service as officer, director, or employee of licensee corporation
under the Small Business Investment Act of 1958.

    (a) The Board of Governors has been requested to express an opinion 
whether Sec. 218.1 would prohibit an officer, director, or employee of a 
member bank from serving at the same time as an officer, director, or 
employee of a Licensee corporation under the Small Business Investment 
Act of 1958 (15 U.S.C. 661 et seq.). It is understood that a Licensee 
would be authorized to engage only in the activities set forth in the 
statute, namely, to provide capital and long-term loan funds to small 
business concerns.
    (b) In the opinion of the Board, a corporation engaged exclusively 
in the enumerated activities would not be ``primarily engaged in the 
issue, flotation, underwriting, public sale, or distribution, at 
wholesale or retail, or through syndicate participation, of stocks, 
bonds, or other similar securities.'' Accordingly, the prohibition of 
Sec. 218.1 would not apply to serving as an officer, director, or 
employee of either a small business investment company organized under 
the Small Business Investment Act of 1958, or an investment company 
chartered under the laws of a State solely for the purpose of operating 
under the Small Business Investment Act of 1958.

[25 FR 4427, May 19, 1960. Redesignated at 61 FR 57289, Nov. 6, 1996]

[[Page 373]]



Sec. 250.403  Service of member bank and real estate investment company.

    (a) The Board recently considered two inquiries regarding the 
question whether proposed real estate investment companies would be 
subject to the provisions of sections 20 and 32 of the Banking Act of 
1933 (12 U.S.C. 377 and 78). These sections relate to affiliations 
between member banks and companies engaged principally in the issue, 
flotation, underwriting, public sale or distribution of stocks, bonds, 
or similar securities, and interlocking directorates between member 
banks and companies primarily so engaged. In both instances the 
companies, after their organization, would engage only in the business 
of financing real estate development or investing in real estate 
interests, and not in the type of business described in the statute. 
However, each of the companies, in the process of its organization, 
would issue its own stock. In one instance, it appeared that the stock 
would be issued over a period of from 30 to 60 days; in the other 
instance it was stated that the stock would be sold by a firm of 
underwriters and that distribution was expected to be completed in not 
more than a few days.
    (b) On the basis of the facts stated, the Board concluded that the 
companies involved would not be subject to sections 20 and 32 of the 
Banking Act of 1933, since they would not be principally or primarily 
engaged in the business of issuing or distributing securities but would 
only be issuing their own stock for a period ordinarily required for 
corporate organization. The Board stated, however, that if either of the 
companies should subsequently issue additional shares frequently and in 
substantial amounts relative to the size of the company's capital 
structure, it would be necessary for the Board to reconsider the matter.
    (c) Apart from the legal question, the Board noted that an 
arrangement of the kind proposed could involve some dangers to an 
affiliated bank because the relationship might tend to impair the 
independent judgment that should be exercised by the bank in appraising 
its credits and might cause the company to be so identified in the minds 
of the public with the bank that any financial reverses suffered by the 
company might affect the confidence of the public in the bank.
    (d) Because of the foregoing conclusion that the companies would not 
be subject to sections 20 and 32, it seems advisable to clarify 
Sec. 218.102, in which the Board took the position that a closed-end 
investment company which was in process of organization and was actively 
engaged in issuing and selling its shares was subject to section 32 as 
long as this activity continued. That interpretation should be regarded 
as applicable only where the circumstances are such as to indicate that 
the issuance of the company's stock is a primary or principal activity 
of the company. For example, such circumstances might exist where the 
initial stock of a company is actively issued over a period of time 
longer than that ordinarily required for corporate organization, or 
where, subsequent to organization, the company issues its own stock 
frequently and in substantial amounts relative to the total amount of 
shares outstanding.

[26 FR 868, Jan. 28, 1961. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.404  Serving as director of member bank and corporation selling 
own stock.

    (a) The Board recently considered the question whether section 32 of 
the Banking Act of 1933 (12 U.S.C. 78) would be applicable to the 
service of a director of a corporation which planned to acquire or 
organize, as proceeds from the sale of stock became available, 
subsidiaries to operate in a wide variety of fields, including 
manufacturing, foreign trade, leasing of heavy equipment, and real 
estate development. The corporation had a paid-in capital of about 
$60,000 and planned to sell additional shares at a price totaling $10 
million, with the proviso that if less than $3 million worth were sold 
by March 1962, the funds subscribed would be refunded. It thus appeared 
to be contemplated that the sale of stock would take at least a year, 
and there appeared to be no reason for believing that, if the venture 
proved successful, additional shares would not be offered so that the 
corporation could continue to expand.

[[Page 374]]

    (b) The Board concluded that section 32 would be applicable, stating 
that although Sec. 218.102, as clarified by Sec. 218.104, related to 
closed-end investment companies, the rationale of that interpretation is 
applicable to corporations generally.

[26 FR 2456, Mar. 23, 1961. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.405  No exception granted a special or limited partner.

    (a) The Board has been asked on several occasions whether section 32 
of the Banking Act of 1933 (12 U.S.C. 78) is applicable to a director, 
officer, or employee of a member bank who is a special or limited 
partner in a firm primarily engaged in the business described in that 
section.
    (b) Since the Board cannot issue an individual permit, it can exempt 
a limited or special partner only by amending part 218 (Regulation R). 
After the statute was amended in 1935 so as to make it applicable to a 
partner, the Board carefully considered the desirability of making such 
an exception. On several subsequent occasions it has reconsidered the 
question. In each instance the Board has decided that in view of a 
limited partner's interest in the underwriting and distributing 
business, it should not make the exception.

[27 FR 7954, Aug. 10, 1962. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.406  Serving member bank and investment advisor with mutual 
fund affiliation.

    (a) The opinion of the Board of Governors of the Federal Reserve 
System has been requested with respect to service as vice president of a 
corporation engaged in supplying investment advice and management 
services to mutual funds and others (``Manager'') and as director of a 
member bank.
    (b) Section 32 of the Banking Act of 1933 (12 U.S.C. 78), forbids 
any officer, director, or employee of any corporation ``primarily 
engaged in the issue, flotation, underwriting, public sale, or 
distribution, at wholesale or retail, or through syndicate 
participation, of stocks, bonds, or other similar securities * * *'' to 
serve at the same time as an officer, director, or employee of a member 
bank.
    (c) Manager has for several years served a number of different open-
end or mutual funds, as well as individuals, institutions, and other 
clients, as an investment advisor and manager. However, it appears that 
Manager has a close relationship with two of the mutual funds which it 
serves. A wholly owned subsidiary of Manager (``Distributors''), serves 
as distributor for the two mutual funds and has no other function. In 
addition, the chairman and treasurer of Manager, as well as the 
president, assistant treasurer, and a director of Manager, are officers 
and directors of Distributors and trustees of both funds. It appears 
also that a director of Manager is president and director of 
Distributors, while the clerk of Manager is also clerk of Distributors. 
Manager, Distributors and both funds are listed at the same address in 
the local telephone directory.
    (d) While the greater part of the total annual income of Manager 
during the past five years has derived from ``individuals, institutions, 
and other clients'', it appears that a substantial portion has been 
attributable to the involvement with the two funds in question. During 
each of the last four years, that portion has exceeded a third of the 
total income of Manager, and in 1962 it reached nearly 40 percent.
    (e) The Board has consistently held that an open-end or mutual fund 
is engaged in the activities described in section 32, so long as it is 
issuing its securities for sale, since it is apparent that the more or 
less continued process of redemption of the stock issued by such a 
company would restrict and contract its activities if it did not 
continue to issue the stock. Clearly, a corporation that is engaged in 
underwriting or selling open-end shares, is so engaged.
    (f) In connection with incorporated manager-advisors to open-end or 
mutual funds, the Board has expressed the view in a number of cases that 
where the corporation served a number of different clients, and the 
corporate structure was not interlocked with that of mutual fund and 
underwriter in such a way that it could be regarded as being controlled 
by or substantially one with

[[Page 375]]

them, it should not be held to be ``primarily engaged'' in section 32 
activities. On the other hand, where a manager-advisor was created for 
the sole purpose of serving a particular fund, and its activities were 
limited to that function, the Board has regarded the group as a single 
entity for purposes of section 32.
    (g) In the present case, the selling organization is a wholly-owned 
subsidiary of the advisor-manager, hence subject to the parent's 
control. Stock of the subsidiary will be voted according to decisions by 
the parent's board of directors, and presumably will be voted for a 
board of directors of the subsidiary which is responsive to policy lines 
laid down by the parent. Financial interests of the parent are obviously 
best served by an aggressive selling policy, and, in fact, both the 
share and the absolute amount of the parent's income provided by the two 
funds have shown a steady increase over recent years. The fact that 
dividends from Distributors have represented a relatively small 
proportion of the income of Manager, and that there were, indeed, no 
dividends in 1961 or 1962, does not support a contrary argument, in view 
of the steady increase in total income of Manager from the funds and 
Distributors taken as a whole.
    (h) In view of all these facts, the Board has concluded that the 
separate corporate entities of Manager and Distributors should be 
disregarded and Distributors viewed as essentially a selling arm of 
Manager. As a result of this conclusion, section 32 would forbid 
interlocking service as an officer of Manager and a director of a member 
bank.

[28 FR 13437, Dec. 12, 1963. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.407  Interlocking relationship involving securities affiliate of 
brokerage firm.

    (a) The Board of Governors was asked recently whether section 32 of 
the Banking Act of 1933 (``section 32''), 12 U.S.C. 78, prohibits the 
interlocking service of X as a director of a member bank of the Federal 
Reserve System and as a partner in a New York City brokerage firm 
(``Partnership'') having a corporation affiliate (``Corporation'') 
engaged in business of the kinds described in section 32 (``section 32 
business'').
    (b) Section 32, subject to an exception not applicable here, 
provides that

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve the same time as an officer, director, or 
employee of any member bank * * *.

    (c) From the information submitted it appears that Partnership, a 
member firm of the New York Stock Exchange, is the successor of two 
prior partnerships, in one of which X had been a partner. This prior 
partnership had been found not to be ``primarily engaged'' in section 32 
business. The other prior partnership, however, had been so engaged. By 
arrangement between the two prior firms, Corporation was formed chiefly 
for the purpose of carrying on the section 32 business of the prior firm 
that had been ``primarily engaged'' in that business, which business was 
transferred to Corporation. The two prior firms were then merged and the 
stock of Corporation was acquired by all the partners of Partnership, 
other than X, in proportion to the respective partnership interests of 
the stockholding partners. The information submitted indicated also that 
two of the three directors and ``some'' of the principal officers of 
Corporation are partners in Partnership, although X is not a director or 
officer of Corporation.
    (d) It is understood that the practice of forming corporate 
affiliates of brokerage firms, in order that the affiliate may carry on 
the securities business (such as section 32 business) with limited 
liability and other advantages, has become rather widespread in recent 
years. Accordingly, other cases may arise where a partner in such a firm 
may desire to serve at the same time as director of a member bank.
    (e) On the basis of the information presented the Board concluded 
that X in his capacity as an ``individual'', was not engaged in section 
32 business.

[[Page 376]]

However, as that information showed Corporation to be ``primarily 
engaged'' in section 32 business, the Board stated that a finding that 
Partnership and Corporation were one entity for the purposes of the 
statute would mean that X would be forbidden to serve both the member 
bank and Partnership, if the one entity were so engaged.
    (f) Paragraph .15 of Rule 321 of the New York Stock Exchange 
governing the formation and conduct of affiliated companies of member 
organizations states that:

    Since Rule 314 provides that each member and allied member in a 
member organization must have a fixed interest in its entire business, 
it follows that the fixed interest of each member and allied member must 
extend to the member organization's corporate affiliate. When any of the 
corporate affiliate's participating stock is owned by the members and 
allied members in the member organization, such holdings must at all 
times be distributed among such members and allied members in 
approximately the same proportions as their respective interests in the 
profits of the member organization. When a member or allied member's 
interest in the member organization is changed, a corresponding change 
must be made in his participating interest in the affiliate.

    (g) Although it was understood that X had received special 
permission from the Exchange not to own any of the stock of Corporation, 
it appeared to the Board that Rule 321.15 would apply to the remaining 
partners. Moreover, other paragraphs of the rule forbid transfers of the 
stock, except under certain circumstances to limited classes of persons, 
such as employees of the organization or estates of decedent partners, 
without permission of the Exchange.
    (h) The information supplied to the Board clearly indicated that 
Corporation was formed in order to provide Partnership with an 
``underwriting arm''. Under Rule 321 of the Exchange, the partners 
(other than X) are required to own stock in Corporation because of their 
partnership interest, would be required to surrender that stock on 
leaving the partnership, and incoming partners would be required to 
acquire such stock. Furthermore, Rule 321 speaks of a corporate 
affiliate, such as Corporation, as a part of the ``entire business'' of 
a member organization.
    (i) On the basis of the foregoing, the Board concluded that 
Partnership and Corporation must be regarded as a single entity or 
enterprise for purposes of section 32.
    (j) The remaining question was whether the enterprise, as a whole, 
should be regarded as ``primarily engaged'' in section 32 business. The 
Information presented stated that the total dollar volume of section 32 
business of Corporation during the first eleven months of its operation 
was $89 million. The gross income from section 32 business was less than 
half a million, and represented about 7.9 percent of the income of 
Partnership. The Board was advised that the relatively low amount of 
income from section 32 business of Corporation as due to special costs, 
and to the condition of the market for municipal and State bonds during 
the past year, a field in which Corporation specializes. Corporation is 
listed in a standard directory of securities dealers, and holds itself 
out as having separate departments to deal with the principal 
underwriting areas in which it functions.
    (k) In view of the above information, the Board concluded that the 
enterprise consisting of Partnership and Corporation was ``primarily 
engaged'' in section 32 business. Accordingly, the Board stated that the 
partners in Partnership, including X, were forbidden by that section and 
by this part 218 (Reg. R), issued pursuant to the statute, to serve as 
officers, directors, or employees of any member banks.

[29 FR 5315, Apr. 18, 1964. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.408  Short-term negotiable notes of banks not securities under 
section 32, Banking Act of 1933.

    (a) The Board of Governors has been asked whether short-term 
unsecured negotiable notes of the kinds issued by some of the large 
banks in this country as a means of obtaining funds are ``other similar 
securities'' within the meaning of section 32, Banking Act of 1933 (12 
U.S.C. 78) and this part.
    (b) Section 32 forbids certain interlocking relationships between 
banks which are members of the Federal Reserve System and individuals or 
organizations ``primarily engaged in the

[[Page 377]]

issue, flotation, underwriting, public sale, or distribution, at 
wholesale or retail, or through syndicate participation, of stocks, 
bonds, or other similar securities * * *.'' Therefore, if such notes are 
securities similar to stocks or bonds, any dealing therein would be an 
activity covered in section 32 and would have to be taken into 
consideration in determining whether the individual or organization 
involved was ``primarily engaged'' in such activities.
    (c) The Board has concluded that such short-term notes of the kind 
described above are not ``other similar securities'' within the meaning 
of section 32 and this part.

[29 FR 16065, Dec. 2, 1964. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.409  Investment for own account affects applicability of section 32.

    (a) The Board of Governors has been presented with the question 
whether a certain firm is primarily engaged in the activities described 
in section 32 of the Banking Act of 1933. If the firm is so engaged, 
then the prohibitions of section 32 forbids a limited partner to serve 
as employee of a member bank.
    (b) The firm describes the bulk of its business, producing roughly 
60 percent of its income, as ``investing for its own account.'' However, 
it has a seat on the local stock exchange, and acts as specialist and 
odd-lot dealer on the floor of the exchange, an activity responsible for 
some 30 percent of its volume and profits. The firm's ``off-post 
trading,'' apart from the investment account, gives rise to about 5 
percent of its total volume and 10 percent of its profits. Gross volume 
has risen from $4 to $10 million over the past 3 years, but underwriting 
has accounted for no more than one-half of 1 percent of that amount.
    (c) Section 32 provides that

    No officer, director, or employee of any corporation or 
unincorporated association, no partner, or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale, or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve the same time (sic) as an officer, director, or 
employee of any member bank * * *

    (d) In interpreting this language, the Board has consistently held 
that underwriting, acting as a dealer, or generally speaking, selling, 
or distributing securities as a principal, is covered by the section, 
while acting as broker or agent is not.
    (e) In one type of situation, however, although a firm was engaged 
in selling securities as principal, on its own behalf, the Board held 
that section 32 did not apply. In these cases, the firm alleged that it 
bought and sold securities purely for investment purposes. Typically, 
those cases involved personal holding companies or small family 
investment companies. Securities had been purchased only for members of 
a restricted family group, and had been held for relatively long periods 
of time.
    (f) The question now before the Board is whether a similar exception 
can apply in the case of the investment account of a professional 
dealer. In order to answer this question, it is necessary to analyze, in 
the light of applicable principles under the statute, the three main 
types of activity in which the firm has been engaged, (1) acting as 
specialist and odd-lot dealer, (2) off-post trading as an ordinary 
dealer, and (3) investing for its own account.
    (g) On several occasions, the Board has held that, to the extent the 
trading of a specialist or odd-lot dealer is limited to that required 
for him to perform his function on the floor of the exchange, he is 
acting essentially in an agency capacity. In a letter of September 13, 
1934, the Board held that the business of a specialist was not of the 
kind described in the (unamended) section on the understanding that

    * * * in acting as specialists on the New York Curb Exchange, it is 
necessary for the firm to buy and sell odd lots and * * * in order to 
protect its position after such transactions have been made, the firm 
sells or buys shares in lots of 100 or multiples thereof in order to 
reduce its position in the stock in question to the smallest amount 
possible by this method. It appears therefore that, in connection with 
these transactions, the firm is neither trading in the stock in question 
or taking a position in it except to the extent made necessary by the 
fact that it deals in odd lots and cannot complete the transactions by 
purchases and sales on the floor of the exchange except to the nearest 
100 share amount.


[[Page 378]]


    (h) While subsequent amendments to section 32 to some extent changed 
the definition of the kinds of securities business that would be covered 
by the section, the amendments were designed so far as is relevant to 
the present question, to embody existing interpretations of the Board. 
Accordingly, to the extent that the firm's business is described by the 
above letter of the Board, it should not be considered to be of a kind 
described in section 32.
    (i) Turning to the firm's off-post trading, the Board is inclined to 
agree with the view that this is sufficient to make the case a 
borderline one under the statute. In the circumstances, the Board might 
prefer to postpone making a determination until figures for 1965 could 
be reviewed, particularly in the light of the recent increase in total 
volume, if it were not for the third category, the firm's own investment 
account.
    (j) While this question has not been squarely presented to it in the 
past, the Board is of the opinion that when a firm is doing any 
significant amount of business as a dealer or underwriter, then 
investments for the firm's own account should be taken into 
consideration in determining whether the firm is ``primarily engaged'' 
in the activities described in section 32. The division into dealing for 
one's own account, and dealing with customers, is a highly subjective 
one, and although a particular firm or individual may be quite 
scrupulous in separating the two, the opportunity necessarily exists for 
the kind of abuse at which the statute is directed. The Act is designed 
to prevent situations from arising in which a bank director, officer, or 
employee could influence the bank or its customers to invest in 
securities in which his firm has an interest, regardless of whether he, 
as an individual, is likely to do so. In the present case, when these 
activities are added to the firm's ``off-post trading'', the firm 
clearly falls within the statutory definition.
    (k) For the reasons just discussed, the Board concludes that the 
firm must be considered to be primarily engaged in activities described 
in section 32, and that the prohibitions of the section forbid a limited 
partner in that firm to serve as employee of a member bank.

(12 U.S.C. 248(i))

[30 FR 7743, June 16, 1965. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.410  Interlocking relationships between bank and its commingled 
investment account.

    (a) The Board of Governors was asked recently whether the 
establishment of a proposed ``Commingled Investment Account'' 
(``Account'') by a national bank would involve a violation of section 32 
of the Banking Act of 1933 in view of the interlocking relationships 
that would exist between the bank and Account.
    (b) From the information submitted, it was understood that Account 
would comprise a commingled fund, to be operated under the effective 
control of the bank, for the collective investment of sums of money that 
might otherwise be handled individually by the bank as managing agent. 
It was understood further that the Comptroller of the Currency had taken 
the position that Account would be an eligible operation for a national 
bank under his Regulation 9, ``Fiduciary Powers of National Banks and 
Collective Investment Funds'' (part 9 of this title). The bank had 
advised the Board that the Securities and Exchange Commission was of the 
view that Account would be a ``registered investment company'' within 
the meaning of the Investment Company Act of 1940, and that 
participating interests in Account would be ``securities'' subject to 
the registration requirements of the Securities Act of 1933.
    (c) The information submitted showed also that the minimum 
individual participation that would be permitted in Account would be 
$10,000, while the maximum acceptable individual investment would be 
half a million dollars; that there would be no ``load'' or payment by 
customers for the privilege of investing in Account; and that:

    The availability of the Commingled Account would not be given 
publicity by the Bank except in connection with the promotion of its 
fiduciary services in general

[[Page 379]]

and the Bank would not advertise or publicize the Commingled Account as 
such. Participations in the Commingled Account are to be made available 
only on the premises of the Bank (including its branches), or to persons 
who are already customers of the Bank in other connections, or in 
response to unsolicited requests.

    (d) Such information indicated further that participations would be 
received by the bank as agent, under a broad authorization signed by the 
customer, substantially equivalent to the power of attorney under which 
customers currently deposit their funds for individual investment, and 
that the participations would not be received ``in trust.''
    (e) The Board understood that Account would be required to comply 
with certain requirements of the Federal securities laws not applicable 
to an ordinary common trust fund operated by a bank. In particular, 
supervision of Account would be in the hands of a committee to be 
initially appointed by the bank, but subsequently elected by 
participants having a majority of the units of participation in Account. 
At least one member of the committee would be entirely independent of 
the bank, but the remaining members would be officers in the trust 
department of the bank.
    (f) The committee would make a management agreement with the bank 
under which the bank would be responsible for managing Account's 
investments, have custody of its assets, and maintain its books and 
records. The management agreement would be renewed annually if approved 
by the committee, including a ``majority'' of the independent members, 
or by a vote of participants having a majority of the units of 
participation. The agreement would be terminable on 60 days' notice by 
the committee, by such a majority of the participants, or by the bank, 
and would terminate automatically if assigned by the bank.
    (g) It was understood also that the bank would receive as annual 
compensation for its services one-half of one percent of Account's 
average net assets. Account would also pay for its own independent 
professional services, including legal, auditing, and accounting 
services, as well as the cost of maintaining its registration and 
qualification under the Federal securities laws.
    (h) Initially, the assets of Account would be divided into units of 
participation of an arbitrary value, and each customer would be credited 
with a number of units proportionate to his investment. Subsequently, 
the assets of Account would be valued at regular intervals, and divided 
by the number of units outstanding. New investors would receive units at 
their current value, determined in this way, according to the amount 
invested. Each customer would receive a receipt evidencing the number of 
units to which he was entitled. The receipts themselves would be 
nontransferable, but it would be possible for a customer to arrange with 
Account for the transfer of his units to someone else. A customer could 
terminate his participation at any time and withdraw the current value 
of his units.
    (i) Section 32 of the Banking Act of 1933 provides in relevant part 
that:

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve [at] the same time as an officer, director, or 
employee of any member bank * * *.

    (j) The Board concluded, based on its understanding of the proposal 
and on the general principles that have been developed in respect to the 
application of section 32, that the bank and Account would constitute a 
single entity for the purposes of section 32, at least so long as the 
operation of Account conformed to the representations made by the bank 
and outlined herein. Accordingly, the Board said that section 32 would 
not forbid officers of the bank to serve on Account's committee, since 
Account would be regarded as nothing more than an arm or department of 
the bank.
    (k) In conclusion, the Board called attention to section 21 of the 
Banking Act of 1933 which, briefly, forbids a securities firm or 
organization to engage in the business of receiving deposits, subject to 
certain exceptions. However, since section 21 is a criminal statute,

[[Page 380]]

the Board has followed the policy of not expressing views as to its 
meaning. (1934 Federal Reserve Bulletin 41, 543.) The Board, therefore, 
expressed no position with respect to whether the section might be held 
applicable to the establishment and operation of the proposed 
``Commingled Investment Account.''

(12 U.S.C. 248(i))

[30 FR 12836, Oct. 8, 1965. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.411  Interlocking relationships between member bank and variable
annuity insurance company.

    (a) The Board has recently been asked to consider whether section 32 
of the Banking Act of 1933 (12 U.S.C. 78) and this part prohibit 
interlocking service between member banks and (1) the board of managers 
of an accumulation fund, registered under the Investment Company Act of 
1940 (15 U.S.C. 80), that sells variable annuities and (2) the board of 
directors of the insurance company, of which the accumulation fund is a 
``separate account,'' but as to which the insurance company is the 
sponsor, investment advisor, underwriter, and distributor. Briefly, a 
variable annuity is one providing for annuity payment varying in 
accordance with the changing values of a portfolio of securities.
    (b) Section 32 provides in relevant part that:

    No officer, director, or employee of any corporation or 
unincorporated association, no partner or employee of any partnership, 
and no individual, primarily engaged in the issue, flotation, 
underwriting, public sale, or distribution, at wholesale or retail, or 
through syndicate participation, of stocks, bonds, or other similar 
securities, shall serve [at] the same time as an officer, director, or 
employee of any member bank * * *.

    (c) For many years, the Board's position has been that an open-end 
investment company (or mutual fund) is ``primarily engaged in the issue 
* * * public sale, or distribution * * * of securities'' since the 
issuance and sale of its stock is essential to the maintenance of the 
company's size and to the continuance of its operations without 
substantial contraction, and that section 32 of the Banking Act of 1933 
prohibits an officer, director, or employee of any such company from 
serving at the same time as an officer, director, or employee of any 
member bank. (1951 Federal Reserve Bulletin 645; Sec. 218.101.)
    (d) For reasons similar to those stated by the U.S. Supreme Court in 
Securities and Exchange Commission v. Variable Annuity Life Insurance 
Company of America, 359 U.S. 65 (1959), the Board concluded that there 
is no meaningful basis for distinguishing a variable annuity interest 
from a mutual fund share for section 32 purposes and that, therefore, 
variable annuity interests should also be regarded as ``other similar 
securities'' within the prohibition of the statute and regulation.
    (e) The Board concluded also that, since the accumulation fund, like 
a mutual fund, must continually issue and sell its investment units in 
order to avoid the inevitable contraction of its activities as it makes 
annuity payments or redeems variable annuity units, the accumulation 
fund is ``primarily engaged'' for section 32 purposes. The Board further 
concluded that the insurance company was likewise ``primarily engaged'' 
for the purposes of the statute since it had no significant revenue 
producing operations other than as underwriter and distributor of the 
accumulation fund's units and investment advisor to the fund.
    (f) Although it was clear, therefore, that section 32 prohibits any 
officers, directors, and employees of member banks from serving in any 
such capacity with the insurance company or accumulation fund, the Board 
also considered whether members of the board of managers of the 
accumulation fund are ``officers, directors, or employees'' within such 
prohibition. The functions of the board of managers, who are elected by 
the variable annuity contract owners, are, with the approval of the 
variable annuity contract owners, to select annually an independent 
public accountant, execute annually an agreement providing for 
investment advisory services, and recommend any changes in the 
fundamental investment policy of the accumulation fund. In addition, the 
Board of managers has sole authority to execute an agreement providing 
for sales and administrative

[[Page 381]]

services and to authorize all investments of the assets of the 
accumulation fund in accordance with its fundamental investment policy. 
In the opinion of the Board of Governors, the board of managers of the 
accumulation fund performs functions essentially the same as those 
performed by classes of persons as to whom the prohibition of section 32 
was specifically directed and, accordingly, are within the prohibitions 
of the statute.

(12 U.S.C. 248(i))

[33 FR 12886, Sept. 12, 1968. Redesignated at 61 FR 57289, Nov. 6, 1996]



Sec. 250.412  Interlocking relationships between member bank and insurance 
company-mutual fund complex.

    (a) The Board has been asked whether section 32 of the Banking Act 
of 1933 and this part prohibited interlocking service between member 
banks and (1) the advisory board of a newly organized open-end 
investment company (mutual fund), (2) the fund's incorporated investment 
manager-advisor, (3) the insurance company sponsoring and apparently 
controlling the fund.
    (b) X Fund, Inc. (``Fund''), the mutual fund, was closely related to 
X Life Insurance Company (``Insurance Company''), as well as to the 
incorporated manager and investment advisor to Fund (``Advisors''), and 
the corporation serving as underwriter for Fund (``Underwriters''). The 
same persons served as principal officers and directors of Insurance 
Company, Fund, Advisors, and Underwriters. In addition, several 
directors of member banks served as directors of Insurance Company and 
of Advisors and as members of the Advisory Board of Fund, and additional 
directors of member banks had been named only as members of the Advisory 
Board. All outstanding shares of Advisors and of Underwriters were 
apparently owned by Insurance Company.
    (c) Section 32 provides in relevant part that:

    No officer, director, or employee of any corporation * * * primarily 
engaged in the issue, flotation, underwriting, public sale, or 
distribution at wholesale or retail, or through syndicate participation, 
of stocks, bonds, or other similar securities, shall serve [at] the same 
time as an officer, director, or employee of any member bank * * *.

    (d) The Board of Governors reaffirmed its earlier position that an 
open-end investment company is ``primarily engaged'' in activities 
described in section 32 ``even though the shares are sold to the public 
through independent organizations with the result that the investment 
company does not derive any direct profit from the sales.'' (1951 
Federal Reserve Bulletin 654, Sec. 218.101.) Accordingly, the Board 
concluded that Fund must be regarded as so engaged, even though its 
shares were underwritten and distributed by Underwriters.
    (e) As directors of the member banks involved in the inquiry were 
not officers, directors, or employees of either Fund or Underwriters, 
the relevant questions were whether--(1) Advisors, and (2) Insurance 
Company, should be regarded as being functionally and structurally so 
closely allied with Fund that they should be treated as one with it in 
determining the applicability of section 32. An additional question was 
whether members of the Advisory Board are ``officers, directors, or 
employees'' of Fund within the prohibition of the statute.
    (f) Interlocking service with Advisory Board: The function of the 
Advisory Board was merely to make suggestions and to counsel with Fund's 
Board of Directors in regard to investment policy. The Advisory Board 
had no authority to make binding recommendations in any area, and it did 
not serve in any sense as a check on the authority of the Board of 
Directors. Indeed, the Fund's bylaws provided that the Advisory Board 
``shall have no power or authority to make any contract or incur any 
liability whatever or to take any action binding upon the Corporation, 
the Officers, the Board of Directors or the Stockholders.'' Members of 
the Advisory Board were appointed by the Board of Directors of Fund, 
which could remove any member of the Advisory Board at any time. None of 
the principal officers of Fund or of Underwriters were members of the 
Advisory Board; and the compensation of its members was expected to be 
nominal.
    (g) The Board of Governors concluded that members of the Advisory 
Board need not be regarded as ``officers, directors, or employees'' of 
Fund or of

[[Page 382]]

Underwriters for purposes of section 32, and that the statute, 
therefore, did not prohibit officers, directors, or employees of member 
banks from serving as members of the Advisory Board.
    (h) Interlocking service with Advisors: The principal officers and 
several of the directors of Advisors were identical with both those of 
Fund and of Underwriters. Entire management and investment 
responsibility for Fund had been placed, by contract, with Advisors, 
subject only to a review authority in the Board of Directors of Fund. 
Advisors also supplied office space for the conduct of Fund's affairs, 
and compensated members of the Advisory Board who are also officers or 
directors of Advisors. Moreover, it appeared that Advisors was created 
for the sole purpose of servicing Fund, and its activities were to be 
limited to that function.
    (i) In the view of the Board of Governors, the structural and 
functional identity of Fund and Advisors was such that they were to be 
regarded as a single entity for purposes of section 32, and, 
accordingly, officers, directors, and employees of member banks were 
prohibited by section 32 from serving in any such capacity with such 
entity.
    (j) Interlocking service with Insurance Company: It was clear that 
Insurance Company was not as yet ``primarily engaged'' in business of a 
kind described in section 32 with respect to the shares of the newly 
created Fund sponsored by Insurance Company, since the issue and sale of 
such shares had not yet commenced. Nor did it appear that Insurance 
Company would be so engaged in the preliminary stages of Fund's 
existence, when the disproportion between the insurance business of 
Insurance Company and the sale of Fund shares would be very great. 
However, it was also clear that if Fund was successfully launched, its 
activities would rather quickly reach a stage where a serious question 
would arise as to the applicability of the section 32 prohibition.
    (k) An estimate supplied to the Board indicated that 100,000 shares 
of Fund might be sold annually to produce, based on then current values, 
annual gross sales receipts of over $1 million. Insurance Company's 
total gross income for its last fiscal year was almost $10 million. On 
this basis, about one-tenth of the annual gross income of the Insurance 
Company-Fund complex (more than one-tenth, if income from investments of 
Insurance Company was eliminated) would be derived from sales of Fund 
shares. Although total sales of shares of Fund during the first year 
might not approximate expectations, it was assumed that if the estimate 
or projection was correct, the annual rate of sale might well rise to 
that level before the end of the first year of operation.
    (l) It appeared that net income of Insurance Company from Fund's 
operations would be minimal for the foreseeable future. However, it was 
understood that Insurance Company's chief reason for launching Fund was 
to provide salesmen for Insurance Company (who were to be the only 
sellers of shares of Fund, and most of whom, Insurance Company hoped, 
would qualify to sell those shares), with a ``package'' of mutual fund 
shares and life insurance policies that would provide increased 
competitive strength in a highly competitive field.
    (m) The Board concluded that Insurance Company would be ``primarily 
engaged'' in issuing or distributing shares of Fund within the meaning 
of section 32 by not later than the time of realization of the 
aforementioned estimated annual rate of sale, and possibly before. As 
indicated in Board of Governors v. Agnew, 329 U.S. 441 at 446, the 
prohibition of the statute applies if the section 32 business involved 
is a ``substantial'' activity of the company.
    (n) This, the Board observed, was not to suggest that officers, 
directors, or employees of Insurance Company who are also directors of 
member banks would be likely, as individuals, to use their positions 
with the banks to further sales of Fund's shares. However, as the 
Supreme Court pointed out in the Agnew case, section 32 is a 
``preventive or prophylactic measure.'' The fact that the individuals 
involved ``have been scrupulous in their relationships'' to the banks in 
question ``is immaterial.''

(12 U.S.C. 248(i))

[33 FR 13001, Sept. 14, 1968. Redesignated at 61 FR 57289, Nov. 6, 1996]

[[Page 383]]



Sec. 250.413  ``Bank-eligible'' securities activities.

    Section 32 of the Glass-Steagall Act (12 U.S.C. 78) prohibits any 
officer, director, or employee of any corporation or unincorporated 
association, any partner or employee of any partnership, and any 
individual, primarily engaged in the issue, flotation, underwriting, 
public sale, or distribution, at wholesale or retail, or through 
syndicate participation, of stocks, bonds, or other similar securities, 
from serving at the same time as an officer, director, or employee of 
any member bank of the Federal Reserve System. The Board is of the 
opinion that to the extent that a company, other entity or person is 
engaged in securities activities that are expressly authorized for a 
state member bank under section 16 of the Glass-Steagall Act (12 U.S.C. 
24(7), 335), the company, other entity or individual is not engaged in 
the types of activities described in section 32. In addition, a 
securities broker who is engaged solely in executing orders for the 
purchase and sale of securities on behalf of others in the open market 
is not engaged in the business referred to in section 32.

[Reg. R, 61 FR 57289, Nov. 6, 1996]



PART 251_CONCENTRATION LIMIT (REGULATION XX)--Table of Contents



Sec.
251.1  Authority, purpose, and other authorities.
251.2  Definitions.
251.3  Concentration limit.
251.4  Exceptions to the concentration limit.
251.5  No evasion.
251.6  Reporting requirements.

    Authority: 12 U.S.C. 1818, 1844(b), 1852, 3101 et seq.

    Source: 79 FR 68104, Nov. 14, 2014, unless otherwise noted.



Sec. 251.1  Authority, purpose, and other authorities.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System under sections 5 and 14 of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1844 and 1852); section 8 of 
the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818); the 
International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.); 
and the recommendations of the Financial Stability Oversight Council (76 
Federal Register 6756) (February 8, 2011).
    (b) Purpose. This subpart implements section 14 of the Bank Holding 
Company Act, which generally prohibits a financial company from merging 
or consolidating with, acquiring all or substantially all of the assets 
of, or otherwise acquiring control of, another company if the resulting 
company's consolidated liabilities would exceed 10 percent of the 
aggregate consolidated liabilities of all financial companies.
    (c) Other authorities. Nothing in this part limits the authority of 
the Board under any other provision of law or regulation to prohibit or 
limit a financial company from merging or consolidating with, acquiring 
all or substantially all of the assets of, or otherwise acquiring 
control of, another company.



Sec. 251.2  Definitions.

    Unless otherwise specified, for the purposes of this part:
    (a) Applicable accounting standards means, with respect to a 
company, U.S. generally accepted accounting principles (GAAP), or such 
other accounting standard or method of estimation that the Board 
determines is appropriate pursuant to Sec. 251.3(e).
    (b) Applicable risk-based capital rules means consolidated risk-
based capital rules established by an appropriate Federal banking agency 
that are applicable to a financial company.
    (c) Appropriate Federal banking agency has the same meaning as in 
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).
    (d) Control has the same meaning as in Sec. 225.2(e) of the Board's 
Regulation Y (12 CFR 225.2(e)).
    (e) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (f) Covered acquisition means a transaction in which a company 
directly or indirectly merges or consolidates with, acquires all or 
substantially all of the assets of, or otherwise acquires control

[[Page 384]]

of another company. A covered acquisition does not include an 
acquisition of ownership or control of a company:
    (1) In the ordinary course of collecting a debt previously 
contracted in good faith if the acquired securities or assets are 
divested within the time period permitted by the appropriate Federal 
banking agency (including extensions) or, if the financial company does 
not have an appropriate Federal banking agency, five years;
    (2) In a fiduciary capacity in good faith under applicable fiduciary 
law if the acquired securities or assets are held in the ordinary course 
of business and not acquired for the benefit of the company or its 
shareholders, employees, or subsidiaries;
    (3) In connection with bona fide underwriting or market-making 
activities;
    (4) Solely in connection with a corporate reorganization and the 
companies involved are lawfully controlled and operated by the financial 
company both before and following the reorganization; and
    (5) That is, or will be, an issuer of asset back securities (as 
defined in Section 3(a) of the Securities and Exchange Act of 1934) so 
long as the financial company that retains an ownership interest in the 
company complies with the credit risk retention requirements in the 
regulations issued pursuant to section 15G of the Securities and 
Exchange Act of 1934.
    (g) Financial company includes:
    (1) An insured depository institution;
    (2) A bank holding company;
    (3) A savings and loan holding company;
    (4) A company that controls an insured depository institution;
    (5) A nonbank financial company supervised by the Board, and
    (6) A foreign bank or company that is treated as a bank holding 
company for purposes of the Bank Holding Company Act.
    (h) Foreign financial company means a financial company that is 
incorporated or organized in a country other than the United States.
    (i) Insured depository institution has the same meaning as in 
section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(c)(2)).
    (j) Nonbank financial company supervised by the Board means any 
nonbank financial company that the Council has determined under section 
113 of the Dodd-Frank Act (12 U.S.C. 5323) shall be supervised by the 
Board and for which such determination is still in effect.
    (k) State means any state, commonwealth, territory, or possession of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    (l) U.S. agency has the same meaning as the term ``agency'' in 
Sec. 211.21(b) of the Board's Regulation K (12 CFR 211.21(b)).
    (m) Total regulatory capital has the same meaning as the term 
``total capital'' as defined under the applicable risk-based capital 
rules.
    (n) Total risk-based capital ratio means the ``total capital ratio'' 
as calculated under the applicable risk-based capital rules.
    (o) Total risk-weighted assets means the measure of consolidated 
risk-weighted assets that a financial company uses to calculate its 
risk-based capital ratios under the applicable risk-based capital rules.
    (p) U.S. branch has the same meaning as the term ``branch'' in 
Sec. 211.21(e) of the Board's Regulation K (12 CFR 211.21(e)).
    (q) U.S. company means a company that is incorporated in or 
organized under the laws of the United States or any State.
    (r) U.S. financial company means a financial company that is a U.S. 
company.
    (s) U.S. subsidiary means any subsidiary, as defined in 
Sec. 225.2(o) of Regulation Y (12 CFR 225.2(o)), that is a U.S. company.



Sec. 251.3  Concentration limit.

    (a) In general. (1) Except as otherwise provided in Sec. 251.4, a 
company may not consummate a covered acquisition if upon consummation of 
the transaction, the liabilities of the resulting company would exceed 
10 percent of the financial sector liabilities, and the company

[[Page 385]]

is or would become a financial company.
    (2) Financial sector liabilities. (i) Subject to paragraph 
(a)(2)(ii) of this section, as of July 1 of a given year, financial 
sector liabilities are equal to the average of the year-end financial 
sector liabilities figure for the preceding two calendar years. The 
measure of financial sector liabilities will be in effect until June 30 
of the following calendar year.
    (ii) For the period beginning July 1, 2015, and ending June 30, 
2016, financial sector liabilities are equal to the year-end financial 
sector liabilities figure as of December 31, 2014.
    (iii) The year-end financial sector liabilities figure equals the 
sum of the total consolidated liabilities of all top-tier U.S. financial 
companies (as calculated under paragraph (b) of this section) and the 
U.S. liabilities of all top-tier foreign financial companies (as 
calculated under paragraph (c) of this section) as of December 31 of 
that year.
    (iv) On an annual basis and no later than July 1 of any calendar 
year, the Board will calculate and publish the financial sector 
liabilities for the preceding calendar year and the average of the 
financial sector liabilities for the preceding two calendar years.
    (b) Calculating total consolidated liabilities. For purposes of 
paragraph (a) of this section:
    (1) Covered acquisition by a U.S. company. For a covered acquisition 
in which a U.S. company would acquire a U.S. company or a foreign 
company, liabilities of the resulting U.S. financial company equal the 
consolidated liabilities of the resulting U.S. financial company, 
calculated on a pro forma basis in accordance with paragraph (c) of this 
section.
    (2) Covered acquisition by a foreign company of another foreign 
company. For a covered acquisition in which a foreign company would 
acquire another foreign company, liabilities of the resulting foreign 
financial company equal the U.S. liabilities of the resulting financial 
company, calculated on a pro forma basis in accordance with paragraph 
(d) of this section.
    (3) Covered acquisition by a foreign company of a U.S. company. For 
a covered acquisition in which a foreign company would acquire a U.S. 
company, liabilities of the resulting foreign financial company equal 
the sum of: (i) The U.S. liabilities of the foreign company immediately 
preceding the transaction (calculated in accordance with paragraph (d) 
of this section) and (ii) the consolidated liabilities of the U.S. 
company immediately preceding the transaction (calculated in accordance 
with paragraph (c) of this section), reduced by the amount corresponding 
to any balances and transactions that would be eliminated in 
consolidation upon consummation of the transaction.
    (c) Liabilities of a U.S. company--(1) U.S. company subject to 
applicable risk-based capital rules. For a U.S. company subject to 
applicable-risk based capital rules, consolidated liabilities are equal 
to:
    (i) Total risk-weighted assets of the company; plus
    (ii) The amount of assets that are deducted from the company's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the company's 
total risk-based capital ratio minus one; minus
    (iii) Total regulatory capital of the company.
    (2) U.S. company not subject to applicable risk-based capital rules. 
For a U.S. company that is not subject to applicable risk-based capital 
rules, consolidated liabilities are equal to the total liabilities of 
such company on a consolidated basis, as determined under applicable 
accounting standards.
    (d) Liabilities of a foreign company--(1) Foreign banking 
organization. For a foreign banking organization, U.S. liabilities are 
equal to:
    (i) The total consolidated assets of each U.S. branch or U.S. agency 
of the foreign banking organization, calculated in accordance with 
applicable accounting standards; plus
    (ii) The total consolidated liabilities of each top-tier U.S. 
subsidiary that is subject to applicable risk-based capital rules (or 
reports information to the Board regarding its capital under risk-based 
capital rules applicable to bank holding companies), calculated as:
    (A) Total consolidated risk-weighted assets of the subsidiary; plus

[[Page 386]]

    (B) The amount of assets that are deducted from the subsidiary's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the 
subsidiary's total risk-based capital ratio minus one; minus
    (C) Total consolidated regulatory capital of the subsidiary; plus
    (iii) The total consolidated assets of each top-tier U.S. subsidiary 
that is not subject to applicable risk-based capital rules and does not 
report information regarding its capital under risk-based capital rules 
applicable to bank holding companies, calculated in accordance with 
applicable accounting standards.
    (2) Foreign financial company that is not a foreign banking 
organization. For a foreign company that is not a foreign banking 
organization, U.S. liabilities are equal to:
    (i) The total consolidated liabilities of each top-tier U.S. 
subsidiary that is subject to applicable risk-based capital rules (or 
reports information to the Board regarding its capital under risk-based 
capital rules applicable to bank holding companies), calculated as:
    (A) Total consolidated risk-weighted assets of the subsidiary; plus
    (B) The amount of assets that are deducted from the subsidiary's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the company's 
total risk-based capital ratio minus one; minus
    (C) Total regulatory capital of the subsidiary; plus
    (ii) The total consolidated liabilities of each top-tier U.S. 
subsidiary that is not subject to applicable risk-based capital rules, 
calculated in accordance with applicable accounting standards.
    (3) Intercompany balances and transactions--(i) Foreign banking 
organization. A foreign banking organization must reduce the amount of 
consolidated liabilities of its U.S. operations calculated pursuant to 
this paragraph (d) by amounts corresponding to intercompany balances and 
intercompany transactions between the foreign banking organization's 
U.S. domiciled affiliates, branches or agencies to the extent such items 
are not eliminated in consolidation, and increase consolidated 
liabilities by net intercompany balances and intercompany transactions 
between a non-U.S. domiciled affiliate and a U.S. domiciled affiliate, 
branch, or agency of the foreign banking organization, to the extent 
such items are not reflected in the measure of liabilities.
    (ii) Foreign financial company. A foreign company that is not a 
foreign banking organization may reduce the amount of consolidated 
liabilities of its U.S. operations calculated pursuant to this paragraph 
(d) by amounts corresponding to intercompany balances and intercompany 
transactions between the foreign organization's U.S. domiciled 
affiliates to the extent such items are not already eliminated in 
consolidation; provided that it increases consolidated liabilities by 
net intercompany balances and intercompany transactions between a non-
U.S. domiciled affiliate and a U.S. domiciled affiliate, to the extent 
such items are not already reflected in the measure of liabilities.
    (e) Applicable accounting standard. If a company does not calculate 
its total consolidated assets or liabilities under GAAP for any 
regulatory purpose (including compliance with applicable securities 
laws), the company may submit a request to the Board that the company 
use an accounting standard or method of estimation other than GAAP to 
calculate its liabilities for purposes of this part. The Board may, in 
its discretion and subject to Board review and adjustment, permit the 
company to provide estimated total consolidated liabilities on an annual 
basis using this accounting standard or method of estimation.



Sec. 251.4  Exceptions to the concentration limit.

    (a) General. With the prior written consent of the Board, the 
concentration limit under Sec. 251.3 shall not apply to:
    (1) A covered acquisition of an insured depository institution that 
is in default or in danger of default (as determined by the appropriate 
Federal banking agency of the insured depository institution, in 
consultation with the Board);

[[Page 387]]

    (2) A covered acquisition with respect to which assistance is 
provided by the Federal Deposit Insurance Corporation under section 
13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)); or
    (3) A covered acquisition that would result in an increase in the 
liabilities of the financial company that does not exceed $2 billion, 
when aggregated with all other acquisitions by the financial company 
made pursuant to this paragraph (a)(3) during the twelve months 
preceding the projected date of the acquisition.
    (b) Prior written consent--(1) General. Except as provided in 
paragraph (c) of this section, a financial company must request that the 
Board provide prior written consent before the financial company 
consummates a transaction described in paragraph (a) of this section.
    (2) Contents of request. (i) A request for prior written consent 
under paragraph (a) of this section must contain:
    (A) A description of the covered acquisition;
    (B) The projected increase in the company's liabilities resulting 
from the acquisition;
    (C) If the request is made pursuant to paragraph (a)(3) of this 
section, the projected aggregate increase in the company's liabilities 
from acquisitions during the twelve months preceding the projected date 
of the acquisition; and
    (D) Any additional information requested by the Board.
    (ii) A financial company may satisfy the requirements of this 
paragraph (b) if:
    (A) The proposed transaction otherwise requires approval by, or 
prior notice to, the Board under the Change in Bank Control Act, Bank 
Holding Company Act, Home Owners' Loan Act, International Banking Act, 
or any other applicable statute, and any regulation thereunder; and
    (B) The financial company includes the information required in 
paragraph (b)(2) of this section in the notice or request for prior 
approval described in paragraph (b)(2)(ii)(A) of this section.
    (3) Procedures for providing written consent. (i) The Board will act 
on a request for prior written consent filed under this paragraph (b) 
within 90 calendar days after the receipt of a complete request, unless 
that time period is extended by the Board. To the extent that a proposed 
transaction otherwise requires approval from, or prior notice to, the 
Board under another provision of law, the Board will act on that request 
for prior written consent concurrently with its action on the request 
for approval or notice.
    (ii) In acting on a request under this paragraph (b), the Board will 
consider whether the consummation of the covered acquisition could pose 
a threat to financial stability.
    (c) General consent. The Board grants prior written consent for a 
covered acquisition that would result in an increase in the liabilities 
of the financial company that does not exceed $100 million, when 
aggregated with all other covered acquisitions by the financial company 
made pursuant to this paragraph (c) during the twelve months preceding 
the date of the acquisition. A financial company that relies on prior 
written consent pursuant to this paragraph (c) must provide a notice to 
the Board within 10 days after consummating the covered acquisition that 
describes the covered acquisition, the increase in the company's 
liabilities resulting from the acquisition, and the aggregate increase 
in the company's liabilities from covered acquisitions during the twelve 
months preceding the date of the acquisition.



Sec. 251.5  No evasion.

    A financial company may not organize or operate its business or 
structure any acquisition of or merger or consolidation with another 
company in such a manner that results in evasion of the concentration 
limit established by section 14 of the Bank Holding Company Act or this 
part.



Sec. 251.6  Reporting requirements.

    By March 31 of each year:
    (a) A U.S. financial company (other than a U.S. financial company 
that is required to file the Bank Consolidated Reports of Condition and 
Income (Call Report), the Consolidated Financial Statements for Holding 
Companies (FR Y-9C), the Parent Company Only Financial Statements for 
Small Holding

[[Page 388]]

Companies (FR Y-9SP), or the Parent Company Only Financial Statements 
for Large Holding Companies (FR Y-9LP), or is required to report 
consolidated total liabilities on the Quarterly Savings and Loan Holding 
Company Report (FR 2320)) must report to the Board its consolidated 
liabilities as of the previous calendar year-end in the manner and form 
prescribed by the Board; and
    (b) A foreign financial company (other than a foreign financial 
company that is required to file a FR Y-7) must report to the Board its 
U.S. liabilities as of the previous calendar year-end in the manner and 
form prescribed by the Board.



PART 252_ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)--Table of Contents



                      Subpart A_General Provisions

Sec.
252.1  Authority and purpose.
252.2  Definitions.
252.3  Reservation of authority.
252.4  Nonbank financial companies supervised by the Board.

Subpart B_Company-Run Stress Test Requirements for Certain U.S. Banking 
 Organizations With Total Consolidated Assets Over $10 Billion and Less 
                            Than $50 Billion

252.10  [Reserved]
252.11  Authority and purpose.
252.12  Definitions.
252.13  Applicability.
252.14  Annual stress test.
252.15  Methodologies and practices.
252.16  Reports of stress test results.
252.17  Disclosure of stress test results.

 Subpart C_Risk Committee Requirement for Publicly Traded Bank Holding 
 Companies With Total Consolidated Assets Equal to or Greater Than $10 
                    Billion and Less Than $50 Billion

252.20  [Reserved]
252.21  Applicability.
252.22  Risk committee requirement for publicly traded bank holding 
          companies with total consolidated assets of $10 billion or 
          more.

Subpart D_Enhanced Prudential Standards for Bank Holding Companies With 
            Total Consolidated Assets of $50 Billion or More

252.30  Scope.
252.31  Applicability.
252.32  Risk-based and leverage capital and stress test requirements.
252.33  Risk-management and risk committee requirements.
252.34  Liquidity risk-management requirements.
252.35  Liquidity stress testing and buffer requirements.

  Subpart E_Supervisory Stress Test Requirements for U.S. Bank Holding 
  Companies With $50 Billion or More in Total Consolidated Assets and 
           Nonbank Financial Companies Supervised by the Board

252.40  [Reserved]
252.41  Authority and purpose.
252.42  Definitions.
252.43  Applicability.
252.44  Annual analysis conducted by the Board.
252.45  Data and information required to be submitted in support of the 
          Board's analyses.
252.46  Review of the Board's analysis; publication of summary results.
252.47  Corporate use of stress test results.

  Subpart F_Company-Run Stress Test Requirements for U.S. Bank Holding 
  Companies With $50 Billion or More in Total Consolidated Assets and 
           Nonbank Financial Companies Supervised by the Board

252.50  [Reserved]
252.51  Authority and purpose.
252.52  Definitions.
252.53  Applicability.
252.54  Annual stress test.
252.55  Mid-cycle stress test.
252.56  Methodologies and practices.
252.57  Reports of stress test results.
252.58  Disclosure of stress test results.

Subparts G-K [Reserved]

   Subpart L_Company-Run Stress Test Requirements for Foreign Banking 
Organizations and Foreign Savings and Loan Holding Companies With Total 
     Consolidated Assets Over $10 Billion and Less Than $50 Billion

252.120  Definitions.
252.121  Applicability.

[[Page 389]]

252.122  Capital stress testing requirements.

Subpart M_Risk Committee Requirement for Publicly Traded Foreign Banking 
 Organizations With Total Consolidated Assets Equal to or Greater Than 
                  $10 Billion and Less Than $50 Billion

252.130  [Reserved]
252.131  Applicability.
252.132  Risk-committee requirements for foreign banking organizations 
          with total consolidated assets of $10 billion or more but less 
          than $50 billion.

      Subpart N_Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $50 Billion or More But 
              Combined U.S. Assets of Less Than $50 Billion

252.140  Scope.
252.141  [Reserved]
252.142  Applicability.
252.143  Risk-based and leverage capital requirements for foreign 
          banking organizations with total consolidated assets of $50 
          billion or more but combined U.S. assets of less than $50 
          billion.
252.144  Risk-management and risk committee requirements for foreign 
          banking organizations with total consolidated assets of $50 
          billion or more but combined U.S. assets of less than $50 
          billion.
252.145  Liquidity risk-management requirements for foreign banking 
          organizations with total consolidated assets of $50 billion or 
          more but combined U.S. assets of less than $50 billion.
252.146  Capital stress testing requirements for foreign banking 
          organizations with total consolidated assets of $50 billion or 
          more but combined U.S. assets of less than $50 billion.

      Subpart O_Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $50 Billion or More and 
               Combined U.S. Assets of $50 Billion or More

252.150  Scope.
252.151  [Reserved]
252.152  Applicability.
252.153  U.S. intermediate holding company requirement for foreign 
          banking organizations with U.S. non-branch assets of $50 
          billion or more.
252.154  Risk-based and leverage capital requirements for foreign 
          banking organizations with combined U.S. assets of $50 billion 
          or more.
252.155  Risk-management and risk committee requirements for foreign 
          banking organizations with combined U.S. assets of $50 billion 
          or more.
252.156  Liquidity risk-management requirements for foreign banking 
          organizations with combined U.S. assets of $50 billion or 
          more.
252.157  Liquidity stress testing and buffer requirements for foreign 
          banking organizations with combined U.S. assets of $50 billion 
          or more.
252.158  Capital stress testing requirements for foreign banking 
          organizations with combined U.S. assets of $50 billion or 
          more.

Subparts P-T [Reserved]

  Subpart U_Debt-to-Equity Limits for U.S. Bank Holding Companies and 
                      Foreign Banking Organizations

252.220  Debt-to-equity limits for U.S. bank holding companies.
252.221  Debt-to-equity limits for foreign banking organizations.

Appendix A to Part 252--Policy Statement on the Scenario Design 
          Framework for Stress Testing

    Authority: 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 1844(b), 
1844(c), 5361, 5365, 5366.

    Source: 77 FR 62391, Oct. 12, 2012, unless otherwise noted.



                      Subpart A_General Provisions

    Source: Reg. YY, 79 FR 17315, Mar. 27, 2014, unless otherwise noted.



Sec. 252.1  Authority and purpose.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (the Board) under sections 162, 165, 167, and 168 
of Title I of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1423-1432, 12 
U.S.C. 5362, 5365, 5367, and 5368); section 9 of the Federal Reserve Act 
(12 U.S.C. 321-338a); section 5(b) of the Bank Holding Company Act (12 
U.S.C. 1844(b)); section 10(g) of the Home Owners' Loan Act, as amended 
(12 U.S.C. 1467a(g)); sections 8 and 39 of the Federal Deposit Insurance 
Act (12 U.S.C. 1818(b) and 1831p-1); the International Banking Act (12 
U.S.C. 3101 et seq.); the Foreign Bank Supervision Enhancement Act (12 
U.S.C. 3101 note); and 12 U.S.C. 3904, 3906-3909, and 4808.
    (b) Purpose. This part implements certain provisions of section 165 
of the Dodd-Frank Act (12 U.S.C. 5365), which

[[Page 390]]

require the Board to establish enhanced prudential standards for bank 
holding companies and foreign banking organizations with total 
consolidated assets of $50 billion or more, nonbank financial companies 
supervised by the Board, and certain other companies.



Sec. 252.2  Definitions.

    Unless otherwise specified, the following definitions apply for 
purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank 
Holding Company Act (12 U.S.C. 1841(k)) and section 225.2(a) of the 
Board's Regulation Y (12 CFR 225.2(a)).
    (b) Applicable accounting standards means U.S. generally accepted 
accounting principles, international financial reporting standards, or 
such other accounting standards that a company uses in the ordinary 
course of its business in preparing its consolidated financial 
statements.
    (c) Bank holding company has the same meaning as in section 2(a) of 
the Bank Holding Company Act (12 U.S.C. 1841(a)) and section 225.2(c) of 
the Board's Regulation Y (12 CFR 225.2(c)).
    (d) Board means the Board of Governors of the Federal Reserve 
System.
    (e) Combined U.S. operations of a foreign banking organization 
means:
    (1) Its U.S. branches and agencies, if any; and
    (2)(i) If the foreign banking organization has established a U.S. 
intermediate holding company, the U.S. intermediate holding company and 
the subsidiaries of such U.S. intermediate holding company; or
    (ii) If the foreign banking organization has not established a U.S. 
intermediate holding company, the U.S. subsidiaries of the foreign 
banking organization (excluding any section 2(h)(2) company, if 
applicable), and subsidiaries of such U.S. subsidiaries.
    (f) Company means a corporation, partnership, limited liability 
company, depository institution, business trust, special purpose entity, 
association, or similar organization.
    (g) Control has the same meaning as in section 2(a) of the Bank 
Holding Company Act (12 U.S.C. 1841(a)), and the terms controlled and 
controlling shall be construed consistently with the term control.
    (h) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (i) DPC branch subsidiary means any subsidiary of a U.S. branch or a 
U.S. agency acquired, or formed to hold assets acquired, in the ordinary 
course of business and for the sole purpose of securing or collecting 
debt previously contracted in good faith by that branch or agency.
    (j) Foreign banking organization has the same meaning as in section 
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), provided that 
if the top-tier foreign banking organization is incorporated in or 
organized under the laws of any State, the foreign banking organization 
shall not be treated as a foreign banking organization for purposes of 
this part.
    (k) FR Y-7Q means the Capital and Asset Report for Foreign Banking 
Organizations reporting form.
    (l) FR Y-7 means the Annual Report of Foreign Banking Organizations 
reporting form.
    (m) FR Y-9C means the Consolidated Financial Statements for Holding 
Companies reporting form.
    (n) Nonbank financial company supervised by the Board means a 
company that the Council has determined under section 113 of the Dodd-
Frank Act (12 U.S.C. 5323) shall be supervised by the Board and for 
which such determination is still in effect.
    (o) Non-U.S. affiliate means any affiliate of a foreign banking 
organization that is incorporated or organized in a country other than 
the United States.
    (p) Publicly traded means an instrument that is traded on:
    (1) Any exchange registered with the U.S. Securities and Exchange 
Commission as a national securities exchange under section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f); or
    (2) Any non-U.S.-based securities exchange that:
    (i) Is registered with, or approved by, a non-U.S. national 
securities regulatory authority; and
    (ii) Provides a liquid, two-way market for the instrument in 
question,

[[Page 391]]

meaning that there are enough independent bona fide offers to buy and 
sell so that a sales price reasonably related to the last sales price or 
current bona fide competitive bid and offer quotations can be determined 
promptly and a trade can be settled at such price within a reasonable 
time period conforming with trade custom.
    (3) A company can rely on its determination that a particular non-
U.S.-based securities exchange provides a liquid two-way market unless 
the Board determines that the exchange does not provide a liquid two-way 
market.
    (q) Section 2(h)(2) company has the same meaning as in section 
2(h)(2) of the Bank Holding Company Act (12 U.S.C. 1841(h)(2)).
    (r) State means any state, commonwealth, territory, or possession of 
the United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    (s) Subsidiary has the same meaning as in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    (t) U.S. agency has the same meaning as the term ``agency'' in 
section 211.21(b) of the Board's regulation K (12 CFR 211.21(b)).
    (u) U.S. branch has the same meaning as the term ``branch'' in 
section 211.21(e) of the Board's Regulation K (12 CFR 211.21(e)).
    (v) U.S. branches and agencies means the U.S. branches and U.S. 
agencies of a foreign banking organization.
    (w) U.S. government agency means an agency or instrumentality of the 
United States whose obligations are fully and explicitly guaranteed as 
to the timely payment of principal and interest by the full faith and 
credit of the United States.
    (x) U.S. government-sponsored enterprise means an entity originally 
established or chartered by the U.S. government to serve public purposes 
specified by the U.S. Congress, but whose obligations are not explicitly 
guaranteed by the full faith and credit of the United States.
    (y) U.S. intermediate holding company means the top-tier U.S. 
company that is required to be established pursuant to Sec. 252.153.
    (z) U.S. subsidiary means any subsidiary that is incorporated in or 
organized under the laws of the United States or in any State, 
commonwealth, territory, or possession of the United States, the 
Commonwealth of Puerto Rico, the Commonwealth of the North Mariana 
Islands, the American Samoa, Guam, or the United States Virgin Islands.



Sec. 252.3  Reservation of authority.

    (a) In general. Nothing in this part limits the authority of the 
Board under any provision of law or regulation to impose on any company 
additional enhanced prudential standards, including, but not limited to, 
additional risk-based or leverage capital or liquidity requirements, 
leverage limits, limits on exposures to single counterparties, risk-
management requirements, stress tests, or other requirements or 
restrictions the Board deems necessary to carry out the purposes of this 
part or Title I of the Dodd-Frank Act, or to take supervisory or 
enforcement action, including action to address unsafe and unsound 
practices or conditions, or violations of law or regulation.
    (b) Modifications or extensions of this part. The Board may extend 
or accelerate any compliance date of this part if the Board determines 
that such extension or acceleration is appropriate. In determining 
whether an extension or acceleration is appropriate, the Board will 
consider the effect of the modification on financial stability, the 
period of time for which the modification would be necessary to 
facilitate compliance with this part, and the actions the company is 
taking to come into compliance with this part.



Sec. 252.4  Nonbank financial companies supervised by the Board.

    (a) U.S. nonbank financial companies supervised by the Board. The 
Board will establish enhanced prudential standards for a nonbank 
financial company supervised by the Board that is incorporated in or 
organized under the laws of the United States or any State (U.S. nonbank 
financial company) by rule or order. In establishing such standards, the 
Board will consider the factors set

[[Page 392]]

forth in sections 165(a)(2) and (b)(3) of the Dodd-Frank Act, including:
    (1) The nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the U.S. nonbank 
financial company;
    (2) The degree to which the U.S. nonbank financial company is 
already regulated by one or more primary financial regulatory agencies; 
and
    (3) Any other risk-related factor that the Board determines is 
appropriate.
    (b) Foreign nonbank financial companies supervised by the Board. The 
Board will establish enhanced prudential standards for a nonbank 
financial company supervised by the Board that is organized or 
incorporated in a country other than the United States (foreign nonbank 
financial company) by rule or order. In establishing such standards, the 
Board will consider the factors set forth in sections 165(a)(2), (b)(2), 
and (b)(3) of the Dodd-Frank Act, including:
    (1) The nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the foreign nonbank 
financial company;
    (2) The extent to which the foreign nonbank financial company is 
subject to prudential standards on a consolidated basis in its home 
country that are administered and enforced by a comparable foreign 
supervisory authority; and
    (3) Any other risk-related factor that the Board determines is 
appropriate.



Subpart B_Company-Run Stress Test Requirements for Certain U.S. Banking 
 Organizations With Total Consolidated Assets Over $10 Billion and Less 
                            Than $50 Billion

    Source: Reg. YY, 79 FR 64045, Oct. 27, 2014, unless otherwise noted.



Sec. 252.10  [Reserved]



Sec. 252.11  Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831o, 1831p-1, 
1844(b), 1844(c), 3906-3909, 5365.
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a bank holding company 
with total consolidated assets of greater than $10 billion but less than 
$50 billion and savings and loan holding companies and state member 
banks with total consolidated assets of greater than $10 billion to 
conduct annual stress tests. This subpart also establishes definitions 
of stress test and related terms, methodologies for conducting stress 
tests, and reporting and disclosure requirements.



Sec. 252.12  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Advanced approaches means the regulatory capital requirements at 
12 CFR part 217, subpart E, as applicable, and any successor regulation.
    (b) Adverse scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a bank holding company, savings 
and loan holding company, or state member bank that are more adverse 
than those associated with the baseline scenario and may include trading 
or other additional components.
    (c) Asset threshold means:
    (1) For a bank holding company, average total consolidated assets of 
greater than $10 billion but less than $50 billion, and
    (2) For a savings and loan holding company or state member bank, 
average total consolidated assets of greater than $10 billion.
    (d) Average total consolidated assets means the average of the total 
consolidated assets as reported by a bank holding company, savings and 
loan holding company, or state member bank on its Consolidated Financial 
Statements for Bank Holding Companies (FR Y-9C) or Consolidated Report 
of Condition and Income (Call Report), as applicable, for the four most 
recent consecutive quarters. If the bank holding company, savings and 
loan holding company, or state member bank has not filed the FR Y-9C or 
Call Report, as applicable, for each of the four most recent consecutive 
quarters, average total consolidated assets means the average of the 
company's total consolidated assets, as reported on the company's FR Y-
9C or Call Report, as applicable, for the most recent quarter or 
consecutive quarters. Average total

[[Page 393]]

consolidated assets are measured on the as-of date of the most recent FR 
Y-9C or Call Report, as applicable, used in the calculation of the 
average.
    (e) Bank holding company has the same meaning as in Sec. 225.2(c) of 
the Board's Regulation Y (12 CFR 225.2(c)).
    (f) Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a bank holding company, savings 
and loan holding company, or state member bank, and that reflect the 
consensus views of the economic and financial outlook.
    (g) Capital action has the same meaning as in Sec. 225.8(c)(2) of 
the Board's Regulation Y (12 CFR 225.8(c)(2)).
    (h) Covered company subsidiary means a state member bank that is a 
subsidiary of a covered company as defined in subpart F of this part.
    (i) Depository institution has the same meaning as in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (j) Foreign banking organization has the same meaning as in 
Sec. 211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
    (k) Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    (l) Pre-provision net revenue means the sum of net interest income 
and non-interest income less expenses before adjusting for loss 
provisions.
    (m) Provision for loan and lease losses means the provision for loan 
and lease losses as reported by the bank holding company, savings and 
loan holding company, or state member bank on the FR Y-9C or Call 
Report, as appropriate.
    (n) Regulatory capital ratio means a capital ratio for which the 
Board established minimum requirements for the company by regulation or 
order, including a company's tier 1 and supplementary leverage ratio as 
calculated under 12 CFR part 217, including the deductions required 
under 12 CFR 248.12, as applicable, and the company's common equity tier 
1, tier 1, and total risk-based capital ratios as calculated under 12 
CFR part 217, including the deductions required under 12 CFR 248.12 and 
the transition provisions at 12 CFR 217.1(f)(4) and 217.300; except that 
the company shall not use the advanced approaches to calculate its 
regulatory capital ratios.
    (o) Savings and loan holding company has the same meaning as in 
Sec. 238.2(m) of the Board's Regulation LL (12 CFR 238.2(m)).
    (p) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a bank holding company, savings 
and loan holding company, or state member bank that the Board annually 
determines are appropriate for use in the company-run stress tests, 
including, but not limited to, baseline, adverse, and severely adverse 
scenarios.
    (q) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a bank holding company, 
savings and loan holding company, or state member bank and that overall 
are more severe than those associated with the adverse scenario and may 
include trading or other additional components.
    (r) State member bank has the same meaning as in Sec. 208.2(g) of 
the Board's Regulation H (12 CFR 208.2(g)).
    (s) Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a bank 
holding company, savings and loan holding company, or state member bank 
over the planning horizon, taking into account the current condition, 
risks, exposures, strategies, and activities.
    (t) Stress test cycle means:
    (1) Until September 30, 2015, the period beginning on October 1 of a 
calendar year and ending on September 30 of the following calendar year, 
and
    (2) Beginning October 1, 2015, the period beginning on January 1 of 
a calendar year and ending on December 31 of that year.
    (u) Subsidiary has the same meaning as in Sec. 225.2(o) the Board's 
Regulation Y (12 CFR 225.2(o)).

[Reg. YY, 79 FR 64045, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.13  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) of 
this section, this subpart applies to:

[[Page 394]]

    (i) Any bank holding company with average total consolidated assets 
(as defined in Sec. 252.12(d)) of greater than $10 billion but less than 
$50 billion;
    (ii) Any savings and loan holding company with average total 
consolidated assets (as defined in Sec. 252.12(d)) of greater than $10 
billion; and
    (iii) Any state member bank with average total consolidated assets 
(as defined in Sec. 252.12(d)) of greater than $10 billion.
    (2) Ongoing applicability. (i) A bank holding company, savings and 
loan holding company, or state member bank (including any successor 
company) that is subject to any requirement in this subpart shall remain 
subject to any such requirement unless and until its total consolidated 
assets fall below $10 billion for each of four consecutive quarters, as 
reported on the FR Y-9C or Call Report, as applicable and effective on 
the as-of date of the fourth consecutive FR Y-9C or Call Report, as 
applicable.
    (ii) A bank holding company or savings and loan holding company that 
becomes a covered company as defined in subpart F of this part and 
conducts a stress test pursuant to that subpart is not subject to the 
requirements of this subpart.
    (b) Transitional arrangements--(1) Transition periods for bank 
holding companies and state member banks. (i) A bank holding company or 
state member bank that exceeds the asset threshold for the first time on 
or before March 31 of a given year, must comply with the requirements of 
this subpart beginning on January 1 of the following year, unless that 
time is extended by the Board in writing.
    (ii) A bank holding company or state member bank that exceeds the 
asset threshold for the first time after March 31 of a given year must 
comply with the requirements of this subpart beginning on January 1 of 
the second year following that given year, unless that time is extended 
by the Board in writing.
    (iii) Notwithstanding paragraphs (b)(1)(i) or (ii) of this section, 
a bank holding company that meets the asset threshold (as defined in 
Sec. 252.12(c)) and that is relying as of July 20, 2015, on Supervision 
and Regulation Letter SR 01-01 issued by the Board (as in effect on May 
19, 2010) must comply with the requirements of this subpart beginning on 
January 1, 2016, unless that time is extended by the Board in writing.
    (2) Transition period for savings and loan holding companies. (i) A 
savings and loan holding company that is subject to minimum regulatory 
capital requirements and exceeds the asset threshold for the first time 
on or before March 31 of a given year, must comply with the requirements 
of this subpart beginning on January 1 of the following year, unless 
that time is extended by the Board in writing;
    (ii) A savings and loan holding company that is subject to minimum 
regulatory capital requirements and exceeds the asset threshold for the 
first time after March 31 of a given year must comply with the 
requirements of this subpart beginning on January 1 of the second year 
following that given year, unless that time is extended by the Board in 
writing; and
    (iii) Notwithstanding paragraph (b)(2)(i) of this section, a savings 
and loan holding company that is subject to minimum regulatory capital 
requirements and exceeded the asset threshold for the first time on or 
before March 31, 2015, must comply with the requirements of this subpart 
beginning on January 1, 2017, unless that time is extended by the Board 
in writing.
    (3) Transition periods for companies subject to the supplementary 
leverage ratio. Notwithstanding Sec. 252.12(n), for purposes of the 
stress test cycle beginning on January 1, 2016, a company shall not 
include an estimate of its supplementary leverage ratio.

[Reg. YY, 79 FR 64045, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.14  Annual stress test.

    (a) General requirements--(1) General. A bank holding company, 
savings and loan holding company, and state member bank must conduct an 
annual stress test in accordance with paragraphs (a)(2) and (3) of this 
section.
    (2) Timing for the stress test cycle beginning on October 1, 2014. 
For the stress test cycle beginning on October 1, 2014:
    (i) A state member bank that is a covered company subsidiary must 
conduct its stress test by January 5, 2015,

[[Page 395]]

based on data as of September 30, 2014, unless the time or the as-of 
date is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
and a bank holding company must conduct its stress test by March 31, 
2015 based on data as of September 30, 2014, unless the time or the as-
of date is extended by the Board in writing.
    (3) Timing for each stress test cycle beginning after October 1, 
2014. For each stress test cycle beginning after October 1, 2014:
    (i) A state member bank that is a covered company subsidiary and a 
savings and loan holding company with average total consolidated assets 
of $50 billion or more must conduct its stress test by April 5 of each 
calendar year based on data as of December 31 of the preceding calendar 
year, unless the time or the as-of date is extended by the Board in 
writing; and
    (ii) A state member bank that is not a covered company subsidiary, a 
bank holding company, and a savings and loan holding company with 
average total consolidated assets of less than $50 billion must conduct 
its stress test by July 31 of each calendar year using financial 
statement data as of December 31 of the preceding calendar year, unless 
the time or the as-of date is extended by the Board in writing.
    (b) Scenarios provided by the Board--(1) In general. In conducting a 
stress test under this section, a bank holding company, savings and loan 
holding company, or state member bank must, at a minimum, use the 
scenarios provided by the Board. Except as provided in paragraphs (b)(2) 
and (3) of this section, the Board will provide a description of the 
scenarios to each bank holding company, savings and loan holding 
company, or state member bank no later than November 15, 2014 (for the 
stress test cycle beginning on October 1, 2014) and no later than 
February 15 of that calendar year (for each stress test cycle beginning 
thereafter).
    (2) Additional components. (i) The Board may require a bank holding 
company, savings and loan holding company, or state member bank with 
significant trading activity, as determined by the Board and specified 
in the Capital Assessments and Stress Testing report (FR Y-14), to 
include a trading and counterparty component in its adverse and severely 
adverse scenarios in the stress test required by this section. The Board 
may also require a state member bank that is subject to 12 CFR part 208, 
appendix E (or, beginning on January 1, 2015, 12 CFR 217, subpart F) or 
that is a subsidiary of a bank holding company that is subject to either 
this paragraph or Sec. 252.54(b)(2)(i) of this part to include a trading 
and counterparty component in the state member bank's adverse and 
severely adverse scenarios in the stress test required by this section. 
For the stress test cycle beginning on October 1, 2014, the data used in 
this component must be as of a date between October 1 and December 1 of 
2014 selected by the Board, and the Board will communicate the as-of 
date and a description of the component to the company no later than 
December 1 of the calendar year. For each stress test cycle beginning 
thereafter, the data used in this component must be as of a date between 
January 1 and March 1 of that calendar year selected by the Board, and 
the Board will communicate the as-of date and a description of the 
component to the company no later than March 1 of that calendar year.
    (ii) The Board may require a bank holding company, savings and loan 
holding company, or state member bank to include one or more additional 
components in its adverse and severely adverse scenarios in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a bank holding 
company, savings and loan holding company, or state member bank to 
include one or more additional scenarios in the stress test required by 
this section based on the company's financial condition, size, 
complexity, risk profile, scope of operations, or activities, or risks 
to the U.S. economy.
    (4) Notice and response--(i) Notification of additional component. 
If the Board requires a bank holding company, savings and loan holding 
company, or state member bank to include one or

[[Page 396]]

more additional components in its adverse and severely adverse scenarios 
under paragraph (b)(2) of this section or to use one or more additional 
scenarios under paragraph (b)(3) of this section, the Board will notify 
the company in writing by September 30, 2014 (for the stress test cycle 
beginning on October 1, 2014) and by December 31 (for each stress test 
cycle beginning thereafter).
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph, the 
bank holding company, savings and loan holding company, or state member 
bank may request in writing that the Board reconsider the requirement 
that the company include the additional component(s) or additional 
scenario(s), including an explanation as to why the reconsideration 
should be granted. The Board will respond in writing within 14 calendar 
days of receipt of the company's request.
    (iii) Description of component. The Board will provide the bank 
holding company, savings and loan holding company, or state member bank 
with a description of any additional component(s) or additional 
scenario(s) by December 1, 2014 (for the stress test cycle beginning on 
October 1, 2014) and by March 1 (for each stress test cycle beginning 
thereafter).



Sec. 252.15  Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Sec. 252.14, for each quarter of the planning horizon, a bank holding 
company, savings and loan holding company, or state member bank must 
estimate the following for each scenario required to be used:
    (1) Losses, pre-provision net revenue, provision for loan and lease 
losses, and net income; and
    (2) The potential impact on pro forma regulatory capital levels and 
pro forma capital ratios (including regulatory capital ratios and any 
other capital ratios specified by the Board), incorporating the effects 
of any capital actions over the planning horizon and maintenance of an 
allowance for loan losses appropriate for credit exposures throughout 
the planning horizon.
    (b) Assumptions regarding capital actions. In conducting a stress 
test under Sec. 252.14, a bank holding company or savings and loan 
holding company is required to make the following assumptions regarding 
its capital actions over the planning horizon:
    (1) For the first quarter of the planning horizon, the bank holding 
company or savings and loan holding company must take into account its 
actual capital actions as of the end of that quarter; and
    (2) For each of the second through ninth quarters of the planning 
horizon, the bank holding company or savings and loan holding company 
must:
    (i) Assume no redemption or repurchase of any capital instrument 
that is eligible for inclusion in the numerator of a regulatory capital 
ratio;
    (ii) Assume no issuances of common stock or preferred stock, except 
for issuances related to expensed employee compensation or in connection 
with a planned merger or acquisition to the extent that the merger or 
acquisition is reflected in the company's pro forma balance sheet 
estimates; and
    (iii) Make reasonable assumptions regarding payments of dividends 
consistent with internal capital needs and projections.
    (c) Controls and oversight of stress testing processes--(1) In 
general. The senior management of a bank holding company, savings and 
loan holding company, or state member bank must establish and maintain a 
system of controls, oversight, and documentation, including policies and 
procedures, that are designed to ensure that its stress testing 
processes are effective in meeting the requirements in this subpart. 
These policies and procedures must, at a minimum, describe the company's 
stress testing practices and methodologies, and processes for validating 
and updating the company's stress test practices and methodologies 
consistent with applicable laws, regulations, and supervisory guidance.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a bank holding company, savings and loan 
holding company, or state member bank must review and approve the 
policies and procedures of

[[Page 397]]

the stress testing processes as frequently as economic conditions or the 
condition of the company may warrant, but no less than annually. The 
board of directors and senior management of the bank holding company, 
savings and loan holding company, or state member bank must receive a 
summary of the results of the stress test conducted under this section.
    (3) Role of stress testing results. The board of directors and 
senior management of a bank holding company, savings and loan holding 
company, or state member bank must consider the results of the stress 
test in the normal course of business, including but not limited to, the 
banking organization's capital planning, assessment of capital adequacy, 
and risk management practices.

[Reg. YY, 79 FR 64045, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.16  Reports of stress test results.

    (a) Reports to the Board of stress test results--(1) General. A bank 
holding company, savings and loan holding company, and state member bank 
must report the results of the stress test to the Board in the manner 
and form prescribed by the Board, in accordance with paragraphs (a)(2) 
and (3) of this section.
    (2) Timing for the stress test cycle beginning on October 1, 2014. 
For the stress test cycle beginning on October 1, 2014:
    (i) A state member bank that is a covered company subsidiary must 
report the results of its stress test to the Board by January 5, 2015, 
unless that time is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
and a bank holding company must report the results of its stress test to 
the Board by March 31, 2015, unless that time is extended by the Board 
in writing.
    (3) Timing for each stress test cycle beginning after October 1, 
2014. For each stress test cycle beginning after October 1, 2014:
    (i) A state member bank that is a covered company subsidiary and a 
savings and loan holding company that has average total consolidated 
assets of $50 billion or more must report the results of the stress test 
to the Board by April 5, unless that time is extended by the Board in 
writing; and
    (ii) A state member bank that is not a covered company subsidiary, a 
bank holding company, and a savings and loan holding company with 
average total consolidated assets of less than $50 billion must report 
the results of the stress test to the Board by July 31, unless that time 
is extended by the Board in writing.
    (b) Contents of reports. The report required under paragraph (a) of 
this section must include the following information for the baseline 
scenario, adverse scenario, severely adverse scenario, and any other 
scenario required under Sec. 252.14(b)(3):
    (1) A description of the types of risks being included in the stress 
test;
    (2) A summary description of the methodologies used in the stress 
test; and
    (3) For each quarter of the planning horizon, estimates of aggregate 
losses, pre-provision net revenue, provision for loan and lease losses, 
net income, and regulatory capital ratios;
    (4) An explanation of the most significant causes for the changes in 
regulatory capital ratios; and
    (5) Any other information required by the Board.
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this subpart 
and related materials shall be determined in accordance with applicable 
exemptions under the Freedom of Information Act (5 U.S.C. 552(b)) and 
the Board's Rules Regarding Availability of Information (12 CFR part 
261).



Sec. 252.17  Disclosure of stress test results.

    (a) Public disclosure of results--(1) General. (i) A bank holding 
company, savings and loan holding company, and state member bank must 
publicly disclose a summary of the results of the stress test required 
under this subpart.
    (ii) [Reserved]
    (2) Timing for the stress test cycle beginning on October 1, 2014. 
For the stress test cycle beginning on October 1, 2014:
    (i) A state member bank that is a covered company subsidiary must 
publicly disclose a summary of the results

[[Page 398]]

of the stress test within 15 calendar days after the Board discloses the 
results of its supervisory stress test of the covered company pursuant 
to Sec. 252.46(c) of this part, unless that time is extended by the 
Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
and a bank holding company must publicly disclose a summary of the 
results of the stress test in the period beginning on June 15 and ending 
on June 30, 2015, unless that time is extended by the Board in writing.
    (3) Timing for each stress test cycle beginning after October 1, 
2014. For each stress test cycle beginning after October 1, 2014:
    (i) A state member bank that is a covered company subsidiary must 
publicly disclose a summary of the results of the stress test within 15 
calendar days after the Board discloses the results of its supervisory 
stress test of the covered company pursuant to Sec. 252.46(c) of this 
part, unless that time is extended by the Board in writing;
    (ii) A savings and loan holding company with average total 
consolidated assets of $50 billion or more must publicly disclose a 
summary of the results of the stress test in the period beginning on 
June 15 and ending on June 30, unless that time is extended by the Board 
in writing; and
    (iii) A state member bank that is not a covered company subsidiary, 
a bank holding company, and a savings and loan holding company with 
average total consolidated assets of less than $50 billion must publicly 
disclose a summary of the results of the stress test in the period 
beginning on October 15 and ending on October 31, unless that time is 
extended by the Board in writing.
    (3) Disclosure method. The summary required under this section may 
be disclosed on the Web site of a bank holding company, savings and loan 
holding company, or state member bank, or in any other forum that is 
reasonably accessible to the public.
    (b) Summary of results--(1) Bank holding companies and savings and 
loan holding companies. The summary of the results of a bank holding 
company or savings and loan holding company must, at a minimum, contain 
the following information regarding the severely adverse scenario:
    (i) A description of the types of risks included in the stress test;
    (ii) A summary description of the methodologies used in the stress 
test;
    (iii) Estimates of--
    (A) Aggregate losses;
    (B) Pre-provision net revenue;
    (C) Provision for loan and lease losses;
    (D) Net income; and
    (E) Pro forma regulatory capital ratios and any other capital ratios 
specified by the Board;
    (iv) An explanation of the most significant causes for the changes 
in regulatory capital ratios; and
    (v) With respect to any depository institution subsidiary that is 
subject to stress testing requirements pursuant to 12 U.S.C. 5365(i)(2), 
as implemented by this subpart, 12 CFR part 46 (OCC), or 12 CFR part 
325, subpart C (FDIC), changes over the planning horizon in regulatory 
capital ratios and any other capital ratios specified by the Board and 
an explanation of the most significant causes for the changes in 
regulatory capital ratios.
    (2) State member banks that are subsidiaries of bank holding 
companies. A state member bank that is a subsidiary of a bank holding 
company satisfies the public disclosure requirements under this subpart 
if the bank holding company publicly discloses summary results of its 
stress test pursuant to this section or Sec. 252.58 of this part, unless 
the Board determines that the disclosures at the holding company level 
do not adequately capture the potential impact of the scenarios on the 
capital of the state member bank and requires the state member bank to 
make public disclosures.
    (3) State member banks that are not subsidiaries of bank holding 
companies. A state member bank that is not a subsidiary of a bank 
holding company or that is required to make disclosures under paragraph 
(b)(2) of this section must publicly disclose, at a minimum, the 
following information regarding the severely adverse scenario:
    (i) A description of the types of risks being included in the stress 
test;

[[Page 399]]

    (ii) A summary description of the methodologies used in the stress 
test;
    (iii) Estimates of--
    (A) Aggregate losses;
    (B) Pre-provision net revenue
    (C) Provision for loan and lease losses;
    (D) Net income; and
    (E) Pro forma regulatory capital ratios and any other capital ratios 
specified by the Board; and
    (iv) An explanation of the most significant causes for the changes 
in regulatory capital ratios.
    (c) Content of results. (1) The disclosure of aggregate losses, pre-
provision net revenue, provision for loan and lease losses, and net 
income that is required under paragraph (b) of this section must be on a 
cumulative basis over the planning horizon.
    (2) The disclosure of pro forma regulatory capital ratios and any 
other capital ratios specified by the Board that is required under 
paragraph (b) of this section must include the beginning value, ending 
value and minimum value of each ratio over the planning horizon.



 Subpart C_Risk Committee Requirement for Publicly Traded Bank Holding 
 Companies With Total Consolidated Assets of $10 Billion or Greater and 
                          Less Than $50 Billion

    Source: Reg. YY, 79 FR 17316, Mar. 27, 2014, unless otherwise noted.



Sec. 252.20  [Reserved]



Sec. 252.21  Applicability.

    (a) General applicability. Subject to the initial applicability 
provisions of paragraph (c) of this section, a bank holding company with 
any class of stock that is publicly traded must comply with the risk-
committee requirements set forth in this subpart beginning on the first 
day of the ninth quarter following the later of the date on which its 
total consolidated assets equal or exceed $10 billion and the date on 
which any class of its stock becomes publicly traded.
    (b) Total consolidated assets. Total consolidated assets of a bank 
holding company for purposes of this subpart are equal to its 
consolidated assets, calculated based on the average of the bank holding 
company's total consolidated assets in the four most recent quarters as 
reported quarterly on its FR Y-9C. If the bank holding company has not 
filed the FR Y-9C for each of the four most recent consecutive quarters, 
total consolidated assets means the average of its total consolidated 
assets, as reported on the FR Y-9C, for the most recent quarter or 
consecutive quarters, as applicable. Total consolidated assets are 
measured on the as-of date of the most recent FR Y-9C used in the 
calculation of the average.
    (c) Initial applicability provisions. A bank holding company that, 
as of June 30, 2014, has total consolidated assets of $10 billion or 
more and has a class of stock that is publicly traded must comply with 
the requirements of this subpart beginning on July 1, 2015.
    (d) Cessation of requirements. A bank holding company will remain 
subject to the requirements of this subpart until the earlier of the 
date on which:
    (1) Its reported total consolidated assets on the FR Y-9C are below 
$10 billion for each of four consecutive calendar quarters;
    (2) It becomes subject to the requirements of subpart D of this 
part; and
    (3) It ceases to have a class of stock that is publicly traded.



Sec. 252.22  Risk committee requirement for publicly traded bank holding 
companies with total consolidated assets of $10 billion or more.

    (a) Risk committee. A bank holding company with any class of stock 
that is publicly traded and total consolidated assets of $10 billion or 
more must maintain a risk committee that approves and periodically 
reviews the risk-management policies of its global operations and 
oversees the operation of its global risk-management framework.
    (b) Risk-management framework. The bank holding company's global 
risk-management framework must be commensurate with its structure, risk 
profile, complexity, activities, and size and must include:
    (1) Policies and procedures establishing risk-management governance,

[[Page 400]]

risk-management procedures, and risk-control infrastructure for its 
global operations; and
    (2) Processes and systems for implementing and monitoring compliance 
with such policies and procedures, including:
    (i) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, and 
ensuring effective and timely implementation of actions to address 
emerging risks and risk-management deficiencies for its global 
operations;
    (ii) Processes and systems for establishing managerial and employee 
responsibility for risk management;
    (iii) Processes and systems for ensuring the independence of the 
risk-management function; and
    (iv) Processes and systems to integrate risk management and 
associated controls with management goals and its compensation structure 
for its global operations.
    (c) Corporate governance requirements. The risk committee must:
    (1) Have a formal, written charter that is approved by the bank 
holding company's board of directors.
    (2) Meet at least quarterly, and otherwise as needed, and fully 
document and maintain records of its proceedings, including risk-
management decisions.
    (d) Minimum member requirements. The risk committee must:
    (1) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex firms; and
    (2) Be chaired by a director who:
    (i) Is not an officer or employee of the bank holding company and 
has not been an officer or employee of the bank holding company during 
the previous three years;
    (ii) Is not a member of the immediate family, as defined in section 
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a 
person who is, or has been within the last three years, an executive 
officer of the bank holding company, as defined in section 215.2(e)(1) 
of the Board's Regulation O (12 CFR 215.2(e)(1)); and
    (iii)(A) Is an independent director under Item 407 of the Securities 
and Exchange Commission's Regulation S-K (17 CFR 229.407(a)), if the 
bank holding company has an outstanding class of securities traded on an 
exchange registered with the U.S. Securities and Exchange Commission as 
a national securities exchange under section 6 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78f) (national securities exchange); or
    (B) Would qualify as an independent director under the listing 
standards of a national securities exchange, as demonstrated to the 
satisfaction of the Board, if the bank holding company does not have an 
outstanding class of securities traded on a national securities 
exchange.



Subpart D_Enhanced Prudential Standards for Bank Holding Companies With 
            Total Consolidated Assets of $50 Billion or More

    Source: Reg. YY, 79 FR 17317, Mar. 27, 2014, unless otherwise noted.



Sec. 252.30  Scope.

    This subpart applies to bank holding companies with total 
consolidated assets of $50 billion or more. Total consolidated assets of 
a bank holding company are equal to the consolidated assets of the bank 
holding company, as calculated in accordance with Sec. 252.31(b).



Sec. 252.31  Applicability.

    (a) General applicability. Subject to the initial applicability 
provisions of paragraphs (c) and (e) of this section, a bank holding 
company must comply with the risk-management and risk-committee 
requirements set forth in Sec. 252.33 and the liquidity risk-management 
and liquidity stress test requirements set forth in Secs. 252.34 and 
252.35 beginning on the first day of the fifth quarter following the 
date on which its total consolidated assets equal or exceed $50 billion.
    (b) Total consolidated assets. Total consolidated assets of a bank 
holding company for purposes of this subpart are equal to its 
consolidated assets, calculated based on the average of the

[[Page 401]]

bank holding company's total consolidated assets in the four most recent 
quarters as reported quarterly on the FR Y-9C. If the bank holding 
company has not filed the FR Y-9C for each of the four most recent 
consecutive quarters, total consolidated assets means the average of its 
total consolidated assets, as reported on the FR Y-9C, for the most 
recent quarter or consecutive quarters, as applicable. Total 
consolidated assets are measured on the as-of date of the most recent FR 
Y-9C used in the calculation of the average.
    (c) Initial applicability. A bank holding company that, as of June 
30, 2014, has total consolidated assets of $50 billion or more, as 
calculated according to paragraph (b) of this section, must comply with 
the risk-management and risk-committee requirements set forth in 
Sec. 252.33 and the liquidity risk-management and liquidity stress test 
requirements set forth in Secs. 252.34 and 252.35, beginning on January 
1, 2015.
    (d) Cessation of requirements. Except as provided in paragraph (e) 
of this section, a bank holding company is subject to the risk-
management and risk committee requirements set forth in Sec. 252.33 and 
the liquidity risk-management and liquidity stress test requirements set 
forth in Secs. 252.34 and 252.35 until its reported total consolidated 
assets on the FR Y-9C are below $50 billion for each of four consecutive 
calendar quarters.
    (e) Applicability for bank holding companies that are subsidiaries 
of foreign banking organizations. In the event that a bank holding 
company that has total consolidated assets of $50 billion or more is 
controlled by a foreign banking organization, such bank holding company 
is subject to the risk-management and risk committee requirements set 
forth in Sec. 252.33 and the liquidity risk-management and liquidity 
stress test requirements set forth in Secs. 252.34 and 252.35 beginning 
on January 1, 2015 and ending on June 30, 2016. Beginning on July 1, 
2016, the U.S. intermediate holding company established or designated by 
the foreign banking organization must comply with the risk-management 
and risk committee requirements set forth in Sec. 252.153(e)(3) and the 
liquidity risk-management and liquidity stress test requirements set 
forth in Sec. 252.153(e)(4).



Sec. 252.32  Risk-based and leverage capital and stress test requirements.

    A bank holding company with total consolidated assets of $50 billion 
or more must comply with, and hold capital commensurate with the 
requirements of, any regulations adopted by the Board relating to 
capital planning and stress tests, in accordance with the applicability 
provisions set forth therein.



Sec. 252.33  Risk-management and risk committee requirements.

    (a) Risk committee--(1) General. A bank holding company with total 
consolidated assets of $50 billion or more must maintain a risk 
committee that approves and periodically reviews the risk-management 
policies of the bank holding company's global operations and oversees 
the operation of the bank holding company's global risk-management 
framework. The risk committee's responsibilities include liquidity risk-
management as set forth in Sec. 252.34(b).
    (2) Risk-management framework. The bank holding company's global 
risk-management framework must be commensurate with its structure, risk 
profile, complexity, activities, and size and must include:
    (i) Policies and procedures establishing risk-management governance, 
risk-management procedures, and risk-control infrastructure for its 
global operations; and
    (ii) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (A) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, and 
ensuring effective and timely implementation of actions to address 
emerging risks and risk-management deficiencies for its global 
operations;
    (B) Processes and systems for establishing managerial and employee 
responsibility for risk management;
    (C) Processes and systems for ensuring the independence of the risk-
management function; and

[[Page 402]]

    (D) Processes and systems to integrate risk management and 
associated controls with management goals and its compensation structure 
for its global operations.
    (3) Corporate governance requirements. The risk committee must:
    (i) Have a formal, written charter that is approved by the bank 
holding company's board of directors;
    (ii) Be an independent committee of the board of directors that has, 
as its sole and exclusive function, responsibility for the risk-
management policies of the bank holding company's global operations and 
oversight of the operation of the bank holding company's global risk-
management framework;
    (iii) Report directly to the bank holding company's board of 
directors;
    (iv) Receive and review regular reports on not less than a quarterly 
basis from the bank holding company's chief risk officer provided 
pursuant to paragraph (b)(3)(ii) of this section; and
    (v) Meet at least quarterly, or more frequently as needed, and fully 
document and maintain records of its proceedings, including risk-
management decisions.
    (4) Minimum member requirements. The risk committee must:
    (i) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (ii) Be chaired by a director who:
    (A) Is not an officer or employee of the bank holding company and 
has not been an officer or employee of the bank holding company during 
the previous three years;
    (B) Is not a member of the immediate family, as defined in section 
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a 
person who is, or has been within the last three years, an executive 
officer of the bank holding company, as defined in section 215.2(e)(1) 
of the Board's Regulation O (12 CFR 215.2(e)(1)); and
    (C)(1) Is an independent director under Item 407 of the Securities 
and Exchange Commission's Regulation S-K (17 CFR 229.407(a)), if the 
bank holding company has an outstanding class of securities traded on an 
exchange registered with the U.S. Securities and Exchange Commission as 
a national securities exchange under section 6 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78f) (national securities exchange); or
    (2) Would qualify as an independent director under the listing 
standards of a national securities exchange, as demonstrated to the 
satisfaction of the Board, if the bank holding company does not have an 
outstanding class of securities traded on a national securities 
exchange.
    (b) Chief risk officer--(1) General. A bank holding company with 
total consolidated assets of $50 billion or more must appoint a chief 
risk officer with experience in identifying, assessing, and managing 
risk exposures of large, complex financial firms.
    (2) Responsibilities. (i) The chief risk officer is responsible for 
overseeing:
    (A) The establishment of risk limits on an enterprise-wide basis and 
the monitoring of compliance with such limits;
    (B) The implementation of and ongoing compliance with the policies 
and procedures set forth in paragraph (a)(2)(i) of this section and the 
development and implementation of the processes and systems set forth in 
paragraph (a)(2)(ii) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the company's risk control framework, and monitoring and testing of 
the company's risk controls.
    (ii) The chief risk officer is responsible for reporting risk-
management deficiencies and emerging risks to the risk committee and 
resolving risk-management deficiencies in a timely manner.
    (3) Corporate governance requirements. (i) The bank holding company 
must ensure that the compensation and other incentives provided to the 
chief risk officer are consistent with providing an objective assessment 
of the risks taken by the bank holding company; and
    (ii) The chief risk officer must report directly to both the risk 
committee and chief executive officer of the company.



Sec. 252.34  Liquidity risk-management requirements.

    (a) Responsibilities of the board of directors--(1) Liquidity risk 
tolerance. The

[[Page 403]]

board of directors of a bank holding company with total consolidated 
assets of $50 billion or more must:
    (i) Approve the acceptable level of liquidity risk that the bank 
holding company may assume in connection with its operating strategies 
(liquidity risk tolerance) at least annually, taking into account the 
bank holding company's capital structure, risk profile, complexity, 
activities, and size; and
    (ii) Receive and review at least semi-annually information provided 
by senior management to determine whether the bank holding company is 
operating in accordance with its established liquidity risk tolerance.
    (2) Liquidity risk-management strategies, policies, and procedures. 
The board of directors must approve and periodically review the 
liquidity risk-management strategies, policies, and procedures 
established by senior management pursuant to paragraph (c)(1) of this 
section.
    (b) Responsibilities of the risk committee. The risk committee (or a 
designated subcommittee of such committee composed of members of the 
board of directors) must approve the contingency funding plan described 
in paragraph (f) of this section at least annually, and must approve any 
material revisions to the plan prior to the implementation of such 
revisions.
    (c) Responsibilities of senior management--(1) Liquidity risk. (i) 
Senior management of a bank holding company with total consolidated 
assets of $50 billion or more must establish and implement strategies, 
policies, and procedures designed to effectively manage the risk that 
the bank holding company's financial condition or safety and soundness 
would be adversely affected by its inability or the market's perception 
of its inability to meet its cash and collateral obligations (liquidity 
risk). The board of directors must approve the strategies, policies, and 
procedures pursuant to paragraph (a)(2) of this section.
    (ii) Senior management must oversee the development and 
implementation of liquidity risk measurement and reporting systems, 
including those required by this section and Sec. 252.35.
    (iii) Senior management must determine at least quarterly whether 
the bank holding company is operating in accordance with such policies 
and procedures and whether the bank holding company is in compliance 
with this section and Sec. 252.35 (or more often, if changes in market 
conditions or the liquidity position, risk profile, or financial 
condition warrant), and establish procedures regarding the preparation 
of such information.
    (2) Liquidity risk tolerance. Senior management must report to the 
board of directors or the risk committee regarding the bank holding 
company's liquidity risk profile and liquidity risk tolerance at least 
quarterly (or more often, if changes in market conditions or the 
liquidity position, risk profile, or financial condition of the company 
warrant).
    (3) Business lines or products. (i) Senior management must approve 
new products and business lines and evaluate the liquidity costs, 
benefits, and risks of each new business line and each new product that 
could have a significant effect on the company's liquidity risk profile. 
The approval is required before the company implements the business line 
or offers the product. In determining whether to approve the new 
business line or product, senior management must consider whether the 
liquidity risk of the new business line or product (under both current 
and stressed conditions) is within the company's established liquidity 
risk tolerance.
    (ii) Senior management must review at least annually significant 
business lines and products to determine whether any line or product 
creates or has created any unanticipated liquidity risk, and to 
determine whether the liquidity risk of each strategy or product is 
within the company's established liquidity risk tolerance.
    (4) Cash-flow projections. Senior management must review the cash-
flow projections produced under paragraph (e) of this section at least 
quarterly (or more often, if changes in market conditions or the 
liquidity position, risk profile, or financial condition of the bank 
holding company warrant) to ensure that the liquidity risk is within the 
established liquidity risk tolerance.

[[Page 404]]

    (5) Liquidity risk limits. Senior management must establish 
liquidity risk limits as set forth in paragraph (g) of this section and 
review the company's compliance with those limits at least quarterly (or 
more often, if changes in market conditions or the liquidity position, 
risk profile, or financial condition of the company warrant).
    (6) Liquidity stress testing. Senior management must:
    (i) Approve the liquidity stress testing practices, methodologies, 
and assumptions required in Sec. 252.35(a) at least quarterly, and 
whenever the bank holding company materially revises its liquidity 
stress testing practices, methodologies or assumptions;
    (ii) Review the liquidity stress testing results produced under 
Sec. 252.35(a) at least quarterly;
    (iii) Review the independent review of the liquidity stress tests 
under Sec. 252.34(d) periodically; and
    (iv) Approve the size and composition of the liquidity buffer 
established under Sec. 252.35(b) at least quarterly.
    (d) Independent review function. (1) A bank holding company with 
total consolidated assets of $50 billion or more must establish and 
maintain a review function that is independent of management functions 
that execute funding to evaluate its liquidity risk management.
    (2) The independent review function must:
    (i) Regularly, but no less frequently than annually, review and 
evaluate the adequacy and effectiveness of the company's liquidity risk 
management processes, including its liquidity stress test processes and 
assumptions;
    (ii) Assess whether the company's liquidity risk-management function 
complies with applicable laws, regulations, supervisory guidance, and 
sound business practices; and
    (iii) Report material liquidity risk management issues to the board 
of directors or the risk committee in writing for corrective action, to 
the extent permitted by applicable law.
    (e) Cash-flow projections. (1) A bank holding company with total 
consolidated assets of $50 billion or more must produce comprehensive 
cash-flow projections that project cash flows arising from assets, 
liabilities, and off-balance sheet exposures over, at a minimum, short- 
and long-term time horizons. The bank holding company must update short-
term cash-flow projections daily and must update longer-term cash-flow 
projections at least monthly.
    (2) The bank holding company must establish a methodology for making 
cash-flow projections that results in projections that:
    (i) Include cash flows arising from contractual maturities, 
intercompany transactions, new business, funding renewals, customer 
options, and other potential events that may impact liquidity;
    (ii) Include reasonable assumptions regarding the future behavior of 
assets, liabilities, and off-balance sheet exposures;
    (iii) Identify and quantify discrete and cumulative cash flow 
mismatches over these time periods; and
    (iv) Include sufficient detail to reflect the capital structure, 
risk profile, complexity, currency exposure, activities, and size of the 
bank holding company and include analyses by business line, currency, or 
legal entity as appropriate.
    (3) The bank holding company must adequately document its 
methodology for making cash flow projections and the included 
assumptions and submit such documentation to the risk committee.
    (f) Contingency funding plan. (1) A bank holding company with total 
consolidated assets of $50 billion or more must establish and maintain a 
contingency funding plan that sets out the company's strategies for 
addressing liquidity needs during liquidity stress events. The 
contingency funding plan must be commensurate with the company's capital 
structure, risk profile, complexity, activities, size, and established 
liquidity risk tolerance. The company must update the contingency 
funding plan at least annually, and when changes to market and 
idiosyncratic conditions warrant.
    (2) Components of the contingency funding plan--(i) Quantitative 
assessment. The contingency funding plan must:
    (A) Identify liquidity stress events that could have a significant 
impact on the bank holding company's liquidity;

[[Page 405]]

    (B) Assess the level and nature of the impact on the bank holding 
company's liquidity that may occur during identified liquidity stress 
events;
    (C) Identify the circumstances in which the bank holding company 
would implement its action plan described in paragraph (f)(2)(ii)(A) of 
this section, which circumstances must include failure to meet any 
minimum liquidity requirement imposed by the Board;
    (D) Assess available funding sources and needs during the identified 
liquidity stress events;
    (E) Identify alternative funding sources that may be used during the 
identified liquidity stress events; and
    (F) Incorporate information generated by the liquidity stress 
testing required under Sec. 252.35(a) of this subpart.
    (ii) Liquidity event management process. The contingency funding 
plan must include an event management process that sets out the bank 
holding company's procedures for managing liquidity during identified 
liquidity stress events. The liquidity event management process must:
    (A) Include an action plan that clearly describes the strategies the 
company will use to respond to liquidity shortfalls for identified 
liquidity stress events, including the methods that the company will use 
to access alternative funding sources;
    (B) Identify a liquidity stress event management team that would 
execute the action plan described in paragraph (f)(2)(ii)(A) of this 
section;
    (C) Specify the process, responsibilities, and triggers for invoking 
the contingency funding plan, describe the decision-making process 
during the identified liquidity stress events, and describe the process 
for executing contingency measures identified in the action plan; and
    (D) Provide a mechanism that ensures effective reporting and 
communication within the bank holding company and with outside parties, 
including the Board and other relevant supervisors, counterparties, and 
other stakeholders.
    (iii) Monitoring. The contingency funding plan must include 
procedures for monitoring emerging liquidity stress events. The 
procedures must identify early warning indicators that are tailored to 
the company's capital structure, risk profile, complexity, activities, 
and size.
    (iv) Testing. The bank holding company must periodically test:
    (A) The components of the contingency funding plan to assess the 
plan's reliability during liquidity stress events;
    (B) The operational elements of the contingency funding plan, 
including operational simulations to test communications, coordination, 
and decision-making by relevant management; and
    (C) The methods the bank holding company will use to access 
alternative funding sources to determine whether these funding sources 
will be readily available when needed.
    (g) Liquidity risk limits--(1) General. A bank holding company with 
total consolidated assets of $50 billion or more must monitor sources of 
liquidity risk and establish limits on liquidity risk, including limits 
on:
    (i) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and as 
applicable, other forms of liquidity risk;
    (ii) The amount of liabilities that mature within various time 
horizons; and
    (iii) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (2) Size of limits. Each limit established pursuant to paragraph 
(g)(1) of this section must be consistent with the company's established 
liquidity risk tolerance and must reflect the company's capital 
structure, risk profile, complexity, activities, and size.
    (h) Collateral, legal entity, and intraday liquidity risk 
monitoring. A bank holding company with total consolidated assets of $50 
billion or more must establish and maintain procedures for monitoring 
liquidity risk as set forth in this paragraph.
    (1) Collateral. The bank holding company must establish and maintain 
policies and procedures to monitor assets that have been, or are 
available to be, pledged as collateral in connection

[[Page 406]]

with transactions to which it or its affiliates are counterparties. 
These policies and procedures must provide that the bank holding 
company:
    (i) Calculates all of its collateral positions on a weekly basis (or 
more frequently, as directed by the Board), specifying the value of 
pledged assets relative to the amount of security required under the 
relevant contracts and the value of unencumbered assets available to be 
pledged;
    (ii) Monitors the levels of unencumbered assets available to be 
pledged by legal entity, jurisdiction, and currency exposure;
    (iii) Monitors shifts in the bank holding company's funding 
patterns, such as shifts between intraday, overnight, and term pledging 
of collateral; and
    (iv) Tracks operational and timing requirements associated with 
accessing collateral at its physical location (for example, the 
custodian or securities settlement system that holds the collateral).
    (2) Legal entities, currencies and business lines. The bank holding 
company must establish and maintain procedures for monitoring and 
controlling liquidity risk exposures and funding needs within and across 
significant legal entities, currencies, and business lines, taking into 
account legal and regulatory restrictions on the transfer of liquidity 
between legal entities.
    (3) Intraday exposures. The bank holding company must establish and 
maintain procedures for monitoring intraday liquidity risk exposure. 
These procedures must address how the management of the bank holding 
company will:
    (i) Monitor and measure expected daily gross liquidity inflows and 
outflows;
    (ii) Manage and transfer collateral to obtain intraday credit;
    (iii) Identify and prioritize time-specific obligations so that the 
bank holding company can meet these obligations as expected and settle 
less critical obligations as soon as possible;
    (iv) Manage the issuance of credit to customers where necessary; and
    (v) Consider the amounts of collateral and liquidity needed to meet 
payment systems obligations when assessing the bank holding company's 
overall liquidity needs.



Sec. 252.35  Liquidity stress testing and buffer requirements.

    (a) Liquidity stress testing requirement--(1) General. A bank 
holding company with total consolidated assets of $50 billion or more 
must conduct stress tests to assess the potential impact of the 
liquidity stress scenarios set forth in paragraph (a)(3) on its cash 
flows, liquidity position, profitability, and solvency, taking into 
account its current liquidity condition, risks, exposures, strategies, 
and activities.
    (i) The bank holding company must take into consideration its 
balance sheet exposures, off-balance sheet exposures, size, risk 
profile, complexity, business lines, organizational structure, and other 
characteristics of the bank holding company that affect its liquidity 
risk profile in conducting its stress test.
    (ii) In conducting a liquidity stress test using the scenarios 
described in paragraphs (a)(3)(i) and (iii) of this section, the bank 
holding company must address the potential direct adverse impact of 
associated market disruptions on the bank holding company and 
incorporate the potential actions of other market participants 
experiencing liquidity stresses under the market disruptions that would 
adversely affect the bank holding company.
    (2) Frequency. The liquidity stress tests required under paragraph 
(a)(1) of this section must be performed at least monthly. The Board may 
require the bank holding company to perform stress testing more 
frequently.
    (3) Stress scenarios. (i) Each liquidity stress test conducted under 
paragraph (a)(1) of this section must include, at a minimum:
    (A) A scenario reflecting adverse market conditions;
    (B) A scenario reflecting an idiosyncratic stress event for the bank 
holding company; and
    (C) A scenario reflecting combined market and idiosyncratic 
stresses.
    (ii) The bank holding company must incorporate additional liquidity 
stress scenarios into its liquidity stress test, as appropriate, based 
on its financial

[[Page 407]]

condition, size, complexity, risk profile, scope of operations, or 
activities. The Board may require the bank holding company to vary the 
underlying assumptions and stress scenarios.
    (4) Planning horizon. Each stress test conducted under paragraph 
(a)(1) of this section must include an overnight planning horizon, a 30-
day planning horizon, a 90-day planning horizon, a one-year planning 
horizon, and any other planning horizons that are relevant to the bank 
holding company's liquidity risk profile. For purposes of this section, 
a ``planning horizon'' is the period over which the relevant stressed 
projections extend. The bank holding company must use the results of the 
stress test over the 30-day planning horizon to calculate the size of 
the liquidity buffer under paragraph (b) of this section.
    (5) Requirements for assets used as cash-flow sources in a stress 
test. (i) To the extent an asset is used as a cash flow source to offset 
projected funding needs during the planning horizon in a liquidity 
stress test, the fair market value of the asset must be discounted to 
reflect any credit risk and market volatility of the asset.
    (ii) Assets used as cash-flow sources during a planning horizon must 
be diversified by collateral, counterparty, borrowing capacity, and 
other factors associated with the liquidity risk of the assets.
    (iii) A line of credit does not qualify as a cash flow source for 
purposes of a stress test with a planning horizon of 30 days or less. A 
line of credit may qualify as a cash flow source for purposes of a 
stress test with a planning horizon that exceeds 30 days.
    (6) Tailoring. Stress testing must be tailored to, and provide 
sufficient detail to reflect, a bank holding company's capital 
structure, risk profile, complexity, activities, and size.
    (7) Governance--(i) Policies and procedures. A bank holding company 
with total consolidated assets of $50 billion or more must establish and 
maintain policies and procedures governing its liquidity stress testing 
practices, methodologies, and assumptions that provide for the 
incorporation of the results of liquidity stress tests in future stress 
testing and for the enhancement of stress testing practices over time.
    (ii) Controls and oversight. A bank holding company with total 
consolidated assets of $50 billion or more must establish and maintain a 
system of controls and oversight that is designed to ensure that its 
liquidity stress testing processes are effective in meeting the 
requirements of this section. The controls and oversight must ensure 
that each liquidity stress test appropriately incorporates conservative 
assumptions with respect to the stress scenario in paragraph (a)(3) of 
this section and other elements of the stress test process, taking into 
consideration the bank holding company's capital structure, risk 
profile, complexity, activities, size, business lines, legal entity or 
jurisdiction, and other relevant factors. The assumptions must be 
approved by the chief risk officer and be subject to the independent 
review under Sec. 252.34(d) of this subpart.
    (iii) Management information systems. The bank holding company must 
maintain management information systems and data processes sufficient to 
enable it to effectively and reliably collect, sort, and aggregate data 
and other information related to liquidity stress testing.
    (b) Liquidity buffer requirement. (1) A bank holding company with 
total consolidated assets of $50 billion or more must maintain a 
liquidity buffer that is sufficient to meet the projected net stressed 
cash-flow need over the 30-day planning horizon of a liquidity stress 
test conducted in accordance with paragraph (a) of this section under 
each scenario set forth in paragraph (a)(3)(i) through (iii) of this 
section.
    (2) Net stressed cash-flow need. The net stressed cash-flow need for 
a bank holding company is the difference between the amount of its cash-
flow need and the amount of its cash flow sources over the 30-day 
planning horizon.
    (3) Asset requirements. The liquidity buffer must consist of highly 
liquid assets that are unencumbered, as defined in paragraph (b)(3)(ii) 
of this section:
    (i) Highly liquid asset. A highly liquid asset includes:
    (A) Cash;

[[Page 408]]

    (B) Securities issued or guaranteed by the United States, a U.S. 
government agency, or a U.S. government-sponsored enterprise; or
    (C) Any other asset that the bank holding company demonstrates to 
the satisfaction of the Board:
    (1) Has low credit risk and low market risk;
    (2) Is traded in an active secondary two-way market that has 
committed market makers and independent bona fide offers to buy and sell 
so that a price reasonably related to the last sales price or current 
bona fide competitive bid and offer quotations can be determined within 
one day and settled at that price within a reasonable time period 
conforming with trade custom; and
    (3) Is a type of asset that investors historically have purchased in 
periods of financial market distress during which market liquidity has 
been impaired.
    (ii) Unencumbered. An asset is unencumbered if it:
    (A) Is free of legal, regulatory, contractual, or other restrictions 
on the ability of such company promptly to liquidate, sell or transfer 
the asset; and
    (B) Is either:
    (1) Not pledged or used to secure or provide credit enhancement to 
any transaction; or
    (2) Pledged to a central bank or a U.S. government-sponsored 
enterprise, to the extent potential credit secured by the asset is not 
currently extended by such central bank or U.S. government-sponsored 
enterprise or any of its consolidated subsidiaries.
    (iii) Calculating the amount of a highly liquid asset. In 
calculating the amount of a highly liquid asset included in the 
liquidity buffer, the bank holding company must discount the fair market 
value of the asset to reflect any credit risk and market price 
volatility of the asset.
    (iv) Diversification. The liquidity buffer must not contain 
significant concentrations of highly liquid assets by issuer, business 
sector, region, or other factor related to the bank holding company's 
risk, except with respect to cash and securities issued or guaranteed by 
the United States, a U.S. government agency, or a U.S. government-
sponsored enterprise.



  Subpart E_Supervisory Stress Test Requirements for U.S. Bank Holding 
  Companies With $50 Billion or More in Total Consolidated Assets and 
           Nonbank Financial Companies Supervised by the Board

    Source: Reg. YY, 79 FR 64049, Oct. 27, 2014, unless otherwise noted.



Sec. 252.40  [Reserved]



Sec. 252.41  Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 1844(b), 
1844(c), 5361, 5365, 5366.
    (b) Purpose. This subpart implements section 165(i)(1) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(1)), which requires the Board to conduct 
annual analyses of nonbank financial companies supervised by the Board 
and bank holding companies with $50 billion or more in total 
consolidated assets to evaluate whether such companies have the capital, 
on a total consolidated basis, necessary to absorb losses as a result of 
adverse economic conditions.



Sec. 252.42  Definitions.

    For purposes of this subpart F, the following definitions apply:
    (a) Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable, and any 
successor regulation.
    (b) Adverse scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company that are more 
adverse than those associated with the baseline scenario and may include 
trading or other additional components.
    (c) Average total consolidated assets means the average of the total 
consolidated assets as reported by a bank holding company on its 
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) 
for the four most recent consecutive quarters. If the bank holding 
company has not filed the

[[Page 409]]

FR Y-9C for each of the four most recent consecutive quarters, average 
total consolidated assets means the average of the company's total 
consolidated assets, as reported on the company's FR Y-9C, for the most 
recent quarter or consecutive quarters. Average total consolidated 
assets are measured on the as-of date of the most recent FR Y-9C used in 
the calculation of the average.
    (d) Bank holding company has the same meaning as in Sec. 225.2(c) of 
the Board's Regulation Y (12 CFR 225.2(c)).
    (e) Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that reflect 
the consensus views of the economic and financial outlook.
    (f) Covered company means:
    (1) A bank holding company (other than a foreign banking 
organization) with average total consolidated assets of $50 billion or 
more;
    (2) A U.S. intermediate holding company subject to this section 
pursuant to Sec. 252.153 of this part; and
    (3) A nonbank financial company supervised by the Board.
    (g) Depository institution has the same meaning as in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (h) Foreign banking organization has the same meaning as in 
Sec. 211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
    (i) Nonbank financial company supervised by the Board means a 
nonbank financial company that the Financial Stability Oversight Council 
has determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) 
shall be supervised by the Board and for which such determination is 
still in effect.
    (j) Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    (k) Pre-provision net revenue means the sum of net interest income 
and non-interest income less expenses before adjusting for loss 
provisions.
    (l) Provision for loan and lease losses means the provision for loan 
and lease losses as reported by the covered company on the FR Y-9C.
    (m) Regulatory capital ratio means a capital ratio for which the 
Board established minimum requirements for the company by regulation or 
order, including the company's tier 1 and supplementary leverage ratios 
as calculated under 12 CFR part 217, including the deductions required 
under 12 CFR 248.12, as applicable, and the company's common equity tier 
1, tier 1, and total risk-based capital ratios as calculated under 12 
CFR part 217, including the deductions required under 12 CFR 248.12 and 
the transition provisions at 12 CFR 217.1(f)(4) and 217.300; except that 
the company shall not use the advanced approaches to calculate its 
regulatory capital ratios.
    (n) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered company that the Board 
annually determines are appropriate for use in the supervisory stress 
tests, including, but not limited to, baseline, adverse, and severely 
adverse scenarios.
    (o) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered company and 
that overall are more severe than those associated with the adverse 
scenario and may include trading or other additional components.
    (p) Stress test cycle means:
    (1) Until September 30, 2015, the period beginning on October 1 of a 
calendar year and ending on September 30 of the following calendar year, 
and
    (2) Beginning October 1, 2015, the period beginning on January 1 of 
a calendar year and ending on December 31 of that year.
    (q) Subsidiary has the same meaning as in Sec. 225.2(o) the Board's 
Regulation Y (12 CFR 225.2).

[Reg. YY, 79 FR 64049, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.43  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) of 
this section, this subpart applies to any covered company, which 
includes:
    (i) Any bank holding company with average total consolidated assets 
(as defined in Sec. 252.42(c)) of $50 billion or more;

[[Page 410]]

    (ii) Any U.S. intermediate holding company subject to this section 
pursuant to Sec. 252.153 of this part; and
    (iii) Any nonbank financial company supervised by the Board that is 
made subject to this section pursuant to a rule or order of the Board.
    (2) Ongoing applicability. A bank holding company (including any 
successor company) that is subject to any requirement in this subpart 
shall remain subject to any such requirement unless and until its total 
consolidated assets fall below $50 billion for each of four consecutive 
quarters, as reported on the FR Y-9C and effective on the as-of date of 
the fourth consecutive FR Y-9C.
    (b) Transitional arrangements--(1) Transition periods for bank 
holding companies that become covered companies after October 1, 2014. 
(i) A bank holding company that becomes a covered company on or before 
March 31 of a given year must comply with the requirements of this 
subpart beginning on January 1 of the following year, unless that time 
is extended by the Board in writing.
    (ii) A bank holding company that becomes a covered company after 
March 31 of a given year must comply with the requirements of this 
subpart beginning on January 1 of the second year following that given 
year, unless that time is extended by the Board in writing.
    (2) Bank holding companies that rely on SR Letter 01-01. A covered 
company that is relying as of July 20, 2015, on Supervision and 
Regulation Letter SR 01-01 issued by the Board (as in effect on May 19, 
2010) must comply with the requirements of this subpart beginning on 
January 1, 2016, unless that time is extended by the Board in writing.
    (c) Transition periods for covered companies subject to the 
supplementary leverage ratio. Notwithstanding Sec. 252.42(m), only for 
purposes of the stress test cycle beginning on January 1, 2016, the 
Board will not include an estimate of a covered company's supplementary 
leverage ratio.

[Reg. YY, 79 FR 64049, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.44  Annual analysis conducted by the Board.

    (a) In general. (1) On an annual basis, the Board will conduct an 
analysis of each covered company's capital, on a total consolidated 
basis, taking into account all relevant exposures and activities of that 
covered company, to evaluate the ability of the covered company to 
absorb losses in specified economic and financial conditions.
    (2) The analysis will include an assessment of the projected losses, 
net income, and pro forma capital levels and regulatory capital ratios 
and other capital ratios for the covered company and use such analytical 
techniques that the Board determines are appropriate to identify, 
measure, and monitor risks of the covered company that may affect the 
financial stability of the United States.
    (3) In conducting the analyses, the Board will coordinate with the 
appropriate primary financial regulatory agencies and the Federal 
Insurance Office, as appropriate.
    (b) Economic and financial scenarios related to the Board's 
analysis. The Board will conduct its analysis under this section using a 
minimum of three different scenarios, including a baseline scenario, 
adverse scenario, and severely adverse scenario. For the stress test 
cycle beginning on October 1, 2014, the Board will notify covered 
companies of the scenarios that the Board will apply to conduct the 
analysis for each stress test cycle by no later than November 15, 2014, 
except with respect to trading or any other components of the scenarios 
and any additional scenarios that the Board will apply to conduct the 
analysis, which will be communicated by no later than December 1, 2014. 
For each stress test cycle beginning thereafter, the Board will notify 
covered companies of the scenarios that the Board will apply to conduct 
the analysis for each stress test cycle by no later than February 15 of 
each year, except with respect to trading or any other components of the 
scenarios and any additional scenarios that the Board will apply to 
conduct

[[Page 411]]

the analysis, which will be communicated by no later than March 1 of 
that year.

[Reg. YY, 79 FR 64049, Oct. 27, 2014, as amended at 80 FR 75425, Dec. 2, 
2015]



Sec. 252.45  Data and information required to be submitted in support of 
the Board's analyses.

    (a) Regular submissions. Each covered company must submit to the 
Board such data, on a consolidated basis, that the Board determines is 
necessary in order for the Board to derive the relevant pro forma 
estimates of the covered company over the planning horizon under the 
scenarios described in Sec. 252.44(b).
    (b) Additional submissions required by the Board. The Board may 
require a covered company to submit any other information on a 
consolidated basis that the Board deems necessary in order to:
    (1) Ensure that the Board has sufficient information to conduct its 
analysis under this subpart; and
    (2) Project a company's pre-provision net revenue, losses, provision 
for loan and lease losses, and net income; and pro forma capital levels, 
regulatory capital ratios, and any other capital ratio specified by the 
Board under the scenarios described in Sec. 252.44(b).
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this subpart 
and related materials shall be determined in accordance with the Freedom 
of Information Act (5 U.S.C. 552(b)) and the Board's Rules Regarding 
Availability of Information (12 CFR part 261).

[Reg. YY, 79 FR 64049, Oct. 27, 2014, as amended at 80 FR 75426, Dec. 2, 
2015]



Sec. 252.46  Review of the Board's analysis; publication of summary results.

    (a) Review of results. Based on the results of the analysis 
conducted under this subpart, the Board will conduct an evaluation to 
determine whether the covered company has the capital, on a total 
consolidated basis, necessary to absorb losses and continue its 
operation by maintaining ready access to funding, meeting its 
obligations to creditors and other counterparties, and continuing to 
serve as a credit intermediary under baseline, adverse and severely 
adverse scenarios, and any additional scenarios.
    (b) Publication of results by the Board. (1) The Board will publicly 
disclose a summary of the results of the Board's analyses of a covered 
company by March 31, 2015 (for the stress test cycle beginning on 
October 1, 2014) and by June 30 (for each stress test cycle beginning 
thereafter).
    (2) The Board will notify companies of the date on which it expects 
to publicly disclose a summary of the Board's analyses pursuant to 
paragraph (b)(1) of this section at least 14 calendar days prior to the 
expected disclosure date.



Sec. 252.47  Corporate use of stress test results.

    (a) In general. The board of directors and senior management of each 
covered company must consider the results of the analysis conducted by 
the Board under this subpart, as appropriate:
    (1) As part of the covered company's capital plan and capital 
planning process, including when making changes to the covered company's 
capital structure (including the level and composition of capital);
    (2) When assessing the covered company's exposures, concentrations, 
and risk positions; and
    (3) In the development or implementation of any plans of the covered 
company for recovery or resolution.
    (b) Resolution plan updates. Each covered company must update its 
resolution plan as the Board determines appropriate, based on the 
results of the Board's analyses of the covered company under this 
subpart.



  Subpart F_Company-Run Stress Test Requirements for U.S. Bank Holding 
  Companies With $50 Billion or More in Total Consolidated Assets and 
           Nonbank Financial Companies Supervised by the Board

    Source: Reg. YY, 79 FR 64051, Oct. 27, 2014, unless otherwise noted.

[[Page 412]]



Sec. 252.50  [Reserved]



Sec. 252.51  Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 1844(b), 
1844(c), 5361, 5365, 5366.
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a covered company to 
conduct annual and semi-annual stress tests. This subpart also 
establishes definitions of stress test and related terms, methodologies 
for conducting stress tests, and reporting and disclosure requirements.



Sec. 252.52  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable, and any 
successor regulation.
    (b) Adverse scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company that are more 
adverse than those associated with the baseline scenario and may include 
trading or other additional components.
    (c) Average total consolidated assets means the average of the total 
consolidated assets as reported by a bank holding company on its 
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) 
for the four most recent consecutive quarters. If the bank holding 
company has not filed the FR Y-9C for each of the four most recent 
consecutive quarters, average total consolidated assets means the 
average of the company's total consolidated assets, as reported on the 
company's FR Y-9C, for the most recent quarter or consecutive quarters. 
Average total consolidated assets are measured on the as-of date of the 
most recent FR Y-9C used in the calculation of the average.
    (d) Bank holding company has the same meaning as in Sec. 225.2(c) of 
the Board's Regulation Y (12 CFR 225.2(c)).
    (e) Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that reflect 
the consensus views of the economic and financial outlook.
    (f) Capital action has the same meaning as in Sec. 225.8(c)(2) of 
the Board's Regulation Y (12 CFR 225.8(c)(2)).
    (g) Covered company means:
    (1) A bank holding company (other than a foreign banking 
organization) with average total consolidated assets of $50 billion or 
more;
    (2) A U.S. intermediate holding company subject to this section 
pursuant to Sec. 252.153 of this part; and
    (3) A nonbank financial company supervised by the Board.
    (h) Depository institution has the same meaning as in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (i) Foreign banking organization has the same meaning as in 
Sec. 211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
    (j) Nonbank financial company supervised by the Board means a 
nonbank financial company that the Financial Stability Oversight Council 
has determined under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) 
shall be supervised by the Board and for which such determination is 
still in effect.
    (k) Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle (on October 
1 or April 1, as appropriate) over which the relevant projections 
extend.
    (l) Pre-provision net revenue means the sum of net interest income 
and non-interest income less expenses before adjusting for loss 
provisions.
    (m) Provision for loan and lease losses means the provision for loan 
and lease losses as reported by the covered company on the FR Y-9C.
    (n) Regulatory capital ratio means a capital ratio for which the 
Board established minimum requirements for the company by regulation or 
order, including the company's tier 1 and supplementary leverage ratios 
as calculated under 12 CFR part 217, including the deductions required 
under 12 CFR 248.12, as applicable, and the company's common equity tier 
1, tier 1, and total risk-based capital ratios as calculated under 12 
CFR part 217, including the deductions required under

[[Page 413]]

12 CFR 248.12 and the transition provisions at 12 CFR 217.1(f)(4) and 
217.300; except that the company shall not use the advanced approaches 
to calculate its regulatory capital ratios.
    (o) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered company that the Board, 
or with respect to the mid-cycle stress test required under Sec. 252.55, 
the covered company, annually determines are appropriate for use in the 
company-run stress tests, including, but not limited to, baseline, 
adverse, and severely adverse scenarios.
    (p) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered company and 
that overall are more severe than those associated with the adverse 
scenario and may include trading or other additional components.
    (q) Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a covered 
company over the planning horizon, taking into account its current 
condition, risks, exposures, strategies, and activities.
    (r) Stress test cycle means:
    (1) Until September 30, 2015, the period beginning on October 1 of a 
calendar year and ending on September 30 of the following calendar year, 
and
    (2) Beginning October 1, 2015, the period beginning on January 1 of 
a calendar year and ending on December 31 of that year.
    (s) Subsidiary has the same meaning as in Sec. 225.2(o) the Board's 
Regulation Y (12 CFR 225.2).

[Reg. YY, 79 FR 64051, Oct. 27, 2014, as amended at 80 FR 75426, Dec. 2, 
2015]



Sec. 252.53  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) of 
this section, this subpart applies to any covered company, which 
includes:
    (i) Any bank holding company with average total consolidated assets 
(as defined in Sec. 252.42(c) of this part) of $50 billion or more;
    (ii) Any U.S. intermediate holding company subject to this section 
pursuant to Sec. 252.153 of this part; and
    (iii) Any nonbank financial company supervised by the Board that is 
made subject to this section pursuant to a rule or order of the Board.
    (2) Ongoing applicability. A bank holding company (including any 
successor company) that is subject to any requirement in this subpart 
shall remain subject to any such requirement unless and until its total 
consolidated assets fall below $50 billion for each of four consecutive 
quarters, as reported on the FR Y-9C and effective on the as-of date of 
the fourth consecutive FR Y-9C.
    (b) Transitional arrangements--(1) Transition periods for bank 
holding companies that become covered companies after October 1, 2014. 
(i) A bank holding company that becomes a covered company on or before 
March 31 of a given year must comply with the requirements of this 
subpart beginning on January 1 of the following year, unless that time 
is extended by the Board in writing.
    (ii) A bank holding company that becomes a covered company after 
March 31 of a given year must comply with the requirements of this 
subpart beginning on January 1 of the second year following that given 
year, unless that time is extended by the Board in writing.
    (2) Bank holding companies that rely on SR Letter 01-01. A covered 
company that is relying as of July 20, 2015, on Supervision and 
Regulation Letter SR 01-01 issued by the Board (as in effect on May 19, 
2010) must comply with the requirements of this subpart beginning on 
January 1, 2016, unless that time is extended by the Board in writing.
    (3) Transition periods for covered companies subject to the 
supplementary leverage ratio. Notwithstanding Sec. 252.52(n), only for 
purposes of the stress test cycle beginning on January 1, 2016, a bank 
holding company shall not include an estimate of its supplementary 
leverage ratio.

[Reg. YY, 79 FR 64051, Oct. 27, 2014, as amended at 80 FR 75426, Dec. 2, 
2015]



Sec. 252.54  Annual stress test.

    (a) In general. A covered company must conduct an annual stress 
test. For the stress test cycle beginning on October 1, 2014, the stress 
test must be

[[Page 414]]

conducted by January 5, 2015, based on data as of September 30, 2014, 
unless the time or the as-of date is extended by the Board in writing. 
For each stress test cycle beginning thereafter, the stress test must be 
conducted by April 5 of each calendar year based on data as of December 
31 of the preceding calendar year, unless the time or the as-of date is 
extended by the Board in writing.
    (b) Scenarios provided by the Board--(1) In general. In conducting a 
stress test under this section, a covered company must, at a minimum, 
use the scenarios provided by the Board. Except as provided in 
paragraphs (b)(2) and (3) of this section, for the stress test cycle 
beginning on October 1, 2014, the Board will provide a description of 
the scenarios to each covered company no later than November 15, 2014. 
Except as provided in paragraphs (b)(2) and (3) of this section, for 
each stress test cycle beginning thereafter, the Board will provide a 
description of the scenarios to each covered company no later than 
February 15 of that calendar year.
    (2) Additional components. (i) The Board may require a covered 
company with significant trading activity, as determined by the Board 
and specified in the Capital Assessments and Stress Testing report (FR 
Y-14), to include a trading and counterparty component in its adverse 
and severely adverse scenarios in the stress test required by this 
section. For the stress test cycle beginning on October 1, 2014, the 
data used in this component must be as of a date between October 1 and 
December 1, 2014, as selected by the Board, and the Board will 
communicate the as-of date and a description of the component to the 
company no later than December 1, 2014. For the stress test cycle 
beginning on January 1, 2016, and for each stress test cycle beginning 
thereafter, the data used in this component must be as of a date between 
January 1 and March 1 of that calendar year selected by the Board, and 
the Board will communicate the as-of date and a description of the 
component to the company no later than March 1 of the relevant calendar 
year.
    (ii) The Board may require a covered company to include one or more 
additional components in its adverse and severely adverse scenarios in 
the stress test required by this section based on the company's 
financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a covered company to 
use one or more additional scenarios in the stress test required by this 
section based on the company's financial condition, size, complexity, 
risk profile, scope of operations, or activities, or risks to the U.S. 
economy.
    (4) Notice and response--(i) Notification of additional component. 
If the Board requires a covered company to include one or more 
additional components in its adverse and severely adverse scenarios 
under paragraph (b)(2) of this section or to use one or more additional 
scenarios under paragraph (b)(3) of this section, the Board will notify 
the company in writing. For the stress test cycle beginning on October 
1, 2014, the Board will provide such notification no later than 
September 30, 2014, and for each stress test cycle beginning thereafter, 
the Board will provide such notification no later than December 31 of 
the preceding calendar year. The notification will include a general 
description of the additional component(s) or additional scenario(s) and 
the basis for requiring the company to include the additional 
component(s) or additional scenario(s).
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph, the 
covered company may request in writing that the Board reconsider the 
requirement that the company include the additional component(s) or 
additional scenario(s), including an explanation as to why the 
reconsideration should be granted.
    (iii) Description of component. The Board will respond in writing 
within 14 calendar days of receipt of the company's request. The Board 
will provide the covered company with a description of any additional 
component(s) or additional scenario(s) by December 1, 2014 (for the 
stress test cycle beginning on October 1, 2014) and by March 1 (for each 
stress test cycle beginning thereafter).

[[Page 415]]



Sec. 252.55  Mid-cycle stress test.

    (a) Mid-cycle stress test requirement. In addition to the stress 
test required under Sec. 252.54, a covered company must conduct a mid-
cycle stress test. For the stress test cycle beginning on October 1, 
2014, the mid-cycle stress test must be conducted by July 5 based on 
data as of March 31 of that calendar year, unless the time or the as-of 
date is extended by the Board in writing. For each stress test cycle 
beginning thereafter, the stress test must be conducted by September 30 
of each calendar year based on data as of June 30 of that calendar year, 
unless the time or the as-of date is extended by the Board in writing.
    (b) Scenarios related to mid-cycle stress tests--(1) In general. A 
covered company must develop and employ a minimum of three scenarios, 
including a baseline scenario, adverse scenario, and severely adverse 
scenario, that are appropriate for its own risk profile and operations, 
in conducting the stress test required by this section.
    (2) Additional components. The Board may require a covered company 
to include one or more additional components in its adverse and severely 
adverse scenarios in the stress test required by this section based on 
the company's financial condition, size, complexity, risk profile, scope 
of operations, or activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a covered company to 
use one or more additional scenarios in the stress test required by this 
section based on the company's financial condition, size, complexity, 
risk profile, scope of operations, or activities, or risks to the U.S. 
economy.
    (4) Notice and response--(i) Notification of additional component. 
If the Board requires a covered company to include one or more 
additional components in its adverse and severely adverse scenarios 
under paragraph (b)(2) of this section or one or more additional 
scenarios under paragraph (b)(3) of this section, the Board will notify 
the company in writing. For the stress test cycle beginning on October 
1, 2014, the Board will provide such notification no later than March 
31, and for each stress test cycle beginning thereafter, the Board will 
provide such notification no later than June 30. The notification will 
include a general description of the additional component(s) or 
additional scenario(s) and the basis for requiring the company to 
include the additional component(s) or additional scenario(s).
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph, the 
covered company may request in writing that the Board reconsider the 
requirement that the company include the additional component(s) or 
additional scenario(s), including an explanation as to why the 
reconsideration should be granted. The Board will respond in writing 
within 14 calendar days of receipt of the company's request.
    (iii) Description of component. The Board will provide the covered 
company with a description of any additional component(s) or additional 
scenario(s) by June 1 (for the stress test cycle beginning on October 1, 
2014) and by September 1 (for each stress test cycle beginning 
thereafter).



Sec. 252.56  Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Secs. 252.54 and 252.55, for each quarter of the planning horizon, a 
covered company must estimate the following for each scenario required 
to be used:
    (1) Losses, pre-provision net revenue, provision for loan and lease 
losses, and net income; and
    (2) The potential impact on pro forma regulatory capital levels and 
pro forma capital ratios (including regulatory capital ratios and any 
other capital ratios specified by the Board), incorporating the effects 
of any capital actions over the planning horizon and maintenance of an 
allowance for loan losses appropriate for credit exposures throughout 
the planning horizon.
    (b) Assumptions regarding capital actions. In conducting a stress 
test under Secs. 252.54 and 252.55, a covered company is required to 
make the following assumptions regarding its capital actions over the 
planning horizon:
    (1) For the first quarter of the planning horizon, the covered 
company

[[Page 416]]

must take into account its actual capital actions as of the end of that 
quarter; and
    (2) For each of the second through ninth quarters of the planning 
horizon, the covered company must include in the projections of capital:
    (i) Common stock dividends equal to the quarterly average dollar 
amount of common stock dividends that the company paid in the previous 
year (that is, the first quarter of the planning horizon and the 
preceding three calendar quarters) plus common stock dividends 
attributable to issuances related to expensed employee compensation or 
in connection with a planned merger or acquisition to the extent that 
the merger or acquisition is reflected in the covered company's pro 
forma balance sheet estimates;
    (ii) Payments on any other instrument that is eligible for inclusion 
in the numerator of a regulatory capital ratio equal to the stated 
dividend, interest, or principal due on such instrument during the 
quarter;
    (iii) An assumption of no redemption or repurchase of any capital 
instrument that is eligible for inclusion in the numerator of a 
regulatory capital ratio; and
    (iv) An assumption of no issuances of common stock or preferred 
stock, except for issuances related to expensed employee compensation or 
in connection with a planned merger or acquisition to the extent that 
the merger or acquisition is reflected in the covered company's pro 
forma balance sheet estimates.
    (c) Controls and oversight of stress testing processes--(1) In 
general. The senior management of a covered company must establish and 
maintain a system of controls, oversight, and documentation, including 
policies and procedures, that are designed to ensure that its stress 
testing processes are effective in meeting the requirements in this 
subpart. These policies and procedures must, at a minimum, describe the 
covered company's stress testing practices and methodologies, and 
processes for validating and updating the company's stress test 
practices and methodologies consistent with applicable laws, 
regulations, and supervisory guidance. Policies of covered companies 
must also describe processes for scenario development for the mid-cycle 
stress test required under Sec. 252.55.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a covered company must review and approve the 
policies and procedures of the stress testing processes as frequently as 
economic conditions or the condition of the covered company may warrant, 
but no less than annually. The board of directors and senior management 
of the covered company must receive a summary of the results of any 
stress test conducted under this subpart.
    (3) Role of stress testing results. The board of directors and 
senior management of each covered company must consider the results of 
the analysis it conducts under this subpart, as appropriate:
    (i) As part of the covered company's capital plan and capital 
planning process, including when making changes to the covered company's 
capital structure (including the level and composition of capital);
    (ii) When assessing the covered company's exposures, concentrations, 
and risk positions; and
    (iii) In the development or implementation of any plans of the 
covered company for recovery or resolution.

[Reg. YY, 79 FR 64051, Oct. 27, 2014, as amended at 80 FR 75426, Dec. 2, 
2015]



Sec. 252.57  Reports of stress test results.

    (a) Reports to the Board of stress test results. (1) A covered 
company must report the results of the stress test required under 
Sec. 252.54 to the Board in the manner and form prescribed by the Board. 
For the stress test cycle beginning on October 1, 2014, such results 
must be submitted by January 5, unless that time is extended by the 
Board in writing. For each stress test cycle beginning thereafter, such 
results must be submitted by April 5, unless that time is extended by 
the Board in writing.
    (2) A covered company must report the results of the stress test 
required under Sec. 252.55 to the Board in the manner and form 
prescribed by the Board. For the stress test cycle beginning on October 
1, 2014, such results must be submitted by July 5, unless that time

[[Page 417]]

is extended by the Board in writing. For each stress test cycle 
beginning thereafter, such results must be submitted by October 5, 
unless that time is extended by the Board in writing.
    (b) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this subpart 
and related materials shall be determined in accordance with applicable 
exemptions under the Freedom of Information Act (5 U.S.C. 552(b)) and 
the Board's Rules Regarding Availability of Information (12 CFR part 
261).



Sec. 252.58  Disclosure of stress test results.

    (a) Public disclosure of results--(1) In general. (i) A covered 
company must publicly disclose a summary of the results of the stress 
test required under Sec. 252.54 within the period that is 15 calendar 
days after the Board publicly discloses the results of its supervisory 
stress test of the covered company pursuant to Sec. 252.46(c) of this 
part, unless that time is extended by the Board in writing.
    (ii) A covered company must publicly disclose a summary of the 
results of the stress test required under Sec. 252.55. For the stress 
test cycle beginning on October 1, 2014, this disclosure must occur in 
the period beginning on July 5 and ending on August 4, unless that time 
is extended by the Board in writing. For all stress test cycles 
beginning thereafter, this disclosure must occur in the period beginning 
on October 5 and ending on November 4, unless that time is extended by 
the Board in writing.
    (2) Disclosure method. The summary required under this section may 
be disclosed on the Web site of a covered company, or in any other forum 
that is reasonably accessible to the public.
    (b) Summary of results. The summary results must, at a minimum, 
contain the following information regarding the severely adverse 
scenario:
    (1) A description of the types of risks included in the stress test;
    (2) A general description of the methodologies used in the stress 
test, including those employed to estimate losses, revenues, provision 
for loan and lease losses, and changes in capital positions over the 
planning horizon;
    (3) Estimates of--
    (i) Pre-provision net revenue and other revenue;
    (ii) Provision for loan and lease losses, realized losses or gains 
on available-for-sale and held-to-maturity securities, trading and 
counterparty losses, and other losses or gains;
    (iii) Net income before taxes;
    (iv) Loan losses (dollar amount and as a percentage of average 
portfolio balance) in the aggregate and by subportfolio, including: 
Domestic closed-end first-lien mortgages; domestic junior lien mortgages 
and home equity lines of credit; commercial and industrial loans; 
commercial real estate loans; credit card exposures; other consumer 
loans; and all other loans; and
    (v) Pro forma regulatory capital ratios and any other capital ratios 
specified by the Board;
    (4) An explanation of the most significant causes for the changes in 
regulatory capital ratios; and
    (5) With respect to any depository institution subsidiary that is 
subject to stress testing requirements pursuant to 12 U.S.C. 5365(i)(2), 
as implemented by subpart B of this part, 12 CFR part 46 (OCC), or 12 
CFR part 325, subpart C (FDIC), changes over the planning horizon in 
regulatory capital ratios and any other capital ratios specified by the 
Board and an explanation of the most significant causes for the changes 
in regulatory capital ratios.
    (c) Content of results. (1) The following disclosures required under 
paragraph (b) of this section must be on a cumulative basis over the 
planning horizon:
    (i) Pre-provision net revenue and other revenue;
    (ii) Provision for loan and lease losses, realized losses/gains on 
available-for-sale and held-to-maturity securities, trading and 
counterparty losses, and other losses or gains;
    (iii) Net income before taxes; and
    (iv) Loan losses in the aggregate and by subportfolio.
    (2) The disclosure of pro forma regulatory capital ratios and any 
other capital ratios specified by the Board that is required under 
paragraph (b) of this section must include the beginning

[[Page 418]]

value, ending value, and minimum value of each ratio over the planning 
horizon.

[Reg. YY, 79 FR 64051, Oct. 27, 2014, as amended at 80 FR 75426, Dec. 2, 
2015]

Subparts G-K [Reserved]



   Subpart L_Company-Run Stress Test Requirements for Foreign Banking 
Organizations and Foreign Savings and Loan Holding Companies With Total 
     Consolidated Assets Over $10 Billion but Less Than $50 billion

    Source: Reg. YY, 79 FR 17322, Mar. 27, 2014, unless otherwise noted.



Sec. 252.120  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Eligible asset means any asset of the U.S. branch or U.S. agency 
held in the United States that is recorded on the general ledger of a 
U.S. branch or U.S. agency of the foreign banking organization (reduced 
by the amount of any specifically allocated reserves held in the United 
States and recorded on the general ledger of the U.S. branch or U.S. 
agency in connection with such assets), subject to the following 
exclusions and, for purposes of this definition, as modified by the 
rules of valuation set forth in paragraph (a)(2) of this section.
    (1) The following assets do not qualify as eligible assets:
    (i) Equity securities;
    (ii) Any assets classified as loss at the preceding examination by a 
regulatory agency, outside accountant, or the bank's internal loan 
review staff;
    (iii) Accrued income on assets classified loss, doubtful, 
substandard or value impaired, at the preceding examination by a 
regulatory agency, outside accountant, or the bank's internal loan 
review staff;
    (iv) Any amounts due from the home office, other offices and 
affiliates, including income accrued but uncollected on such amounts;
    (v) The balance from time to time of any other asset or asset 
category disallowed at the preceding examination or by direction of the 
Board for any other reason until the underlying reasons for the 
disallowance have been removed;
    (vi) Prepaid expenses and unamortized costs, furniture and fixtures 
and leasehold improvements; and
    (vii) Any other asset that the Board determines should not qualify 
as an eligible asset.
    (2) The following rules of valuation apply:
    (i) A marketable debt security is valued at its principal amount or 
market value, whichever is lower;
    (ii) An asset classified doubtful or substandard at the preceding 
examination by a regulatory agency, outside accountant, or the bank's 
internal loan review staff, is valued at 50 percent and 80 percent, 
respectively;
    (iii) With respect to an asset classified value impaired, the amount 
representing the allocated transfer risk reserve that would be required 
for such exposure at a domestically chartered bank is valued at 0 and 
the residual exposure is valued at 80 percent; and
    (iv) Real estate located in the United States and carried on the 
accounting records as an asset are valued at net book value or appraised 
value, whichever is less.
    (b) Foreign savings and loan holding company means a savings and 
loan holding company as defined in section 10 of the Home Owners' Loan 
Act (12 U.S.C. 1467a(a)) that is incorporated or organized under the 
laws of a country other than the United States.
    (c) Liabilities of all U.S. branches and agencies of a foreign 
banking organization means all liabilities of all U.S. branches and 
agencies of the foreign banking organization, including acceptances and 
any other liabilities (including contingent liabilities), but excluding:
    (1) Amounts due to and other liabilities to other offices, agencies, 
branches and affiliates of such foreign banking organization, including 
its head office, including unremitted profits; and
    (2) Reserves for possible loan losses and other contingencies.

[[Page 419]]

    (d) Pre-provision net revenue means revenue less expenses before 
adjusting for total loan loss provisions.
    (e) Stress test cycle has the same meaning as in subpart F of this 
part.
    (f) Total loan loss provisions means the amount needed to make 
reserves adequate to absorb estimated credit losses, based upon 
management's evaluation of the loans and leases that the company has the 
intent and ability to hold for the foreseeable future or until maturity 
or payoff, as determined under applicable accounting standards.



Sec. 252.121  Applicability.

    (a) Applicability for foreign banking organizations with total 
consolidated assets of more than $10 billion but less than $50 billion--
(1) General applicability. Subject to the initial applicability 
provisions of paragraph (a)(3) of this section, a foreign banking 
organization must comply with the stress test requirements set forth in 
this section beginning on the first day of the ninth quarter following 
the date on which its total consolidated assets exceed $10 billion.
    (2) Total consolidated assets. For purposes of this subpart, total 
consolidated assets of a foreign banking organization are equal to the 
average of the total assets for the two most recent periods as reported 
by the foreign banking organization on the FR Y-7. Total consolidated 
assets are measured on the as-of date of the most recent FR Y-7 used in 
the calculation of the average.
    (3) Initial applicability. A foreign banking organization that, as 
of June 30, 2015, has total consolidated assets of $10 billion or more 
must comply with the requirements of this subpart beginning on July 1, 
2016.
    (4) Cessation of requirements. A foreign banking organization will 
remain subject to the requirements of this subpart until the earlier of 
the date on which:
    (i) Its reported total consolidated assets on the FR Y-7 are below 
$10 billion for each of four consecutive calendar quarters; and
    (ii) It becomes subject to the requirements of subpart N or subpart 
O of this subpart, as applicable.
    (b) Applicability for foreign savings and loan holding companies 
with total consolidated assets of more than $10 billion--(1) General. A 
foreign savings and loan holding company must comply with the stress 
test requirements set forth in this section beginning on the first day 
of the ninth quarter following the date on which its total consolidated 
assets exceed $10 billion.
    (2) Total consolidated assets. Total consolidated assets of a 
foreign savings and loan holding company for purposes of this subpart 
are equal to the average of total assets for the four most recent 
consecutive quarters as reported by the foreign savings and loan holding 
company on its applicable regulatory report. If the foreign savings and 
loan holding company has not filed four regulatory reports, total 
consolidated assets are equal to the average of total assets as reported 
for the most recent period or consecutive periods. Total consolidated 
assets are measured on the as-of date of the most recent regulatory 
reporting form used in the calculation of the average.
    (3) Cessation of requirements. A foreign savings and loan holding 
company will remain subject to requirements of this subpart until the 
date on which the foreign savings and loan holding company's total 
consolidated assets on its applicable regulatory report are below $10 
billion for each of four consecutive calendar quarters.



Sec. 252.122  Capital stress testing requirements.

    (a) In general. (1) A foreign banking organization with total 
consolidated assets of more than $10 billion but less than $50 billion 
and a foreign savings and loan holding company with total consolidated 
assets of more than $10 billion must:
    (i) Be subject on a consolidated basis to a capital stress testing 
regime by its home-country supervisor that meets the requirements of 
paragraph (a)(2) of this section; and
    (ii) Conduct such stress tests or be subject to a supervisory stress 
test and meet any minimum standards set by its home-country supervisor 
with respect to the stress tests.
    (2) The capital stress testing regime of a foreign banking 
organization or

[[Page 420]]

foreign savings and loan holding company's home-country supervisor must 
include:
    (i) An annual supervisory capital stress test conducted by the 
relevant home-country supervisor or an annual evaluation and review by 
the home-country supervisor of an internal capital adequacy stress test 
conducted by the foreign banking organization; and
    (ii) Requirements for governance and controls of stress testing 
practices by relevant management and the board of directors (or 
equivalent thereof).
    (b) Additional standards. (1) Unless the Board otherwise determines 
in writing, a foreign banking organization or a foreign savings and loan 
holding company that does not meet each of the requirements in paragraph 
(a)(1) and (2) of this section must:
    (i) Maintain eligible assets in its U.S. branches and agencies that, 
on a daily basis, are not less than 105 percent of the average value 
over each day of the previous calendar quarter of the total liabilities 
of all branches and agencies operated by the foreign banking 
organization in the United States;
    (ii) Conduct an annual stress test of its U.S. subsidiaries to 
determine whether those subsidiaries have the capital necessary to 
absorb losses as a result of adverse economic conditions; and
    (iii) Report on an annual basis a summary of the results of the 
stress test to the Board that includes a description of the types of 
risks included in the stress test, a description of the conditions or 
scenarios used in the stress test, a summary description of the 
methodologies used in the stress test, estimates of aggregate losses, 
pre-provision net revenue, total loan loss provisions, net income before 
taxes and pro forma regulatory capital ratios required to be computed by 
the home-country supervisor of the foreign banking organization or 
foreign savings and loan holding company and any other relevant capital 
ratios, and an explanation of the most significant causes for any 
changes in regulatory capital ratios.
    (2) An enterprise-wide stress test that is approved by the Board may 
meet the stress test requirement of paragraph (b)(1)(ii) of this 
section.



Subpart M_Risk Committee Requirement for Publicly Traded Foreign Banking 
Organizations With Total Consolidated Assets of at Least $10 Billion but 
                          Less Than $50 Billion

    Source: Reg. YY, 79 FR 17323, Mar. 27, 2014, unless otherwise noted.



Sec. 252.130  [Reserved]



Sec. 252.131  Applicability.

    (a) General applicability. Subject to the initial applicability 
provisions of paragraph (c) of this section, a foreign banking 
organization with total consolidated assets of at least $10 billion but 
less than $50 billion and any class of stock (or similar interest) that 
is publicly traded must comply with the risk-committee requirements set 
forth in this subpart beginning on the first day of the ninth quarter 
following the later of the date on which its total consolidated assets 
equal or exceed $10 billion and the date on which any class of its stock 
(or similar interest) becomes publicly traded.
    (b) Total consolidated assets. For purposes of this subpart, total 
consolidated assets of a foreign banking organization for purposes of 
this subpart are equal to the average of the total assets for the two 
most recent periods as reported by the foreign banking organization on 
the FR Y-7. Total consolidated assets are measured on the as-of date of 
the most recent FR Y-7 used in the calculation of the average.
    (c) Initial applicability. A foreign banking organization that, as 
of June 30, 2015, has total consolidated assets of $10 billion or more 
and has a class of stock (or similar interest) that is publicly traded 
must comply with the risk-committee requirements of this section 
beginning on July 1, 2016.
    (d) Cessation of requirements. A foreign banking organization will 
remain subject to the risk-committee requirements of this section until 
the earlier of the date on which: (i) its reported total consolidated 
assets on the FR Y-7 are below $10 billion for each of four consecutive 
calendar quarters; (ii) it becomes subject to the requirements of 
subpart N of this part; and (iii) it

[[Page 421]]

ceases to have a class of stock (or similar interest) that is publicly 
traded.



Sec. 252.132  Risk-committee requirements for foreign banking organizations 
with total consolidated assets of $10 billion or more but less than 
$50 billion.

    (a) U.S. risk committee certification. A foreign banking 
organization with a class of stock (or similar interest) that is 
publicly traded and total consolidated assets of at least $10 billion 
but less than $50 billion, must, on an annual basis, certify to the 
Board that it maintains a committee of its global board of directors (or 
equivalent thereof), on a standalone basis or as part of its enterprise-
wide risk committee (or equivalent thereof) that:
    (1) Oversees the risk management policies of the combined U.S. 
operations of the foreign banking organization; and
    (2) Includes at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex firms.
    (b) Timing of certification. The certification required under 
paragraph (a) of this section must be filed on an annual basis with the 
Board concurrently with the FR Y-7.
    (c) Responsibilities of the foreign banking organization. The 
foreign banking organization must take appropriate measures to ensure 
that its combined U.S. operations implement the risk management policies 
overseen by the U.S. risk committee described in paragraph (a) of this 
section, and its combined U.S. operations provide sufficient information 
to the U.S. risk committee to enable the U.S. risk committee to carry 
out the responsibilities of this subpart.
    (d) Noncompliance with this section. If a foreign banking 
organization does not satisfy the requirements of this section, the 
Board may impose requirements, conditions, or restrictions relating to 
the activities or business operations of the combined U.S. operations of 
the foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the company before it applies any 
requirement, condition or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 calendar 
days of receipt of a notification under this paragraph, the company may 
request in writing that the Board reconsider the requirement, condition, 
or restriction. The Board will respond in writing to the company's 
request for reconsideration prior to applying the requirement, 
condition, or restriction.



      Subpart N_Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $50 Billion or More But 
              Combined U.S. Assets of Less Than $50 Billion

    Source: Reg. YY, 79 FR 17324, Mar. 27, 2014, unless otherwise noted.



Sec. 252.140  Scope.

    This subpart applies to foreign banking organizations with total 
consolidated assets of $50 billion or more, but combined U.S. assets of 
less than $50 billion. Total consolidated assets of a foreign banking 
organization are equal to the consolidated assets of the foreign banking 
organization, and combined U.S. assets of a foreign banking organization 
are equal to the sum of the consolidated assets of each top-tier U.S. 
subsidiary of the foreign banking organization (excluding any section 
2(h)(2) company, if applicable) and the total assets of each U.S. branch 
and U.S. agency of the foreign banking organization, each as defined in 
section Sec. 252.142(b).



Sec. 252.141  [Reserved]



Sec. 252.142  Applicability.

    (a) General applicability. Subject to the initial applicability 
provisions in paragraph (c) of this section, a foreign banking 
organization with total consolidated assets of $50 billion or more and 
combined U.S. assets of less than $50 billion must comply with the 
capital requirements, risk-management

[[Page 422]]

and risk committee requirements, liquidity risk-management requirements, 
and the capital stress testing requirements set forth in this subpart 
beginning on the first day of the ninth quarter following the date on 
which its total consolidated assets equal or exceed $50 billion.
    (b) Asset measures--(1) Total consolidated assets. Total 
consolidated assets of a foreign banking organization are equal to the 
consolidated assets of the foreign banking organization. For purposes of 
this subpart, ``total consolidated assets'' are calculated as the 
average of the foreign banking organization's total assets for the four 
most recent consecutive quarters as reported by the foreign banking 
organization on the FR Y-7Q. If the foreign banking organization has not 
filed the FR Y-7Q for the four most recent consecutive quarters, the 
Board shall use an average of the foreign banking organization's total 
consolidated assets reported on its most recent two FR Y-7Qs. Total 
consolidated assets are measured on the as-of date of the most recent FR 
Y-7Q used in the calculation of the average.
    (2) Combined U.S. assets. Combined U.S. assets of a foreign banking 
organization are equal to the sum of the consolidated assets of each 
top-tier U.S. subsidiary of the foreign banking organization (excluding 
any section 2(h)(2) company, if applicable) and the total assets of each 
U.S. branch and U.S. agency of the foreign banking organization. For 
purposes of this subpart, combined U.S. assets are calculated as the 
average of the total combined assets of U.S. operations for the four 
most recent consecutive quarters as reported by the foreign banking 
organization on the FR Y-7Q, or, if the foreign banking organization has 
not reported this information on the FR Y-7Q for each of the four most 
recent consecutive quarters, the average of the combined U.S. assets for 
the most recent quarter or consecutive quarters as reported on the FR Y-
7Q. Combined U.S. assets are measured on the as-of date of the most 
recent FR Y-7Q used in the calculation of the average.
    (c) Initial applicability. A foreign banking organization that, as 
of June 30, 2015, has total consolidated assets of $50 billion or more 
but combined U.S. assets of less than $50 billion must comply with the 
capital requirements, risk-management requirements, liquidity 
requirements, and the capital stress test requirements set forth in this 
subpart beginning on July 1, 2016.
    (d) Cessation of requirements. A foreign banking organization will 
remain subject to the requirements set forth in this subpart until its 
reported total assets on the FR Y-7Q are below $50 billion for each of 
four consecutive calendar quarters, or it becomes subject to the 
requirements of subpart O of this part.



Sec. 252.143  Risk-based and leverage capital requirements for foreign
banking organizations with total consolidated assets of $50 billion or 
more but combined U.S. assets of less than $50 billion.

    (a) General requirements. (1) A foreign banking organization with 
total consolidated assets of $50 billion or more and combined U.S. 
assets of less than $50 billion must certify to the Board that it meets 
capital adequacy standards on a consolidated basis established by its 
home-country supervisor that are consistent with the regulatory capital 
framework published by the Basel Committee on Banking Supervision, as 
amended from time to time (Basel Capital Framework).
    (i) For purposes of this paragraph, home-country capital adequacy 
standards that are consistent with the Basel Capital Framework include 
all minimum risk-based capital ratios, any minimum leverage ratio, and 
all restrictions based on any applicable capital buffers set forth in 
``Basel III: A global regulatory framework for more resilient banks and 
banking systems'' (2010) (Basel III Accord), each as applicable and as 
implemented in accordance with the Basel III Accord, including any 
transitional provisions set forth therein.
    (ii) [Reserved]
    (2) In the event that a home-country supervisor has not established 
capital adequacy standards that are consistent with the Basel Capital 
Framework, the foreign banking organization must demonstrate to the 
satisfaction of the Board that it would meet or exceed

[[Page 423]]

capital adequacy standards on a consolidated basis that are consistent 
with the Basel Capital Framework were it subject to such standards.
    (b) Reporting. A foreign banking organization with total 
consolidated assets of $50 billion or more and combined U.S. assets of 
less than $50 billion must provide to the Board reports relating to its 
compliance with the capital adequacy measures described in paragraph (a) 
of this section concurrently with filing the FR Y-7Q.
    (c) Noncompliance with the Basel Capital Framework. If a foreign 
banking organization does not satisfy the requirements of this section, 
the Board may impose requirements, conditions, or restrictions, 
including risk-based or leverage capital requirements, relating to the 
activities or business operations of the U.S. operations of the foreign 
banking organization. The Board will coordinate with any relevant State 
or Federal regulator in the implementation of such requirements, 
conditions, or restrictions. If the Board determines to impose one or 
more requirements, conditions, or restrictions under this paragraph, the 
Board will notify the company before it applies any requirement, 
condition or restriction, and describe the basis for imposing such 
requirement, condition, or restriction. Within 14 calendar days of 
receipt of a notification under this paragraph, the company may request 
in writing that the Board reconsider the requirement, condition, or 
restriction. The Board will respond in writing to the company's request 
for reconsideration prior to applying the requirement, condition, or 
restriction.



Sec. 252.144  Risk-management and risk committee requirements for 
foreign banking organizations with total consolidated assets of 
$50 billion or more but combined U.S. assets of less than $50 billion.

    (a) U.S. risk committee certification. A foreign banking 
organization with total consolidated assets of $50 billion or more and 
combined U.S. assets of less than $50 billion must, on an annual basis, 
certify to the Board that it maintains a committee of its global board 
of directors (or equivalent thereof), on a standalone basis or as part 
of its enterprise-wide risk committee (or equivalent thereof) that:
    (1) Oversees the risk management policies of the combined U.S. 
operations of the foreign banking organization; and
    (2) Includes at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex firms.
    (b) Timing of certification. The certification required under 
paragraph (a) of this section must be filed on an annual basis with the 
Board concurrently with the FR Y-7.
    (c) Responsibilities of the foreign banking organization. The 
foreign banking organization must take appropriate measures to ensure 
that its combined U.S. operations implement the risk management policies 
overseen by the U.S. risk committee described in paragraph (a) of this 
section, and that its combined U.S. operations provide sufficient 
information to the U.S. risk committee to enable the U.S. risk committee 
to carry out the responsibilities of this subpart.
    (d) Noncompliance with this section. If a foreign banking 
organization does not satisfy the requirements of this section, the 
Board may impose requirements, conditions, or restrictions relating to 
the activities or business operations of the combined U.S. operations of 
the foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the company before it applies any 
requirement, condition, or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 calendar 
days of receipt of a notification under this paragraph, the company may 
request in writing that the Board reconsider the requirement, condition, 
or restriction. The Board will respond in writing to the company's 
request for reconsideration prior to applying the requirement, 
condition, or restriction.

[[Page 424]]



Sec. 252.145  Liquidity risk-management requirements for foreign banking 
organizations with total consolidated assets of $50 billion or more but 
combined U.S. assets of less than $50 billion.

    (a) A foreign banking organization with total consolidated assets of 
$50 billion or more and combined U.S. assets of less than $50 billion 
must report to the Board on an annual basis the results of an internal 
liquidity stress test for either the consolidated operations of the 
foreign banking organization or the combined U.S. operations of the 
foreign banking organization. Such liquidity stress test must be 
conducted consistently with the Basel Committee principles for liquidity 
risk management and must incorporate 30-day, 90-day, and one-year 
stress-test horizons. The ``Basel Committee principles for liquidity 
risk management'' means the document titled ``Principles for Sound 
Liquidity Risk Management and Supervision'' (September 2008) as 
published by the Basel Committee on Banking Supervision, as supplemented 
and revised from time to time.
    (b) A foreign banking organization that does not comply with 
paragraph (a) of this section must limit the net aggregate amount owed 
by the foreign banking organization's non-U.S. offices and its non-U.S. 
affiliates to the combined U.S. operations to 25 percent or less of the 
third party liabilities of its combined U.S. operations, on a daily 
basis.



Sec. 252.146  Capital stress testing requirements for foreign banking 
organizations with total consolidated assets of $50 billion or more 
but combined U.S. assets of less than $50 billion.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Eligible asset means any asset of the U.S. branch or U.S. agency 
held in the United States that is recorded on the general ledger of a 
U.S. branch or U.S. agency of the foreign banking organization (reduced 
by the amount of any specifically allocated reserves held in the United 
States and recorded on the general ledger of the U.S. branch or U.S. 
agency in connection with such assets), subject to the following 
exclusions and, for purposes of this definition, as modified by the 
rules of valuation set forth in paragraph (a)(1)(ii) of this section.
    (i) The following assets do not qualify as eligible assets:
    (A) Equity securities;
    (B) Any assets classified as loss at the preceding examination by a 
regulatory agency, outside accountant, or the bank's internal loan 
review staff;
    (C) Accrued income on assets classified loss, doubtful, substandard 
or value impaired, at the preceding examination by a regulatory agency, 
outside accountant, or the bank's internal loan review staff;
    (D) Any amounts due from the home office, other offices and 
affiliates, including income accrued but uncollected on such amounts;
    (E) The balance from time to time of any other asset or asset 
category disallowed at the preceding examination or by direction of the 
Board for any other reason until the underlying reasons for the 
disallowance have been removed;
    (F) Prepaid expenses and unamortized costs, furniture and fixtures 
and leasehold improvements; and
    (G) Any other asset that the Board determines should not qualify as 
an eligible asset.
    (ii) The following rules of valuation apply:
    (A) A marketable debt security is valued at its principal amount or 
market value, whichever is lower;
    (B) An asset classified doubtful or substandard at the preceding 
examination by a regulatory agency, outside accountant, or the bank's 
internal loan review staff, is valued at 50 percent and 80 percent, 
respectively;
    (C) With respect to an asset classified value impaired, the amount 
representing the allocated transfer risk reserve that would be required 
for such exposure at a domestically chartered bank is valued at 0 and 
the residual exposure is valued at 80 percent; and
    (D) Real estate located in the United States and carried on the 
accounting records as an asset are valued at net book value or appraised 
value, whichever is less.

[[Page 425]]

    (2) Liabilities of all U.S. branches and agencies of a foreign 
banking organization means all liabilities of all U.S. branches and 
agencies of the foreign banking organization, including acceptances and 
any other liabilities (including contingent liabilities), but excluding:
    (i) Amounts due to and other liabilities to other offices, agencies, 
branches and affiliates of such foreign banking organization, including 
its head office, including unremitted profits; and
    (ii) Reserves for possible loan losses and other contingencies.
    (3) Pre-provision net revenue means revenue less expenses before 
adjusting for total loan loss provisions.
    (4) Stress test cycle has the same meaning as in subpart F of this 
part.
    (5) Total loan loss provisions means the amount needed to make 
reserves adequate to absorb estimated credit losses, based upon 
management's evaluation of the loans and leases that the company has the 
intent and ability to hold for the foreseeable future or until maturity 
or payoff, as determined under applicable accounting standards.
    (b) In general. (1) A foreign banking organization with total 
consolidated assets of more than $50 billion and combined U.S. assets of 
less than $50 billion must:
    (i) Be subject on a consolidated basis to a capital stress testing 
regime by its home-country supervisor that meets the requirements of 
paragraph (b)(2) of this section; and
    (ii) Conduct such stress tests or be subject to a supervisory stress 
test and meet any minimum standards set by its home-country supervisor 
with respect to the stress tests.
    (2) The capital stress testing regime of a foreign banking 
organization's home-country supervisor must include:
    (i) An annual supervisory capital stress test conducted by the 
foreign banking organization's home-country supervisor or an annual 
evaluation and review by the foreign banking organization's home-country 
supervisor of an internal capital adequacy stress test conducted by the 
foreign banking organization; and
    (ii) Requirements for governance and controls of stress testing 
practices by relevant management and the board of directors (or 
equivalent thereof) of the foreign banking organization;
    (c) Additional standards. (1) Unless the Board otherwise determines 
in writing, a foreign banking organization that does not meet each of 
the requirements in paragraphs (b)(1) and (2) of this section must:
    (i) Maintain eligible assets in its U.S. branches and agencies that, 
on a daily basis, are not less than 105 percent of the average value 
over each day of the previous calendar quarter of the total liabilities 
of all branches and agencies operated by the foreign banking 
organization in the United States;
    (ii) Conduct an annual stress test of its U.S. subsidiaries to 
determine whether those subsidiaries have the capital necessary to 
absorb losses as a result of adverse economic conditions; and
    (iii) Report on an annual basis a summary of the results of the 
stress test to the Board that includes a description of the types of 
risks included in the stress test, a description of the conditions or 
scenarios used in the stress test, a summary description of the 
methodologies used in the stress test, estimates of aggregate losses, 
pre-provision net revenue, total loan loss provisions, net income before 
taxes and pro forma regulatory capital ratios required to be computed by 
the home-country supervisor of the foreign banking organization and any 
other relevant capital ratios, and an explanation of the most 
significant causes for any changes in regulatory capital ratios.
    (2) An enterprise-wide stress test that is approved by the Board may 
meet the stress test requirement of paragraph (c)(1)(ii) of this 
section.



      Subpart O_Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $50 Billion or More and 
               Combined U.S. Assets of $50 Billion or More

    Source: Reg. YY, 79 FR 17326, Mar. 27, 2014, unless otherwise noted.

[[Page 426]]



Sec. 252.150  Scope.

    (a) This subpart applies to foreign banking organizations with total 
consolidated assets of $50 billion or more and combined U.S. assets of 
$50 billion or more. Foreign banking organizations with combined U.S. 
assets of $50 billion or more and U.S. non-branch assets of $50 billion 
or more are also subject to the U.S. intermediate holding company 
requirement contained in Sec. 252.153.
    (b) Total consolidated assets of a foreign banking organization are 
equal to the consolidated assets of the foreign banking organization. 
Combined U.S. assets of a foreign banking organization are equal to the 
sum of the consolidated assets of each top-tier U.S. subsidiary of the 
foreign banking organization (excluding any section 2(h)(2) company, if 
applicable) and the total assets of each U.S. branch and U.S. agency of 
the foreign banking organization. U.S. non-branch assets are equal to 
the sum of the consolidated assets of each top-tier U.S. subsidiary of 
the foreign banking organization (excluding any section 2(h)(2) company 
and DPC branch subsidiary, if applicable).



Sec. 252.151  [Reserved]



Sec. 252.152  Applicability.

    (a) General applicability. Subject to the initial applicability 
provisions in paragraph (c) of this section, a foreign banking 
organization must:
    (1) Comply with the requirements of this subpart (other than the 
U.S. intermediate holding company requirement set forth in Sec. 252.153) 
beginning on the first day of the ninth quarter following the date on 
which its combined U.S. assets equal or exceed $50 billion; and
    (2) Comply with the U.S. intermediate holding company requirement 
set forth in Sec. 252.153 beginning on the first day of the ninth 
quarter following the date on which its U.S. non-branch assets equal or 
exceed $50 billion.
    (b) Asset measures--(1) Combined U.S. assets. Combined U.S. assets 
of a foreign banking organization are equal to the sum of the 
consolidated assets of each top-tier U.S. subsidiary of the foreign 
banking organization (excluding any section 2(h)(2) company, if 
applicable) and the total assets of each U.S. branch and U.S. agency of 
the foreign banking organization. For purposes of this subpart, 
``combined U.S. assets'' are calculated as the average of the total 
combined assets of U.S. operations for the four most recent consecutive 
quarters as reported by the foreign banking organization on the FR Y-7Q, 
or, if the foreign banking organization has not reported this 
information on the FR Y-7Q for each of the four most recent consecutive 
quarters, the average of the combined U.S. assets for the most recent 
quarter or consecutive quarters as reported on the FR Y-7Q. Combined 
U.S. assets are measured on the as-of date of the most recent FR Y-7Q 
used in the calculation of the average.
    (2) U.S. non-branch assets. U.S. non-branch assets are equal to the 
sum of the consolidated assets of each top-tier U.S. subsidiary of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary, if applicable).
    (i) For purposes of this subpart, U.S. non-branch assets of a 
foreign banking organization are calculated as the average of the sum of 
the total consolidated assets of the top-tier U.S. subsidiaries of the 
foreign banking organization (excluding any section 2(h)(2) company and 
DPC branch subsidiary) for the four most recent consecutive quarters, as 
reported to the Board on the FR Y-7Q, or, if the foreign banking 
organization has not reported this information on the FR Y-7Q for each 
of the four most recent consecutive quarters, the average for the most 
recent quarter or consecutive quarters as reported on the FR Y-7Q.
    (ii) In calculating U.S. non-branch assets, a foreign banking 
organization must reduce its U.S. non-branch assets calculated under 
this paragraph by the amount corresponding to balances and transactions 
between a top-tier U.S. subsidiary and any other top-tier U.S. 
subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to 
the extent such items are not already eliminated in consolidation.
    (iii) U.S. non-branch assets are measured on the as-of date of the 
most recent FR Y-7Q used in the calculation of the average.

[[Page 427]]

    (c) Initial applicability. (1) A foreign banking organization that, 
as of June 30, 2015, has combined U.S. assets of $50 billion or more 
must comply with the requirements of this subpart, as applicable, 
beginning on July 1, 2016.
    (2) A foreign banking organization that, as of June 30, 2015, has 
U.S. non-branch assets of $50 billion or more must comply with the 
requirements of this subpart beginning on July 1, 2016. In addition, the 
foreign banking organization must:
    (i) By July 1, 2016, establish a U.S. intermediate holding company 
and transfer its entire ownership interest in any bank holding company 
subsidiary (if not designated as its U.S. intermediate holding company), 
any insured depository institution subsidiary, and U.S. subsidiaries 
holding at least 90 percent of its U.S. non-branch assets not owned by 
such subsidiary bank holding company or insured depository institution 
subsidiary, if any, as such assets are measured as of June 30, 2015, to 
the U.S. intermediate holding company; and
    (ii) By July 1, 2017, hold its ownership interest in all U.S. 
subsidiaries (other than section 2(h)(2) companies and DPC branch 
subsidiaries) through its U.S. intermediate holding company.
    (d) Cessation of requirements--(1) Enhanced prudential standards 
applicable to the foreign banking organization. Subject to paragraph 
(d)(2) of this section, a foreign banking organization will remain 
subject to the applicable requirements of this subpart until its 
reported combined U.S. assets on the FR Y-7Q are below $50 billion for 
each of four consecutive calendar quarters.
    (2) Intermediate holding company requirement. A foreign banking 
organization will remain subject to the U.S. intermediate holding 
company requirement set forth in Sec. 252.153 until the sum of the total 
consolidated assets of the top-tier U.S. subsidiaries of the foreign 
banking organization (excluding any section 2(h)(2) company and DPC 
branch subsidiary) is below $50 billion for each of four consecutive 
calendar quarters.



Sec. 252.153  U.S. intermediate holding company requirement for foreign 
banking organizations with U.S. non-branch assets of $50 billion or more.

    (a) Requirement to form a U.S. intermediate holding company. (1) A 
foreign banking organization with U.S. non-branch assets of $50 billion 
or more must establish a U.S. intermediate holding company, or designate 
an existing subsidiary that meets the requirements of paragraph (a)(2) 
of this section, as its U.S. intermediate holding company.
    (2) The U.S. intermediate holding company must be:
    (i) Organized under the laws of the United States, any one of the 
fifty states of the United States, or the District of Columbia; and
    (ii) Be governed by a board of directors or managers that is elected 
or appointed by the owners and that operates in an equivalent manner, 
and has equivalent rights, powers, privileges, duties, and 
responsibilities, to a board of directors of a company chartered as a 
corporation under the laws of the United States, any one of the fifty 
states of the United States, or the District of Columbia.
    (3) Notice. Within 30 days of establishing or designating a U.S. 
intermediate holding company under this section, a foreign banking 
organization must provide to the Board:
    (i) A description of the U.S. intermediate holding company, 
including its name, location, corporate form, and organizational 
structure;
    (ii) A certification that the U.S. intermediate holding company 
meets the requirements of this subpart; and
    (iii) Any other information that the Board determines is 
appropriate.
    (b) Holdings and regulation of the U.S. intermediate holding 
company--(1) General. Subject to paragraph (c) of this section, a 
foreign banking organization that is required to form a U.S. 
intermediate holding company under paragraph (a) of this section must 
hold its entire ownership interest in any U.S. subsidiary (excluding 
each section 2(h)(2) company or DPC branch subsidiary, if any) through 
its U.S. intermediate holding company.

[[Page 428]]

    (2) Reporting. Each U.S. intermediate holding company shall submit 
information in the manner and form prescribed by the Board.
    (3) Examinations and inspections. The Board may examine or inspect 
any U.S. intermediate holding company and each of its subsidiaries and 
prepare a report of their operations and activities.
    (c) Alternative organizational structure--(1) General. Upon a 
written request by a foreign banking organization, the Board may permit 
the foreign banking organization: to establish or designate multiple 
U.S. intermediate holding companies; use an alternative organizational 
structure to hold its combined U.S. operations; or not transfer its 
ownership interests in certain subsidiaries to its U.S. intermediate 
holding company.
    (2) Factors. In making a determination under paragraph (c)(1) of 
this section, the Board may consider whether applicable law would 
prohibit the foreign banking organization from owning or controlling one 
or more of its U.S. subsidiaries through a single U.S. intermediate 
holding company, or whether circumstances otherwise warrant an exception 
based on the foreign banking organization's activities, scope of 
operations, structure, or similar considerations.
    (3) Request. A request under this section to establish or designate 
multiple U.S. intermediate holding companies must be submitted to the 
Board 180 days before the foreign banking organization must form a U.S. 
intermediate holding company. A request not to transfer any ownership 
interest in a subsidiary must be submitted to the Board either 180 days 
before the foreign banking organization acquires the ownership interest 
in such U.S. subsidiary, or in a shorter period of time if permitted by 
the Board. The request must include a description of why the request 
should be granted and any other information the Board may require.
    (4) Conditions. (i) The Board may grant relief under this section 
upon such conditions as the Board deems appropriate, including, but not 
limited to, requiring the U.S. operations of the relevant foreign 
banking organization to comply with additional enhanced prudential 
standards, or requiring such foreign banking organization to enter into 
supervisory agreements governing such alternative organizational 
structure.
    (ii) If the Board permits a foreign banking organization to form two 
or more U.S. intermediate holding companies under this section and one 
or more of those U.S. intermediate holding companies does not meet an 
asset threshold governing applicability of any section of this subpart, 
such U.S. intermediate holding company shall be required to comply with 
those subparts as though it met or exceeded the applicable thresholds.
    (iii) The Board may modify the application of any section of this 
subpart to a foreign banking organization that is required to form a 
U.S. intermediate holding company or to such U.S. intermediate holding 
company if appropriate to accommodate the organizational structure of 
the foreign banking organization or characteristics specific to such 
foreign banking organization and such modification is appropriate and 
consistent with the capital structure, size, complexity, risk profile, 
scope of operations, or financial condition of each U.S. intermediate 
holding company, safety and soundness, and the financial stability 
mandate of section 165 of the Dodd-Frank Act.
    (d) Implementation plan--(1) General. A foreign banking organization 
must, by January 1, 2015, submit an implementation plan to the Board, if 
the sum of the total consolidated assets of the U.S. subsidiaries of the 
foreign banking organization, in aggregate, exceed $50 billion as of 
June 30, 2014 (excluding any section 2(h)(2) company and DPC branch 
subsidiary and reduced by amounts corresponding to balances and 
transactions between a top-tier U.S. subsidiary and any other top-tier 
U.S. subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) 
to the extent such items are not already eliminated in consolidation). 
The Board may accelerate or extend the date by which the implementation 
plan must be filed.
    (2) Mandatory elements of implementation plan. An implementation 
plan must contain:

[[Page 429]]

    (i) A list of all U.S. subsidiaries controlled by the foreign 
banking organization setting forth the ownership interest in each 
subsidiary and an organizational chart showing the ownership hierarchy;
    (ii) For each U.S. subsidiary that is a section 2(h)(2) company or a 
DPC branch subsidiary, the name, asset size, and a description of why 
the U.S. subsidiary qualifies as a section 2(h)(2) or a DPC branch 
subsidiary;
    (iii) For each U.S. subsidiary for which the foreign banking 
organization expects to request an exemption from the requirement to 
transfer all or a portion of its ownership interest in the subsidiary to 
the U.S. intermediate holding company, the name, asset size, and a 
description of the reasons why the foreign banking organization intends 
to request that the Board grant it an exemption from the U.S. 
intermediate holding company requirement;
    (iv) A projected timeline for the transfer by the foreign banking 
organization of its ownership interest in U.S. subsidiaries to the U.S. 
intermediate holding company, and quarterly pro forma financial 
statements for the U.S. intermediate holding company, including pro 
forma regulatory capital ratios, for the period from December 31, 2015 
to January 1, 2018;
    (v) A projected timeline for, and description of, all planned 
capital actions or strategies for capital accretion that will facilitate 
the U.S. intermediate holding company's compliance with the risk-based 
and leverage capital requirements set forth in paragraph (e)(2) of this 
section;
    (vi) A description of the risk-management practices of the combined 
U.S. operations of the foreign banking organization and a description of 
how the foreign banking organization and U.S. intermediate holding 
company will come into compliance with Sec. 252.155; and
    (vii) A description of the current liquidity stress testing 
practices of the U.S. operations of the foreign banking organization and 
a description of how the foreign banking organization and U.S. 
intermediate holding company will come into compliance with 
Secs. 252.156 and 252.157.
    (3) If a foreign banking organization plans to reduce its U.S. non-
branch assets below $50 billion for four consecutive quarters prior to 
July 1, 2016, the foreign banking organization may submit a plan that 
describes how it intends to reduce its U.S. non-branch assets below $50 
billion and any other information the Board determines is appropriate, 
instead of the information described in paragraph (d)(2) of this 
section.
    (4) The Board may require a foreign banking organization that meets 
or exceeds the threshold for application of this section after June 30, 
2014 to submit an implementation plan containing the information 
described in paragraph (d)(2) of this section if the Board determines 
that an implementation plan is appropriate.
    (e) Enhanced prudential standards for U.S. intermediate holding 
companies--(1) Applicability--(i) Ongoing application. Subject to the 
initial applicability provisions in paragraph (e)(1)(ii) of this 
section, a U.S. intermediate holding company must comply with the 
capital, risk management, and liquidity requirements set forth in 
paragraphs (e)(2)(i), (e)(3), and (e)(4) of this section beginning on 
the date it is required to be established, comply with the capital plan 
requirements set forth in paragraph (e)(2)(ii) of this section in 
accordance with Sec. 225.8(c)(2) of the Board's Regulation Y (12 CFR 
225.8(c)(2)), and comply with the stress test requirements set forth in 
paragraph (e)(5) beginning with the stress test cycle the calendar year 
following that in which it becomes subject to regulatory capital 
requirements.
    (ii) Initial applicability--(A) General. A U.S. intermediate holding 
company required to be established by July 1, 2016 must comply with the 
risk-based capital, risk management, and liquidity requirements set 
forth in paragraphs (e)(2)(i), (e)(3), and (e)(4) of this section 
beginning on July 1, 2016, and comply with the capital planning 
requirements set forth in (e)(2)(ii) of this section in accordance with 
Sec. 225.8(c)(2) of the Board's Regulation Y (12 CFR 225.8(c)(2)).
    (B) Transition provisions for leverage. (1) A U.S. intermediate 
holding company required to be established by July

[[Page 430]]

1, 2016 must comply with the leverage capital requirements set forth in 
paragraph (e)(2)(i) of this section beginning on January 1, 2018, 
provided that each subsidiary bank holding company and insured 
depository institution controlled by the foreign banking organization 
immediately prior to the establishment or designation of the U.S. 
intermediate holding company, and each bank holding company and insured 
depository institution acquired by the foreign banking organization 
after establishment of the intermediate holding company, is subject to 
leverage capital requirements under 12 CFR part 217 until December 31, 
2017.
    (2) The Board may accelerate the application of the leverage ratio 
to a U.S. intermediate holding company if it determines that the foreign 
banking organization has taken actions to evade the application of this 
subpart.
    (C) Transition provisions for stress testing. A U.S. intermediate 
holding company required to be established by July 1, 2016 must comply 
with the stress test requirements set forth in paragraph (e)(5) of this 
section beginning on January 1, 2018, provided that each subsidiary bank 
holding company and insured depository institution controlled by the 
foreign banking organization immediately prior to the establishment or 
designation of the U.S. intermediate holding company, and each bank 
holding company and insured depository institution acquired by the 
foreign banking organization after establishment of the intermediate 
holding company, must comply with the stress test requirements in 
subparts B, E, or F of this subpart, as applicable, until December 31, 
2017.
    (2) Capital requirements for a U.S. intermediate holding company--
(i) Risk-based capital and leverage requirements. (A) A U.S. 
intermediate holding company must calculate and meet all applicable 
capital adequacy standards set forth in 12 CFR part 217, other than 
subpart E of 12 CFR part 217, and comply with all restrictions 
associated with applicable capital buffers, in the same manner as a bank 
holding company.
    (B) A U.S. intermediate holding company may choose to comply with 
subpart E of 12 CFR part 217.
    (C) Notwithstanding 12 CFR 217.100(b), if a bank holding company is 
a subsidiary of a foreign banking organization that is subject to this 
section and the bank holding company is subject to subpart E of 12 CFR 
part 217, the bank holding company, with the Board's prior written 
approval, may elect not to comply with subpart E of 12 CFR part 217.
    (ii) Capital planning. A U.S. intermediate holding company must 
comply with Sec. 225.8 of Regulation Y in the same manner as a bank 
holding company.
    (3) Risk management and risk committee requirements--(i) General. A 
U.S. intermediate holding company must establish and maintain a risk 
committee that approves and periodically reviews the risk management 
policies and oversees the risk-management framework of the U.S. 
intermediate holding company. The risk committee must be a committee of 
the board of directors of the U.S. intermediate holding company (or 
equivalent thereof). The risk committee may also serve as the U.S. risk 
committee for the combined U.S. operations required pursuant to 
Sec. 252.155(a).
    (ii) Risk-management framework. The U.S. intermediate holding 
company's risk-management framework must be commensurate with the 
structure, risk profile, complexity, activities, and size of the U.S. 
intermediate holding company and consistent with the risk management 
policies for the combined U.S. operations of the foreign banking 
organization. The framework must include:
    (A) Policies and procedures establishing risk-management governance, 
risk-management procedures, and risk-control infrastructure for the U.S. 
intermediate holding company; and
    (B) Processes and systems for implementing and monitoring compliance 
with such policies and procedures, including:
    (1) Processes and systems for identifying and reporting risks and 
risk-management deficiencies at the U.S. intermediate holding company, 
including regarding emerging risks and ensuring effective and timely 
implementation of actions to address emerging risks and risk-management 
deficiencies;
    (2) Processes and systems for establishing managerial and employee 
responsibility for risk management of

[[Page 431]]

the U.S. intermediate holding company;
    (3) Processes and systems for ensuring the independence of the risk-
management function of the U.S. intermediate holding company; and
    (4) Processes and systems to integrate risk management and 
associated controls with management goals and the compensation structure 
of the U.S. intermediate holding company.
    (iii) Corporate governance requirements. The risk committee of the 
U.S. intermediate holding company must meet at least quarterly and 
otherwise as needed, and must fully document and maintain records of its 
proceedings, including risk-management decisions.
    (iv) Minimum member requirements. The risk committee must:
    (A) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (B) Have at least one member who:
    (1) Is not an officer or employee of the foreign banking 
organization or its affiliates and has not been an officer or employee 
of the foreign banking organization or its affiliates during the 
previous three years; and
    (2) Is not a member of the immediate family, as defined in 
Sec. 225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of 
a person who is, or has been within the last three years, an executive 
officer, as defined in Sec. 215.2(e)(1) of the Board's Regulation O (12 
CFR 215.2(e)(1)) of the foreign banking organization or its affiliates.
    (v) The U.S. intermediate holding company must take appropriate 
measures to ensure that it implements the risk management policies for 
the U.S. intermediate holding company and it provides sufficient 
information to the U.S. risk committee to enable the U.S. risk committee 
to carry out the responsibilities of this subpart.
    (4) Liquidity requirements. A U.S. intermediate holding company must 
comply with the liquidity risk-management requirements in Sec. 252.156 
and conduct liquidity stress tests and hold a liquidity buffer pursuant 
to Sec. 252.157.
    (5) Stress test requirements. A U.S. intermediate holding company 
must comply with the requirements of subparts E and F of this part in 
the same manner as a bank holding company.

[Reg. YY, 79 FR 17326, Mar. 27, 2014, as amended at 79 FR 64055, Oct. 
27, 2014; 80 FR 70673, Nov. 16, 2015]



Sec. 252.154  Risk-based and leverage capital requirements for foreign 
banking organizations with combined U.S. assets of $50 billion or more.

    (a) General requirements. (1) A foreign banking organization with 
combined U.S. assets of $50 billion or more must certify to the Board 
that it meets capital adequacy standards on a consolidated basis 
established by its home-country supervisor that are consistent with the 
regulatory capital framework published by the Basel Committee on Banking 
Supervision, as amended from time to time (Basel Capital Framework).
    (i) For purposes of this paragraph, home-country capital adequacy 
standards that are consistent with the Basel Capital Framework include 
all minimum risk-based capital ratios, any minimum leverage ratio, and 
all restrictions based on any applicable capital buffers set forth in 
``Basel III: A global regulatory framework for more resilient banks and 
banking systems'' (2010) (Basel III Accord), each as applicable and as 
implemented in accordance with the Basel III Accord, including any 
transitional provisions set forth therein.
    (ii) [Reserved]
    (2) In the event that a home-country supervisor has not established 
capital adequacy standards that are consistent with the Basel Capital 
Framework, the foreign banking organization must demonstrate to the 
satisfaction of the Board that it would meet or exceed capital adequacy 
standards at the consolidated level that are consistent with the Basel 
Capital Framework were it subject to such standards.
    (b) Reporting. A foreign banking organization with combined U.S. 
assets of $50 billion or more must provide to the Board reports relating 
to its compliance with the capital adequacy measures described in 
paragraph (a) of this section concurrently with filing the FR Y-7Q.

[[Page 432]]

    (c) Noncompliance with the Basel Capital Framework. If a foreign 
banking organization does not satisfy the requirements of this section, 
the Board may impose requirements, conditions, or restrictions relating 
to the activities or business operations of the U.S. operations of the 
foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions. If the Board determines to 
impose one or more requirements, conditions, or restrictions under this 
paragraph, the Board will notify the company before it applies any 
requirement, condition or restriction, and describe the basis for 
imposing such requirement, condition, or restriction. Within 14 calendar 
days of receipt of a notification under this paragraph, the company may 
request in writing that the Board reconsider the requirement, condition, 
or restriction. The Board will respond in writing to the company's 
request for reconsideration prior to applying the requirement, 
condition, or restriction.



Sec. 252.155  Risk-management and risk-committee requirements for foreign
banking organizations with combined U.S. assets of $50 billion or more.

    (a) U.S. risk committee--(1) General. Each foreign banking 
organization with combined U.S. assets of $50 billion or more must 
maintain a U.S. risk committee that approves and periodically reviews 
the risk management policies of the combined U.S. operations of the 
foreign banking organization and oversees the risk-management framework 
of such combined U.S. operations. The U.S. risk committee's 
responsibilities include the liquidity risk-management responsibilities 
set forth in Sec. 252.156(a).
    (2) Risk-management framework. The foreign banking organization's 
risk-management framework for its combined U.S. operations must be 
commensurate with the structure, risk profile, complexity, activities, 
and size of its combined U.S. operations and consistent with its 
enterprise-wide risk management policies. The framework must include:
    (i) Policies and procedures establishing risk-management governance, 
risk-management procedures, and risk-control infrastructure for the 
combined U.S. operations of the foreign banking organization; and
    (ii) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (A) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, on a 
combined U.S. operations basis and ensuring effective and timely 
implementation of actions to address emerging risks and risk-management 
deficiencies;
    (B) Processes and systems for establishing managerial and employee 
responsibility for risk management of the combined U.S. operations;
    (C) Processes and systems for ensuring the independence of the risk-
management function of the combined U.S. operations; and
    (D) Processes and systems to integrate risk management and 
associated controls with management goals and the compensation structure 
of the combined U.S. operations.
    (3) Placement of the U.S. risk committee. (i) A foreign banking 
organization that conducts its operations in the United States solely 
through a U.S. intermediate holding company must maintain its U.S. risk 
committee as a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof).
    (ii) A foreign banking organization that conducts its operations 
through U.S. branches or U.S. agencies (in addition to through its U.S. 
intermediate holding company, if any) may maintain its U.S. risk 
committee either:
    (A) As a committee of the global board of directors (or equivalent 
thereof), on a standalone basis or as a joint committee with its 
enterprise-wide risk committee (or equivalent thereof); or
    (B) As a committee of the board of directors of its U.S. 
intermediate holding company (or equivalent thereof), on a standalone 
basis or as a joint committee with the risk committee of its U.S. 
intermediate holding company required pursuant to Sec. 252.153(e)(3).
    (4) Corporate governance requirements. The U.S. risk committee must 
meet at

[[Page 433]]

least quarterly and otherwise as needed, and must fully document and 
maintain records of its proceedings, including risk-management 
decisions.
    (5) Minimum member requirements. The U.S. risk committee must:
    (i) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (ii) Have at least one member who:
    (A) Is not an officer or employee of the foreign banking 
organization or its affiliates and has not been an officer or employee 
of the foreign banking organization or its affiliates during the 
previous three years; and
    (B) Is not a member of the immediate family, as defined in 
Sec. 225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of 
a person who is, or has been within the last three years, an executive 
officer, as defined in Sec. 215.2(e)(1) of the Board's Regulation O (12 
CFR 215.2(e)(1)) of the foreign banking organization or its affiliates.
    (b) U.S. chief risk officer--(1) General. A foreign banking 
organization with combined U.S. assets of $50 billion or more or its 
U.S. intermediate holding company, if any, must appoint a U.S. chief 
risk officer with experience in identifying, assessing, and managing 
risk exposures of large, complex financial firms.
    (2) Responsibilities. (i) The U.S. chief risk officer is responsible 
for overseeing:
    (A) The measurement, aggregation, and monitoring of risks undertaken 
by the combined U.S. operations;
    (B) The implementation of and ongoing compliance with the policies 
and procedures for the foreign banking organization's combined U.S. 
operations set forth in paragraph (a)(2)(i) of this section and the 
development and implementation of processes and systems set forth in 
paragraph (a)(2)(ii) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the risk-control framework for the combined U.S. operations, and the 
monitoring and testing of such risk controls.
    (ii) The U.S. chief risk officer is responsible for reporting risks 
and risk-management deficiencies of the combined U.S. operations, and 
resolving such risk-management deficiencies in a timely manner.
    (3) Corporate governance and reporting. The U.S. chief risk officer 
must:
    (i) Receive compensation and other incentives consistent with 
providing an objective assessment of the risks taken by the combined 
U.S. operations of the foreign banking organization;
    (ii) Be employed by and located in the U.S. branch, U.S. agency, 
U.S. intermediate holding company, if any, or another U.S. subsidiary;
    (iii) Report directly to the U.S. risk committee and the global 
chief risk officer or equivalent management official (or officials) of 
the foreign banking organization who is responsible for overseeing, on 
an enterprise-wide basis, the implementation of and compliance with 
policies and procedures relating to risk-management governance, 
practices, and risk controls of the foreign banking organization, unless 
the Board approves an alternative reporting structure based on 
circumstances specific to the foreign banking organization;
    (iv) Regularly provide information to the U.S. risk committee, 
global chief risk officer, and the Board regarding the nature of and 
changes to material risks undertaken by the foreign banking 
organization's combined U.S. operations, including risk-management 
deficiencies and emerging risks, and how such risks relate to the global 
operations of the foreign banking organization; and
    (v) Meet regularly and as needed with the Board to assess compliance 
with the requirements of this section.
    (4) Liquidity risk-management requirements. The U.S. chief risk 
officer must undertake the liquidity risk-management responsibilities 
set forth in Sec. 252.156(b).
    (c) Responsibilities of the foreign banking organization. The 
foreign banking organization must take appropriate measures to ensure 
that its combined U.S. operations implement the risk management policies 
overseen by the U.S. risk committee described in paragraph (a) of this 
section, and its combined U.S. operations provide sufficient information 
to the U.S. risk committee to enable the U.S. risk committee to

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carry out the responsibilities of this subpart.
    (d) Noncompliance with this section. If a foreign banking 
organization does not satisfy the requirements of this section, the 
Board may impose requirements, conditions, or restrictions relating to 
the activities or business operations of the combined U.S. operations of 
the foreign banking organization. The Board will coordinate with any 
relevant State or Federal regulator in the implementation of such 
requirements, conditions, or restrictions.



Sec. 252.156  Liquidity risk-management requirements for foreign banking 
organizations with combined U.S. assets of $50 billion or more.

    (a) Responsibilities of the U.S. risk committee. (1) The U.S. risk 
committee established by a foreign banking organization pursuant to 
Sec. 252.155(a) (or a designated subcommittee of such committee composed 
of members of the board of directors (or equivalent thereof) of the U.S. 
intermediate holding company or the foreign banking organization, as 
appropriate) must:
    (i) Approve at least annually the acceptable level of liquidity risk 
that the foreign banking organization may assume in connection with the 
operating strategies for its combined U.S. operations (liquidity risk 
tolerance), with concurrence from the foreign banking organization's 
board of directors or its enterprise-wide risk committee, taking into 
account the capital structure, risk profile, complexity, activities, 
size of the foreign banking organization and its combined U.S. 
operations and the enterprise-wide liquidity risk tolerance of the 
foreign banking organization; and
    (ii) Receive and review information provided by the senior 
management of the combined U.S. operations at least semi-annually to 
determine whether the combined U.S. operations are operating in 
accordance with the established liquidity risk tolerance and to ensure 
that the liquidity risk tolerance for the combined U.S. operations is 
consistent with the enterprise-wide liquidity risk tolerance established 
for the foreign banking organization.
    (iii) Approve the contingency funding plan for the combined U.S. 
operations described in paragraph (e) of this section at least annually 
and whenever the foreign banking organization revises its contingency 
funding plan, and approve any material revisions to the contingency 
funding plan for the combined U.S. operations prior to the 
implementation of such revisions.
    (b) Responsibilities of the U.S. chief risk officer--(1) Liquidity 
risk. The U.S. chief risk officer of a foreign banking organization with 
combined U.S. assets of $50 billion or more must review the strategies 
and policies and procedures established by senior management of the U.S. 
operations for managing the risk that the financial condition or safety 
and soundness of the foreign banking organization's combined U.S. 
operations would be adversely affected by its inability or the market's 
perception of its inability to meet its cash and collateral obligations 
(liquidity risk).
    (2) Liquidity risk tolerance. The U.S. chief risk officer of a 
foreign banking organization with combined U.S. assets of $50 billion or 
more must review information provided by the senior management of the 
U.S. operations to determine whether the combined U.S. operations are 
operating in accordance with the established liquidity risk tolerance. 
The U.S. chief risk officer must regularly, and, at least semi-annually, 
report to the foreign banking organization's U.S. risk committee and 
enterprise-wide risk committee, or the equivalent thereof (if any) (or a 
designated subcommittee of such committee composed of members of the 
relevant board of directors (or equivalent thereof)) on the liquidity 
risk profile of the foreign banking organization's combined U.S. 
operations and whether it is operating in accordance with the 
established liquidity risk tolerance for the U.S. operations, and must 
establish procedures governing the content of such reports.
    (3) Business lines or products. (i) The U.S. chief risk officer of a 
foreign banking organization with combined U.S. assets of $50 billion or 
more must approve new products and business lines and evaluate the 
liquidity costs, benefits, and risks of each new business line and each 
new product offered, managed or sold through the foreign

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banking organization's combined U.S. operations that could have a 
significant effect on the liquidity risk profile of the U.S. operations 
of the foreign banking organization. The approval is required before the 
foreign banking organization implements the business line or offers the 
product through its combined U.S. operations. In determining whether to 
approve the new business line or product, the U.S. chief risk officer 
must consider whether the liquidity risk of the new business line or 
product (under both current and stressed conditions) is within the 
foreign banking organization's established liquidity risk tolerance for 
its combined U.S. operations.
    (ii) The U.S. risk committee must review at least annually 
significant business lines and products offered, managed or sold through 
the combined U.S. operations to determine whether each business line or 
product creates or has created any unanticipated liquidity risk, and to 
determine whether the liquidity risk of each strategy or product is 
within the foreign banking organization's established liquidity risk 
tolerance for its combined U.S. operations.
    (4) Cash-flow projections. The U.S. chief risk officer of a foreign 
banking organization with combined U.S. assets of $50 billion or more 
must review the cash-flow projections produced under paragraph (d) of 
this section at least quarterly (or more often, if changes in market 
conditions or the liquidity position, risk profile, or financial 
condition of the foreign banking organization or the U.S. operations 
warrant) to ensure that the liquidity risk of the foreign banking 
organization's combined U.S. operations is within the established 
liquidity risk tolerance.
    (5) Liquidity risk limits. The U.S. chief risk officer of a foreign 
banking organization with combined U.S. assets of $50 billion or more 
must establish liquidity risk limits as set forth in paragraph (f) of 
this section and review the foreign banking organization's compliance 
with those limits at least quarterly (or more often, if changes in 
market conditions or the liquidity position, risk profile, or financial 
condition of the U.S. operations of the foreign banking organization 
warrant).
    (6) Liquidity stress testing. The U.S. chief risk officer of a 
foreign banking organization with combined U.S. assets of $50 billion or 
more must:
    (i) Approve the liquidity stress testing practices, methodologies, 
and assumptions required in Sec. 252.157(a) at least quarterly, and 
whenever the foreign banking organization materially revises its 
liquidity stress testing practices, methodologies or assumptions;
    (ii) Review the liquidity stress testing results produced under 
Sec. 252.157(a) of this subpart at least quarterly; and
    (iii) Approve the size and composition of the liquidity buffer 
established under Sec. 252.157(c) of this subpart at least quarterly.
    (c) Independent review function. (1) A foreign banking organization 
with combined U.S. assets of $50 billion or more must establish and 
maintain a review function that is independent of the management 
functions that execute funding for its combined U.S. operations to 
evaluate the liquidity risk management for its combined U.S. operations.
    (2) The independent review function must:
    (i) Regularly, but no less frequently than annually, review and 
evaluate the adequacy and effectiveness of the foreign banking 
organization's liquidity risk management processes within the combined 
U.S. operations, including its liquidity stress test processes and 
assumptions;
    (ii) Assess whether the foreign banking organization's liquidity 
risk management function of its combined U.S. operations complies with 
applicable laws, regulations, supervisory guidance, and sound business 
practices; and
    (iii) Report material liquidity risk management issues to the U.S. 
risk committee and the enterprise-wide risk committee in writing for 
corrective action, to the extent permitted by applicable law.
    (d) Cash-flow projections. (1) A foreign banking organization with 
combined U.S. assets of $50 billion or more must produce comprehensive 
cash-flow projections for its combined U.S. operations that project cash 
flows arising from assets, liabilities, and off-balance sheet exposures 
over, at a minimum, short- and long-term time horizons.

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The foreign banking organization must update short-term cash-flow 
projections daily and must update longer-term cash-flow projections at 
least monthly.
    (2) The foreign banking organization must establish a methodology 
for making cash-flow projections for its combined U.S. operations that 
results in projections which:
    (i) Include cash flows arising from contractual maturities, 
intercompany transactions, new business, funding renewals, customer 
options, and other potential events that may impact liquidity;
    (ii) Include reasonable assumptions regarding the future behavior of 
assets, liabilities, and off-balance sheet exposures;
    (iii) Identify and quantify discrete and cumulative cash-flow 
mismatches over these time periods; and
    (iv) Include sufficient detail to reflect the capital structure, 
risk profile, complexity, currency exposure, activities, and size of the 
foreign banking organization and its combined U.S. operations, and 
include analyses by business line, currency, or legal entity as 
appropriate.
    (e) Contingency funding plan. (1) A foreign banking organization 
with combined U.S. assets of $50 billion or more must establish and 
maintain a contingency funding plan for its combined U.S. operations 
that sets out the foreign banking organization's strategies for 
addressing liquidity needs during liquidity stress events. The 
contingency funding plan must be commensurate with the capital 
structure, risk profile, complexity, activities, size, and the 
established liquidity risk tolerance for the combined U.S. operations. 
The foreign banking organization must update the contingency funding 
plan for its combined U.S. operations at least annually, and when 
changes to market and idiosyncratic conditions warrant.
    (2) Components of the contingency funding plan--(i) Quantitative 
assessment. The contingency funding plan for the combined U.S. 
operations must:
    (A) Identify liquidity stress events that could have a significant 
impact on the liquidity of the foreign banking organization and its 
combined U.S. operations;
    (B) Assess the level and nature of the impact on the liquidity of 
the foreign banking organization and its combined U.S. operations that 
may occur during identified liquidity stress events;
    (C) Identify the circumstances in which the foreign banking 
organization would implement its action plan described in paragraph 
(e)(2)(ii)(A) of this section, which circumstances must include failure 
to meet any minimum liquidity requirement imposed by the Board on the 
foreign banking organization's U.S. operations;
    (D) Assess available funding sources and needs during the identified 
liquidity stress events;
    (E) Identify alternative funding sources that may be used during the 
identified liquidity stress events; and
    (F) Incorporate information generated by the liquidity stress 
testing required under Sec. 252.157(a) of this subpart.
    (ii) Liquidity event management process. The contingency funding 
plan for the combined U.S. operations must include an event management 
process that sets out the foreign banking organization's procedures for 
managing liquidity during identified liquidity stress events for the 
combined U.S. operations. The liquidity event management process must:
    (A) Include an action plan that clearly describes the strategies 
that the foreign banking organization will use to respond to liquidity 
shortfalls in its combined U.S. operations for identified liquidity 
stress events, including the methods that the company or the combined 
U.S. operations will use to access alternative funding sources;
    (B) Identify a liquidity stress event management team that would 
execute the action plan in paragraph (e)(2)(i) of this section for the 
combined U.S. operations;
    (C) Specify the process, responsibilities, and triggers for invoking 
the contingency funding plan, describe the decision-making process 
during the identified liquidity stress events, and describe the process 
for executing contingency measures identified in the action plan; and

[[Page 437]]

    (D) Provide a mechanism that ensures effective reporting and 
communication within the combined U.S. operations of the foreign banking 
organization and with outside parties, including the Board and other 
relevant supervisors, counterparties, and other stakeholders.
    (iii) Monitoring. The contingency funding plan for the combined U.S. 
operations must include procedures for monitoring emerging liquidity 
stress events. The procedures must identify early warning indicators 
that are tailored to the capital structure, risk profile, complexity, 
activities, and size of the foreign banking organization and its 
combined U.S. operations.
    (iv) Testing. A foreign banking organization must periodically test:
    (A) The components of the contingency funding plan to assess the 
plan's reliability during liquidity stress events;
    (B) The operational elements of the contingency funding plan, 
including operational simulations to test communications, coordination, 
and decision-making by relevant management; and
    (C) The methods it will use to access alternative funding sources 
for its combined U.S. operations to determine whether these funding 
sources will be readily available when needed.
    (f) Liquidity risk limits--(1) General. A foreign banking 
organization with combined U.S. assets of $50 billion or more must 
monitor sources of liquidity risk and establish limits on liquidity risk 
for the combined U.S. operations, including limits on:
    (i) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and if 
applicable, other forms of liquidity risk;
    (ii) The amount of liabilities that mature within various time 
horizons; and
    (iii) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (2) Size of limits. Each limit established pursuant to paragraph 
(f)(1) of this section must be consistent with the established liquidity 
risk tolerance for the combined U.S. operations and reflect the capital 
structure, risk profile, complexity, activities, and size of the 
combined U.S. operations.
    (g) Collateral, legal entity, and intraday liquidity risk 
monitoring. A foreign banking organization with combined U.S. assets of 
$50 billion or more must establish and maintain procedures for 
monitoring liquidity risk as set forth in this paragraph.
    (1) Collateral. The foreign banking organization must establish and 
maintain policies and procedures to monitor assets that have been or are 
available to be pledged as collateral in connection with transactions to 
which entities in its U.S. operations are counterparties. These policies 
and procedures must provide that the foreign banking organization:
    (i) Calculates all of the collateral positions for its combined U.S. 
operations on a weekly basis (or more frequently, as directed by the 
Board), specifying the value of pledged assets relative to the amount of 
security required under the relevant contracts and the value of 
unencumbered assets available to be pledged;
    (ii) Monitors the levels of unencumbered assets available to be 
pledged by legal entity, jurisdiction, and currency exposure;
    (iii) Monitors shifts in the foreign banking organization's funding 
patterns, including shifts between intraday, overnight, and term 
pledging of collateral; and
    (iv) Tracks operational and timing requirements associated with 
accessing collateral at its physical location (for example, the 
custodian or securities settlement system that holds the collateral).
    (2) Legal entities, currencies and business lines. The foreign 
banking organization must establish and maintain procedures for 
monitoring and controlling liquidity risk exposures and funding needs of 
its combined U.S. operations, within and across significant legal 
entities, currencies, and business lines and taking into account legal 
and regulatory restrictions on the transfer of liquidity between legal 
entities.
    (3) Intraday exposure. The foreign banking organization must 
establish and maintain procedures for monitoring intraday liquidity risk 
exposure

[[Page 438]]

for its combined U.S. operations. These procedures must address how the 
management of the combined U.S. operations will:
    (i) Monitor and measure expected daily inflows and outflows;
    (ii) Maintain, manage and transfer collateral to obtain intraday 
credit;
    (iii) Identify and prioritize time-specific obligations so that the 
foreign banking organizations can meet these obligations as expected and 
settle less critical obligations as soon as possible;
    (iv) Control the issuance of credit to customers where necessary; 
and
    (v) Consider the amounts of collateral and liquidity needed to meet 
payment systems obligations when assessing the overall liquidity needs 
of the combined U.S. operations.



Sec. 252.157  Liquidity stress testing and buffer requirements for foreign
banking organizations with combined U.S. assets of $50 billion or more.

    (a) Liquidity stress testing requirement--(1) General. (i) A foreign 
banking organization with combined U.S. assets of $50 billion or more 
must conduct stress tests to separately assess the potential impact of 
liquidity stress scenarios on the cash flows, liquidity position, 
profitability, and solvency of:
    (A) Its combined U.S. operations as a whole;
    (B) Its U.S. branches and agencies on an aggregate basis; and
    (C) Its U.S. intermediate holding company, if any.
    (ii) Each liquidity stress test required under this paragraph (a)(1) 
must use the stress scenarios described in paragraph (a)(3) of this 
section and take into account the current liquidity condition, risks, 
exposures, strategies, and activities of the U.S. operations.
    (iii) The liquidity stress tests required under this paragraph 
(a)(1) must take into consideration the balance sheet exposures, off-
balance sheet exposures, size, risk profile, complexity, business lines, 
organizational structure and other characteristics of the foreign 
banking organization and its combined U.S. operations that affect the 
liquidity risk profile of the U.S. operations.
    (iv) In conducting a liquidity stress test using the scenarios 
described in paragraphs (a)(3)(i) and (iii) of this section, the bank 
holding company must address the potential direct adverse impact of 
associated market disruptions on the foreign banking organization's 
combined U.S. operations and the related indirect effect such impact 
could have on the combined U.S. operations of the foreign banking 
organization and incorporate the potential actions of other market 
participants experiencing liquidity stresses under the market 
disruptions that would adversely affect the foreign banking organization 
or its combined U.S. operations.
    (2) Frequency. The liquidity stress tests required under paragraph 
(a)(1) of this section must be performed at least monthly. The Board may 
require the foreign banking organization to perform stress testing more 
frequently than monthly.
    (3) Stress scenarios. (i) Each liquidity stress test conducted under 
paragraph (a)(1) of this section must include, at a minimum:
    (A) A scenario reflecting adverse market conditions;
    (B) A scenario reflecting an idiosyncratic stress event for the U.S. 
branches/agencies and the U.S. intermediate holding company, if any; and
    (C) a scenario reflecting combined market and idiosyncratic 
stresses.
    (ii) The foreign banking organization must incorporate additional 
liquidity stress scenarios into its liquidity stress test as appropriate 
based on the financial condition, size, complexity, risk profile, scope 
of operations, or activities of the combined U.S. operations, the U.S. 
branches and agencies, and the U.S. intermediate holding company, as 
applicable. The Board may require the foreign banking organization to 
vary the underlying assumptions and stress scenarios.
    (4) Planning horizon. Each stress test conducted under paragraph 
(a)(1) of this section must include an overnight planning horizon, a 30-
day planning horizon, a 90-day planning horizon, a 1-year planning 
horizon, and any other planning horizons that are relevant to the 
liquidity risk profile of the combined U.S. operations, the U.S. 
branches and agencies, and the U.S. intermediate holding company, if 
any.

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For purposes of this section, a ``planning horizon'' is the period over 
which the relevant stressed projections extend. The foreign banking 
organization must use the results of the stress test over the 30-day 
planning horizon to calculate the size of the liquidity buffers under 
paragraph (c) of this section.
    (5) Requirements for assets used as cash-flow sources in a stress 
test. (i) To the extent an asset is used as a cash flow source to offset 
projected funding needs during the planning horizon in a liquidity 
stress test, the fair market value of the asset must be discounted to 
reflect any credit risk and market volatility of the asset.
    (ii) Assets used as cash-flow sources during the planning horizon 
must be diversified by collateral, counterparty, borrowing capacity, or 
other factors associated with the liquidity risk of the assets.
    (iii) A line of credit does not qualify as a cash flow source for 
purposes of a stress test with a planning horizon of 30 days or less. A 
line of credit may qualify as a cash flow source for purposes of a 
stress test with a planning horizon that exceeds 30 days.
    (6) Tailoring. Stress testing must be tailored to, and provide 
sufficient detail to reflect, the capital structure, risk profile, 
complexity, activities, and size of the combined U.S. operations of the 
foreign banking organization and, as appropriate, the foreign banking 
organization as a whole.
    (7) Governance--(i) Stress test function. A foreign banking 
organization with combined U.S. assets of $50 billion or more, within 
its combined U.S. operations and its enterprise-wide risk management, 
must establish and maintain policies and procedures governing its 
liquidity stress testing practices, methodologies, and assumptions that 
provide for the incorporation of the results of liquidity stress tests 
in future stress testing and for the enhancement of stress testing 
practices over time.
    (ii) Controls and oversight. The foreign banking organization must 
establish and maintain a system of controls and oversight that is 
designed to ensure that its liquidity stress testing processes are 
effective in meeting the requirements of this section. The controls and 
oversight must ensure that each liquidity stress test appropriately 
incorporates conservative assumptions with respect to the stress 
scenario in paragraph (a)(3) of this section and other elements of the 
stress-test process, taking into consideration the capital structure, 
risk profile, complexity, activities, size, and other relevant factors 
of the U.S. operations. These assumptions must be approved by U.S. chief 
risk officer and subject to independent review consistent with the 
standards set out in Sec. 252.156(c).
    (iii) Management information systems. The foreign banking 
organization must maintain management information systems and data 
processes sufficient to enable it to effectively and reliably collect, 
sort, and aggregate data and other information related to the liquidity 
stress testing of its combined U.S. operations.
    (b) Reporting of liquidity stress tests required by home-country 
regulators. A foreign banking organization with combined U.S. assets of 
$50 billion or more must make available to the Board, in a timely 
manner, the results of any liquidity internal stress tests and 
establishment of liquidity buffers required by regulators in its home 
jurisdiction. The report required under this paragraph must include the 
results of its liquidity stress test and liquidity buffer, if required 
by the laws or regulations implemented in the home jurisdiction, or 
expected under supervisory guidance.
    (c) Liquidity buffer requirement--(1) General. A foreign banking 
organization with combined U.S. assets of $50 billion or more must 
maintain a liquidity buffer for its U.S. intermediate holding company, 
if any, calculated in accordance with paragraph (c)(2) of this section, 
and a separate liquidity buffer for its U.S. branches and agencies, if 
any, calculated in accordance with paragraph (c)(3) of this section.
    (2) Calculation of U.S. intermediate holding company buffer 
requirement. (i) The liquidity buffer for the U.S. intermediate holding 
company must be sufficient to meet the projected net stressed cash-flow 
need over the 30-day planning horizon of a liquidity stress test 
conducted in accordance with paragraph (a) of this section under

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each scenario set forth in paragraphs (a)(3)(i) through (iii) of this 
section.
    (ii) Net stressed cash-flow need. The net stressed cash-flow need 
for the U.S. intermediate holding company is equal to the sum of its net 
external stressed cash-flow need (calculated pursuant to paragraph 
(c)(2)(iii) of this section) and its net internal stressed cash-flow 
need (calculated pursuant to paragraph (c)(2)(iv) of this section) over 
the 30-day planning horizon.
    (iii) Net external stressed cash-flow need calculation. The net 
external stressed cash-flow need for a U.S. intermediate holding company 
equals the difference between:
    (A) The projected amount of cash-flow needs that results from 
transactions between the U.S. intermediate holding company and entities 
that are not its affiliates; and
    (B) The projected amount of cash-flow sources that results from 
transactions between the U.S. intermediate holding company and entities 
that are not its affiliates.
    (iv) Net internal stressed cash-flow need calculation--(A) General. 
The net internal stressed cash-flow need for the U.S. intermediate 
holding company equals the greater of:
    (1) The greatest daily cumulative net intragroup cash-flow need over 
the 30-day planning horizon as calculated under paragraph (c)(2)(iv)(B) 
of this section; and
    (2) Zero.
    (B) Daily cumulative net intragroup cash-flow need calculation. The 
daily cumulative net intragroup cash-flow need for the U.S. intermediate 
holding company for purposes of paragraph (c)(2)(iv)(A) of this section 
is calculated as follows:
    (1) Daily cumulative net intragroup cash-flow need. For any given 
day in the stress-test horizon, the daily cumulative net intragroup 
cash-flow need is a daily cumulative net intragroup cash flow that is 
greater than zero.
    (2) Daily cumulative net intragroup cash flow. For any given day of 
the planning horizon, the daily cumulative net intragroup cash flow 
equals the sum of the net intragroup cash flow calculated for that day 
and the net intragroup cash flow calculated for each previous day of the 
stress-test horizon, as calculated in accordance with paragraph 
(c)(2)(iv)(C) of this section.
    (C) Net intragroup cash flow. For any given day of the stress-test 
horizon, the net intragroup cash flow equals the difference between:
    (1) The amount of cash-flow needs resulting from transactions 
between the U.S. intermediate holding company and its affiliates 
(including any U.S. branch or U.S. agency) for that day of the planning 
horizon; and
    (2) The amount of cash-flow sources resulting from transactions 
between the U.S. intermediate holding company and its affiliates 
(including any U.S. branch or U.S. agency) for that day of the planning 
horizon.
    (D) Amounts secured by highly liquid assets. For the purposes of 
calculating net intragroup cash flow under this paragraph, the amounts 
of intragroup cash-flow needs and intragroup cash-flow sources that are 
secured by highly liquid assets (as defined in paragraph (c)(7) of this 
section) must be excluded from the calculation.
    (3) Calculation of U.S. branch and agency liquidity buffer 
requirement. (i) The liquidity buffer for the foreign banking 
organization's U.S. branches and agencies must be sufficient to meet the 
projected net stressed cash-flow need of the U.S. branches and agencies 
over the first 14 days of a stress test with a 30-day planning horizon, 
conducted in accordance with paragraph (a) of this section under the 
scenarios described in paragraphs (a)(3)(i) through (iii) of this 
section.
    (ii) Net stressed cash-flow need. The net stressed cash-flow need of 
the U.S. branches and agencies of a foreign banking organization is 
equal to the sum of its net external stressed cash-flow need (calculated 
pursuant to paragraph (c)(3)(iii) of this section) and net internal 
stressed cash-flow need (calculated pursuant to paragraph (c)(3)(iv) of 
this section) over the first 14 days of the 30-day planning horizon.
    (iii) Net external stressed cash-flow need calculation. (A) The net 
external stressed cash-flow need of the U.S. branches and agencies 
equals the difference between:
    (1) The projected amount of cash-flow needs that results from 
transactions between the U.S. branches and agencies

[[Page 441]]

and entities other than the foreign bank's non-U.S. offices and its U.S. 
and non-U.S. affiliates; and
    (2) The projected amount of cash-flow sources that results from 
transactions between the U.S. branches and agencies and entities other 
than the foreign bank's non-U.S. offices and its U.S. and non-U.S. 
affiliates.
    (iv) Net internal stressed cash-flow need calculation--(A) General. 
The net internal stressed cash-flow need of the U.S. branches and 
agencies of the foreign banking organization equals the greater of:
    (1) The greatest daily cumulative net intragroup cash-flow need over 
the first 14 days of the 30-day planning horizon, as calculated under 
paragraph (c)(3)(iv)(B) of this section; and
    (2) Zero.
    (B) Daily cumulative net intragroup cash-flow need calculation. The 
daily cumulative net intragroup cash-flow need of the U.S. branches and 
agencies of a foreign banking organization for purposes of paragraph 
(c)(3)(iv) of this section is calculated as follows:
    (1) Daily cumulative net intragroup cash-flow need. For any given 
day of the stress-test horizon, the daily cumulative net intragroup 
cash-flow need of the U.S. branches and agencies means a daily 
cumulative net intragroup cash flow that is greater than zero.
    (2) Daily cumulative net intragroup cash flow. For any given day of 
the planning horizon, the daily cumulative net intragroup cash flow of 
the U.S. branches and agencies equals the sum of the net intragroup cash 
flow calculated for that day and the net intragroup cash flow calculated 
for each previous day of the planning horizon, each as calculated in 
accordance with this paragraph (c)(3)(iv)(C) of this section.
    (C) Net intragroup cash flow. For any given day of the planning 
horizon, the net intragroup cash flow must equal the difference between:
    (1) The amount of projected cash-flow needs resulting from 
transactions between a U.S. branch or U.S. agency and the foreign bank's 
non-U.S. offices and its affiliates; and
    (2) The amount of projected cash-flow sources resulting from 
transactions between a U.S. branch or U.S. agency and the foreign bank's 
non-U.S. offices and its affiliates.
    (D) Amounts secured by highly liquid assets. For the purposes of 
calculating net intragroup cash flow of the U.S. branches and agencies 
under this paragraph, the amounts of intragroup cash-flow needs and 
intragroup cash-flow sources that are secured by highly liquid assets 
(as defined in paragraph (c)(7) of this section) must be excluded from 
the calculation.
    (4) Location of liquidity buffer--(i) U.S. intermediate holding 
companies. A U.S. intermediate holding company must maintain in accounts 
in the United States the highly liquid assets comprising the liquidity 
buffer required under this section. To the extent that the assets 
consist of cash, the cash may not be held in an account located at a 
U.S. branch or U.S. agency of the affiliated foreign banking 
organization or other affiliate that is not controlled by the U.S. 
intermediate holding company.
    (ii) U.S. branches and agencies. The U.S. branches and agencies of a 
foreign banking organization must maintain in accounts in the United 
States the highly liquid assets comprising the liquidity buffer required 
under this section. To the extent that the assets consist of cash, the 
cash may not be held in an account located at the foreign banking 
organization's U.S. intermediate holding company or other affiliate.
    (7) Asset requirements. The liquidity buffer required in this 
section for the U.S. intermediate holding company or the U.S. branches 
and agencies must consist of highly liquid assets that are unencumbered, 
as set forth below:
    (i) Highly liquid asset. The asset must be a highly liquid asset. 
For these purposes, a highly liquid asset includes:
    (A) Cash;
    (B) Securities issued or guaranteed by the United States, a U.S. 
government agency, or a U.S. government-sponsored enterprise; or
    (C) Any other asset that the foreign banking organization 
demonstrates to the satisfaction of the Board:
    (1) Has low credit risk and low market risk;
    (2) Is traded in an active secondary two-way market that has 
committed market makers and independent bona

[[Page 442]]

fide offers to buy and sell so that a price reasonably related to the 
last sales price or current bona fide competitive bid and offer 
quotations can be determined within one day and settled at that price 
within a reasonable time period conforming with trade custom; and
    (3) Is a type of asset that investors historically have purchased in 
periods of financial market distress during which market liquidity has 
been impaired.
    (ii) Unencumbered. The asset must be unencumbered. For these 
purposes, an asset is unencumbered if it:
    (A) Is free of legal, regulatory, contractual, or other restrictions 
on the ability of such company promptly to liquidate, sell or transfer 
the asset; and
    (B) Is either:
    (1) Not pledged or used to secure or provide credit enhancement to 
any transaction; or
    (2) Pledged to a central bank or a U.S. government-sponsored 
enterprise, to the extent potential credit secured by the asset is not 
currently extended by such central bank or U.S. government-sponsored 
enterprise or any of its consolidated subsidiaries.
    (iii) Calculating the amount of a highly liquid asset. In 
calculating the amount of a highly liquid asset included in the 
liquidity buffer, the bank holding company must discount the fair market 
value of the asset to reflect any credit risk and market price 
volatility of the asset.
    (iv) Diversification. The liquidity buffer must not contain 
significant concentrations of highly liquid assets by issuer, business 
sector, region, or other factor related to the foreign banking 
organization's risk, except with respect to cash and securities issued 
or guaranteed by the United States, a U.S. government agency, or a U.S. 
government-sponsored enterprise.



Sec. 252.158  Capital stress testing requirements for foreign banking 
organizations with combined U.S. assets of $50 billion or more.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Eligible asset means any asset of the U.S. branch or U.S. agency 
held in the United States that is recorded on the general ledger of a 
U.S. branch or U.S. agency of the foreign banking organization (reduced 
by the amount of any specifically allocated reserves held in the United 
States and recorded on the general ledger of the U.S. branch or U.S. 
agency in connection with such assets), subject to the following 
exclusions, and, for purposes of this definition, as modified by the 
rules of valuation set forth in paragraph (a)(1)(ii) of this section.
    (i) The following assets do not qualify as eligible assets:
    (A) Equity securities;
    (B) Any assets classified as loss at the preceding examination by a 
regulatory agency, outside accountant, or the bank's internal loan 
review staff;
    (C) Accrued income on assets classified loss, doubtful, substandard 
or value impaired, at the preceding examination by a regulatory agency, 
outside accountant, or the bank's internal loan review staff;
    (D) Any amounts due from the home office, other offices and 
affiliates, including income accrued but uncollected on such amounts;
    (E) The balance from time to time of any other asset or asset 
category disallowed at the preceding examination or by direction of the 
Board for any other reason until the underlying reasons for the 
disallowance have been removed;
    (F) Prepaid expenses and unamortized costs, furniture and fixtures 
and leasehold improvements; and
    (G) Any other asset that the Board determines should not qualify as 
an eligible asset.
    (ii) The following rules of valuation apply:
    (A) A marketable debt security is valued at its principal amount or 
market value, whichever is lower;
    (B) An asset classified doubtful or substandard at the preceding 
examination by a regulatory agency, outside accountant, or the bank's 
internal loan review staff, is valued at 50 percent and 80 percent, 
respectively;
    (C) With respect to an asset classified value impaired, the amount 
representing the allocated transfer risk reserve that would be required 
for such exposure at a domestically chartered

[[Page 443]]

bank is valued at 0 and the residual exposure is valued at 80 percent; 
and
    (D) Real estate located in the United States and carried on the 
accounting records as an asset are valued at net book value or appraised 
value, whichever is less.
    (2) Liabilities of all U.S. branches and agencies of a foreign 
banking organization means all liabilities of all U.S. branches and 
agencies of the foreign banking organization, including acceptances and 
any other liabilities (including contingent liabilities), but excluding:
    (i) Amounts due to and other liabilities to other offices, agencies, 
branches and affiliates of such foreign banking organization, including 
its head office, including unremitted profits; and
    (ii) Reserves for possible loan losses and other contingencies.
    (3) Pre-provision net revenue means revenue less expenses before 
adjusting for total loan loss provisions.
    (4) Stress test cycle has the same meaning as in subpart F of this 
part.
    (5) Total loan loss provisions means the amount needed to make 
reserves adequate to absorb estimated credit losses, based upon 
management's evaluation of the loans and leases that the company has the 
intent and ability to hold for the foreseeable future or until maturity 
or payoff, as determined under applicable accounting standards.
    (b) In general. (1) A foreign banking organization with combined 
U.S. assets of $50 billion or more and that has a U.S. branch or U.S. 
agency must:
    (i) Be subject on a consolidated basis to a capital stress testing 
regime by its home-country supervisor that meets the requirements of 
paragraph (b)(2) of this section;
    (ii) Conduct such stress tests or be subject to a supervisory stress 
test and meet any minimum standards set by its home-country supervisor 
with respect to the stress tests; and
    (iii) Provide to the Board the information required under paragraph 
(c) of this section.
    (2) The capital stress testing regime of a foreign banking 
organization's home-country supervisor must include:
    (i) An annual supervisory capital stress test conducted by the 
foreign banking organization's home-country supervisor or an annual 
evaluation and review by the foreign banking organization's home-country 
supervisor of an internal capital adequacy stress test conducted by the 
foreign banking organization; and
    (ii) Requirements for governance and controls of stress testing 
practices by relevant management and the board of directors (or 
equivalent thereof) of the foreign banking organization;
    (c) Information requirements--(1) In general. A foreign banking 
organization with combined U.S. assets of $50 billion or more must 
report to the Board by January 5 of each calendar year, unless such date 
is extended by the Board, summary information about its stress-testing 
activities and results, including the following quantitative and 
qualitative information:
    (i) A description of the types of risks included in the stress test;
    (ii) A description of the conditions or scenarios used in the stress 
test;
    (iii) A summary description of the methodologies used in the stress 
test;
    (iv) Estimates of:
    (A) Aggregate losses;
    (B) Pre-provision net revenue;
    (C) Total loan loss provisions;
    (D) Net income before taxes; and
    (E) Pro forma regulatory capital ratios required to be computed by 
the home-country supervisor of the foreign banking organization and any 
other relevant capital ratios; and
    (v) An explanation of the most significant causes for any changes in 
regulatory capital ratios.
    (2) Additional information required for foreign banking 
organizations in a net due from position. If, on a net basis, the U.S. 
branches and agencies of a foreign banking organization with combined 
U.S. assets of $50 billion or more provide funding to the foreign 
banking organization's non-U.S. offices and non-U.S. affiliates, 
calculated as the average daily position over a stress test cycle for a 
given year, the foreign banking organization must report the following 
information to the Board by January 5 of each calendar year, unless such 
date is extended by the Board:
    (i) A detailed description of the methodologies used in the stress 
test, including those employed to estimate

[[Page 444]]

losses, revenues, and changes in capital positions;
    (ii) Estimates of realized losses or gains on available-for-sale and 
held-to-maturity securities, trading and counterparty losses, if 
applicable; and loan losses (dollar amount and as a percentage of 
average portfolio balance) in the aggregate and by material sub-
portfolio; and
    (iii) Any additional information that the Board requests.
    (d) Imposition of additional standards for capital stress tests. (1) 
Unless the Board otherwise determines in writing, a foreign banking 
organization that does not meet each of the requirements in paragraph 
(b)(1) and (2) of this section must:
    (i) Maintain eligible assets in its U.S. branches and agencies that, 
on a daily basis, are not less than 108 percent of the average value 
over each day of the previous calendar quarter of the total liabilities 
of all U.S. branches and agencies of the foreign banking organization; 
and
    (ii) To the extent that a foreign banking organization has not 
established a U.S. intermediate holding company, conduct an annual 
stress test of its U.S. subsidiaries to determine whether those 
subsidiaries have the capital necessary to absorb losses as a result of 
adverse economic conditions; and report to the Board on an annual basis 
a summary of the results of the stress test that includes the 
information required under paragraph (b)(1) of this section and any 
other information specified by the Board.
    (2) An enterprise-wide stress test that is approved by the Board may 
meet the stress test requirement of paragraph (d)(1)(ii) of this 
section.
    (3) Intragroup funding restrictions or liquidity requirements for 
U.S. operations. If a foreign banking organization does not meet each of 
the requirements in paragraphs (b)(1) and (2) of this section, the Board 
may require the U.S. branches and agencies of the foreign banking 
organization and, if the foreign banking organization has not 
established a U.S. intermediate holding company, any U.S. subsidiary of 
the foreign banking organization, to maintain a liquidity buffer or be 
subject to intragroup funding restrictions.
    (e) Notice and response. If the Board determines to impose one or 
more conditions under paragraph (d)(3) of this section, the Board will 
notify the company before it applies the condition, and describe the 
basis for imposing the condition. Within 14 calendar days of receipt of 
a notification under this paragraph, the company may request in writing 
that the Board reconsider the requirement. The Board will respond in 
writing to the company's request for reconsideration prior to applying 
the condition.

Subparts P-T [Reserved]



  Subpart U_Debt-to-Equity Limits for U.S. Bank Holding Companies and 
                      Foreign Banking Organizations

    Source: Reg. YY, 79 FR 17337, Mar. 27, 2014, unless otherwise noted.



Sec. 252.220  Debt-to-equity limits for U.S. bank holding companies.

    (a) Definitions--(1) Debt-to-equity ratio means the ratio of a 
company's total liabilities to a company's total equity capital less 
goodwill.
    (2) Debt and equity have the same meaning as ``total liabilities'' 
and ``total equity capital,'' respectively, as reported by a bank 
holding company on the FR Y-9C.
    (b) Notice and maximum debt-to-equity ratio requirement. The 
Council, or the Board on behalf of the Council, will provide written 
notice to a bank holding company to the extent that the Council makes a 
determination, pursuant to section 165(j) of the Dodd-Frank Act, that a 
bank holding company poses a grave threat to the financial stability of 
the United States and that the imposition of a debt-to-equity 
requirement is necessary to mitigate such risk. Beginning no later than 
180 days after receiving written notice from the Council or from the 
Board on behalf of the Council, the bank holding company must achieve 
and maintain a debt-to-equity ratio of no more than 15-to-1.
    (c) Extension. The Board may, upon request by the bank holding 
company

[[Page 445]]

for which the Council has made a determination pursuant to section 
165(j) of the Dodd-Frank Act, extend the time period for compliance 
established under paragraph (b) of this section for up to two additional 
periods of 90 days each, if the Board determines that the identified 
company has made good faith efforts to comply with the debt-to-equity 
ratio requirement and that each extension would be in the public 
interest. Requests for an extension must be received in writing by the 
Board not less than 30 days prior to the expiration of the existing time 
period for compliance and must provide information sufficient to 
demonstrate that the bank holding company has made good faith efforts to 
comply with the debt-to-equity ratio requirement and that each extension 
would be in the public interest.
    (d) Termination. The debt-to-equity ratio requirement in paragraph 
(b) of this section shall cease to apply to a bank holding company as of 
the date it receives notice from the Council of a determination that the 
bank holding company no longer poses a grave threat to the financial 
stability of the United States and that the imposition of a debt-to-
equity requirement is no longer necessary.



Sec. 252.221  Debt-to-equity limits for foreign banking organizations.

    (a) Definitions. For purposes of this subpart, the following 
definitions apply:
    (1) Debt and equity have the same meaning as ``total liabilities'' 
and ``total equity capital,'' respectively, as reported by a U.S. 
intermediate holding company or U.S. subsidiary on the FR Y-9C, or other 
reporting form prescribed by the Board.
    (2) Debt-to-equity ratio means the ratio of total liabilities to 
total equity capital less goodwill.
    (3) Eligible assets and liabilities of all U.S. branches and 
agencies of a foreign bank have the same meaning as in Sec. 252.158(a).
    (b) Notice and maximum debt-to-equity ratio requirement. Beginning 
no later than 180 days after receiving written notice from the Council 
or from the Board on behalf of the Council that the Council has made a 
determination, pursuant to section 165(j) of the Dodd-Frank Act, that 
the foreign banking organization poses a grave threat to the financial 
stability of the United States and that the imposition of a debt-to-
equity requirement is necessary to mitigate such risk:
    (1) The U.S. intermediate holding company, or if the foreign banking 
organization has not established a U.S. intermediate holding company, 
and any U.S. subsidiary (excluding any section 2(h)(2) company or DPC 
branch subsidiary, if applicable), must achieve and maintain a debt-to-
equity ratio of no more than 15-to-1; and
    (2) The U.S. branches and agencies of the foreign banking 
organization must maintain eligible assets in its U.S. branches and 
agencies that, on a daily basis, are not less than 108 percent of the 
average value over each day of the previous calendar quarter of the 
total liabilities of all branches and agencies operated by the foreign 
banking organization in the United States.
    (c) Extension. The Board may, upon request by a foreign banking 
organization for which the Council has made a determination pursuant to 
section 165(j) of the Dodd-Frank Act, extend the time period for 
compliance established under paragraph (b) of this section for up to two 
additional periods of 90 days each, if the Board determines that such 
company has made good faith efforts to comply with the debt to equity 
ratio requirement and that each extension would be in the public 
interest. Requests for an extension must be received in writing by the 
Board not less than 30 days prior to the expiration of the existing time 
period for compliance and must provide information sufficient to 
demonstrate that the foreign banking organization has made good faith 
efforts to comply with the debt-to-equity ratio requirement and that 
each extension would be in the public interest.
    (d) Termination. The requirements in paragraph (b) of this section 
cease to apply to a foreign banking organization as of the date it 
receives notice from the Council of a determination that the company no 
longer poses a grave threat to the financial stability of the United 
States and that imposition of the requirements in paragraph

[[Page 446]]

(b) of this section are no longer necessary.



  Sec. Appendix A to Part 252--Policy Statement on the Scenario Design 
                      Framework for Stress Testing

                              1. Background

    a. The Board has imposed stress testing requirements through its 
regulations (stress test rules) implementing section 165(i) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act or 
Act) and through its capital plan rule (12 CFR 225.8). Under the stress 
test rules issued under section 165(i)(1) of the Act, the Board conducts 
an annual stress test (supervisory stress tests), on a consolidated 
basis, of each bank holding company with total consolidated assets of 
$50 billion or more and each nonbank financial company that the 
Financial Stability Oversight Council has designated for supervision by 
the Board (together, covered companies).\1\ In addition, under the 
stress test rules issued under section 165(i)(2) of the Act, covered 
companies must conduct stress tests semi-annually and other financial 
companies with total consolidated assets of more than $10 billion and 
for which the Board is the primary regulatory agency must conduct stress 
tests on an annual basis (together company-run stress tests).\2\ The 
Board will provide for at least three different sets of conditions (each 
set, a scenario), including baseline, adverse, and severely adverse 
scenarios for both supervisory and company-run stress tests 
(macroeconomic scenarios).\3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5365(i)(1); 12 CFR part 252, subpart E.
    \2\ 12 U.S.C. 5365(i)(2); 12 CFR part 252, subparts B and F.
    \3\ The stress test rules define scenarios as ``those sets of 
conditions that affect the U.S. economy or the financial condition of a 
[company] that the Board annually determines are appropriate for use in 
stress tests, including, but not limited to, baseline, adverse, and 
severely adverse scenarios.'' The stress test rules define baseline 
scenario as a ``set of conditions that affect the U.S. economy or the 
financial condition of a company and that reflect the consensus views of 
the economic and financial outlook.'' The stress test rules define 
adverse scenario a ``set of conditions that affect the U.S. economy or 
the financial condition of a company that are more adverse than those 
associated with the baseline scenario and may include trading or other 
additional components.'' The stress test rules define severely adverse 
scenario as a ``set of conditions that affect the U.S. economy or the 
financial condition of a company and that overall are more severe than 
those associated with the adverse scenario and may include trading or 
other additional components.'' See 12 CFR 252.132(a), (d), (m), and (n); 
12 CFR 252.142(a), (d), (o), and (p); 12 CFR 252.152(a), (e), (o), and 
(p).
---------------------------------------------------------------------------

    b. The stress test rules provide that, for the stress test cycle 
beginning on October 1, 2014, the Board will notify covered companies by 
no later than November 15, 2014 of the scenarios it will use to conduct 
its annual supervisory stress tests and the scenarios that covered 
companies must use to conduct their annual company-run stress tests.\4\ 
For each stress test cycle beginning thereafter, the Board will provide 
a description of these scenarios to covered companies by no later than 
February 15 of that calendar year. Under the stress test rules, the 
Board may require certain companies to use additional components in the 
adverse or severely adverse scenario or additional scenarios.\5\ For 
example, the Board expects to require large banking organizations with 
significant trading activities to include a trading and counterparty 
component (market shock, described in the following sections) in their 
adverse and severely adverse scenarios. The Board will provide any 
additional components or scenario by no later than December 1 of each 
year.\6\ The Board expects that the scenarios it will require the 
companies to use will be the same as those the Board will use to conduct 
its supervisory stress tests (together, stress test scenarios).
---------------------------------------------------------------------------

    \4\ 12 CFR 252.44(b), 12 CFR 252.54(b). For the stress test cycle 
beginning on October 1, 2014, the annual company-run stress tests use 
data as of September 30 of each calendar year. For each stress test 
cycle beginning thereafter, the annual company-run stress tests use data 
as of December 31 of each calendar year.
    \5\ Id.
    \6\ Id.
---------------------------------------------------------------------------

    c. In addition, Sec. 225.8 of the Board's Regulation Y (capital plan 
rule) requires all U.S. bank holding companies with total consolidated 
assets of $50 billion or more to submit annual capital plans, including 
stress test results, to the Board to allow the Board to assess whether 
they have robust, forward-looking capital planning processes and have 
sufficient capital to continue operations throughout times of economic 
and financial stress.\7\
---------------------------------------------------------------------------

    \7\ See Capital plans, 76 FR 74631 (Dec. 1, 2011) (codified at 12 
CFR 225.8).
---------------------------------------------------------------------------

    d. Stress tests required under the stress test rules and under the 
capital plan rule require the Board and financial companies to calculate 
pro-forma capital levels--rather than ``current'' or actual levels--over 
a specified planning horizon under baseline and stressful scenarios. 
This approach integrates key lessons of the 2007-2009 financial crisis 
into the Board's supervisory framework.

[[Page 447]]

During the financial crisis, investor and counterparty confidence in the 
capitalization of financial companies eroded rapidly in the face of 
changes in the current and expected economic and financial conditions, 
and this loss in market confidence imperiled companies' ability to 
access funding, continue operations, serve as a credit intermediary, and 
meet obligations to creditors and counterparties. Importantly, such a 
loss in confidence occurred even when a financial institution's capital 
ratios were in excess of regulatory minimums. This is because the 
institution's capital ratios were perceived as lagging indicators of its 
financial condition, particularly when conditions were changing.
    e. The stress tests required under the stress test rules and capital 
plan rule are a valuable supervisory tool that provides a forward-
looking assessment of large financial companies' capital adequacy under 
hypothetical economic and financial market conditions. Currently, these 
stress tests primarily focus on credit risk and market risk--that is, 
risk of mark-to-market losses associated with companies' trading and 
counterparty positions--and not on other types of risk, such as 
liquidity risk. Pressures stemming from these sources are considered in 
separate supervisory exercises. No single supervisory tool, including 
the stress tests, can provide an assessment of a company's ability to 
withstand every potential source of risk.
    f. Selecting appropriate scenarios is an especially significant 
consideration for stress tests required under the capital plan rule, 
which ties the review of a bank holding company's performance under 
stress scenarios to its ability to make capital distributions. More 
severe scenarios, all other things being equal, generally translate into 
larger projected declines in banks' capital. Thus, a company would need 
more capital today to meet its minimum capital requirements in more 
stressful scenarios and have the ability to continue making capital 
distributions, such as common dividend payments. This translation is far 
from mechanical, however; it will depend on factors that are specific to 
a given company, such as underwriting standards and the company's 
business model, which would also greatly affect projected revenue, 
losses, and capital.

                          2. Overview and Scope

    a. This policy statement provides more detail on the characteristics 
of the stress test scenarios and explains the considerations and 
procedures that underlie the approach for formulating these scenarios. 
The considerations and procedures described in this policy statement 
apply to the Board's stress testing framework, including to the stress 
tests required under 12 CFR part 252, subparts E, F, and G, as well as 
the Board's capital plan rule (12 CFR 225.8).\8\
---------------------------------------------------------------------------

    \8\ 12 CFR 252.44(b), 12 CFR 252.54(b). For the stress test cycle 
beginning on October 1, 2014, the annual company-run stress tests use 
data as of September 30 of each calendar year. For each stress test 
cycle beginning thereafter, the annual company-run stress tests use data 
as of December 31 of each calendar year.
---------------------------------------------------------------------------

    b. Although the Board does not envision that the broad approach used 
to develop scenarios will change from year to year, the stress test 
scenarios will reflect changes in the outlook for economic and financial 
conditions and changes to specific risks or vulnerabilities that the 
Board, in consultation with the other federal banking agencies, 
determines should be considered in the annual stress tests. The stress 
test scenarios should not be regarded as forecasts; rather, they are 
hypothetical paths of economic variables that will be used to assess the 
strength and resilience of the companies' capital in various economic 
and financial environments.
    c. The remainder of this policy statement is organized as follows. 
Section 3 provides a broad description of the baseline, adverse, and 
severely adverse scenarios and describes the types of variables that the 
Board expects to include in the macroeconomic scenarios and the market 
shock component of the stress test scenarios applicable to companies 
with significant trading activity. Section 4 describes the Board's 
approach for developing the macroeconomic scenarios, and section 5 
describes the approach for the market shocks. Section 6 describes the 
relationship between the macroeconomic scenario and the market shock 
components. Section 7 provides a timeline for the formulation and 
publication of the macroeconomic assumptions and market shocks.

                 3. Content of the Stress Test Scenarios

    a. The Board will publish a minimum of three different scenarios, 
including baseline, adverse, and severely adverse conditions, for use in 
stress tests required in the stress test rules.\9\ In general, the Board 
anticipates that it will not issue additional scenarios. Specific 
circumstances or vulnerabilities that in any given year the Board 
determines require particular vigilance to ensure the resilience of the 
banking sector will be captured in either the adverse or severely 
adverse scenarios. A greater number of scenarios could be needed in some 
years--for example, because the Board identifies a large number of 
unrelated and uncorrelated but nonetheless significant risks.
---------------------------------------------------------------------------

    \9\ 12 CFR 252.14(b), 12 CFR 252.44(b), 12 CFR 252.54(b).
---------------------------------------------------------------------------

    b. While the Board generally expects to use the same scenarios for 
all companies subject

[[Page 448]]

to the final rule, it may require a subset of companies-- depending on a 
company's financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy--to include 
additional scenario components or additional scenarios that are designed 
to capture different effects of adverse events on revenue, losses, and 
capital. One example of such components is the market shock that applies 
only to companies with significant trading activity. Additional 
components or scenarios may also include other stress factors that may 
not necessarily be directly correlated to macroeconomic or financial 
assumptions but nevertheless can materially affect companies' risks, 
such as the unexpected default of a major counterparty.
    c. Early in each stress testing cycle, the Board plans to publish 
the macroeconomic scenarios along with a brief narrative summary that 
provides a description of the economic situation underlying the scenario 
and explains how the scenarios have changed relative to the previous 
year. In addition, to assist companies in projecting the paths of 
additional variables in a manner consistent with the scenario, the 
narrative will also provide descriptions of the general path of some 
additional variables. These descriptions will be general--that is, they 
will describe developments for broad classes of variables rather than 
for specific variables--and will specify the intensity and direction of 
variable changes but not numeric magnitudes. These descriptions should 
provide guidance that will be useful to companies in specifying the 
paths of the additional variables for their company-run stress tests. 
Note that in practice it will not be possible for the narrative to 
include descriptions on all of the additional variables that companies 
may need to for their company-run stress tests. In cases where scenarios 
are designed to reflect particular risks and vulnerabilities, the 
narrative will also explain the underlying motivation for these features 
of the scenario. The Board also plans to release a broad description of 
the market shock components.

                      3.1  Macroeconomic Scenarios

    a. The macroeconomic scenarios will consist of the future paths of a 
set of economic and financial variables.\10\ The economic and financial 
variables included in the scenarios will likely comprise those included 
in the ``2014 Supervisory Scenarios for Annual Stress Tests Required 
under the Dodd-Frank Act Stress Testing Rules and the Capital Plan 
Rule'' (2013 supervisory scenarios). The domestic U.S. variables 
provided for in the 2013 supervisory scenarios included:
---------------------------------------------------------------------------

    \10\ The future path of a variable refers to its specification over 
a given time period. For example, the path of unemployment can be 
described in percentage terms on a quarterly basis over the stress 
testing time horizon.
---------------------------------------------------------------------------

    i. Six measures of economic activity and prices: real and nominal 
gross domestic product (GDP) growth, the unemployment rate of the 
civilian non-institutional population aged 16 and over, real and nominal 
disposable personal income growth, and the Consumer Price Index (CPI) 
inflation rate;
    ii. Four measures of developments in equity and property markets: 
The Core Logic National House Price Index, the National Council for Real 
Estate Investment Fiduciaries Commercial Real Estate Price Index, the 
Dow Jones Total Stock Market Index, and the Chicago Board Options 
Exchange Market Volatility Index; and
    iii. Six measures of interest rates: the rate on the three-month 
Treasury bill, the yield on the 5-year Treasury bond, the yield on the 
10-year Treasury bond, the yield on a 10-year BBB corporate security, 
the prime rate, and the interest rate associated with a conforming, 
conventional, fixed-rate, 30-year mortgage.
    b. The international variables provided for in the 2014 supervisory 
scenarios included, for the euro area, the United Kingdom, developing 
Asia, and Japan:
    i. Percent change in real GDP;
    ii. Percent change in the Consumer Price Index or local equivalent; 
and
    iii. The U.S./foreign currency exchange rate.\11\
---------------------------------------------------------------------------

    \11\ The Board may increase the range of countries or regions 
included in future scenarios, as appropriate.
---------------------------------------------------------------------------

    c. The economic variables included in the scenarios influence key 
items affecting financial companies' net income, including pre-provision 
net revenue and credit losses on loans and securities. Moreover, these 
variables exhibit fairly typical trends in adverse economic climates 
that can have unfavorable implications for companies' net income and, 
thus, capital positions.
    d. The economic variables included in the scenario may change over 
time. For example, the Board may add variables to a scenario if the 
international footprint of companies that are subject to the stress 
testing rules changed notably over time such that the variables already 
included in the scenario no longer sufficiently capture the material 
risks of these companies. Alternatively, historical relationships 
between macroeconomic variables could change over time such that one 
variable (e.g., disposable personal income growth) that previously 
provided a good proxy for another (e.g., light vehicle sales) in 
modeling companies' pre-provision net revenue or credit losses ceases to 
do so, resulting in the need to create a separate path, or alternative 
proxy, for the other

[[Page 449]]

variable. However, recognizing the amount of work required for companies 
to incorporate the scenario variables into their stress testing models, 
the Board expects to eliminate variables from the scenarios only in rare 
instances.
    e. The Board expects that the company may not use all of the 
variables provided in the scenario, if those variables are not 
appropriate to the company's line of business, or may add additional 
variables, as appropriate. The Board expects the companies will ensure 
that the paths of such additional variables are consistent with the 
scenarios the Board provided. For example, the companies may use, as 
part of their internal stress test models, local-level variables, such 
as state-level unemployment rates or city-level house prices. While the 
Board does not plan to include local-level macro variables in the stress 
test scenarios it provides, it expects the companies to evaluate the 
paths of local-level macro variables as needed for their internal 
models, and ensure internal consistency between these variables and 
their aggregate, macro-economic counterparts. The Board will provide the 
macroeconomic scenario component of the stress test scenarios for a 
period that spans a minimum of 13 quarters. The scenario horizon 
reflects the supervisory stress test approach that the Board plans to 
use. Under the stress test rules, the Board will assess the effect of 
different scenarios on the consolidated capital of each company over a 
forward-looking planning horizon of at least nine quarters.

                       3.2  Market Shock Component

    a. The market shock component of the adverse and severely adverse 
scenarios will only apply to companies with significant trading activity 
and their subsidiaries.\12\ The component consists of large moves in 
market prices and rates that would be expected to generate losses. 
Market shocks differ from macroeconomic scenarios in a number of ways, 
both in their design and application. For instance, market shocks that 
might typically be observed over an extended period (e.g., 6 months) are 
assumed to be an instantaneous event which immediately affects the 
market value of the companies' trading assets and liabilities. In 
addition, under the stress test rules, the as-of date for market shocks 
will differ from the quarter-end, and the Board will provide the as-of 
date for market shocks no later than December 1 of each year. Finally, 
as described in section 4, the market shock includes a much larger set 
of risk factors than the set of economic and financial variables 
included in macroeconomic scenarios. Broadly, these risk factors include 
shocks to financial market variables that affect asset prices, such as a 
credit spread or the yield on a bond, and, in some cases, the value of 
the position itself (e.g., the market value of private equity 
positions).
---------------------------------------------------------------------------

    \12\ Currently, companies with significant trading activity include 
the six bank holding companies that are subject to the market risk rule 
and have total consolidated assets greater than $500 billion, as 
reported on their FR Y-9C. The Board may also subject a state member 
bank subsidiary of any such bank holding company to the market shock 
component. The set of companies subject to the market shock component 
could change over time as the size, scope, and complexity of financial 
company's trading activities evolve.
---------------------------------------------------------------------------

    b. The Board envisions that the market shocks will include shocks to 
a broad range of risk factors that are similar in granularity to those 
risk factors trading companies use internally to produce profit and loss 
estimates, under stressful market scenarios, for all asset classes that 
are considered trading assets, including equities, credit, interest 
rates, foreign exchange rates, and commodities. Examples of risk factors 
include, but are not limited to:
    i. Equity indices of all developed markets, and of developing and 
emerging market nations to which companies with significant trading 
activity may have exposure, along with term structures of implied 
volatilities;
    ii. Cross-currency FX rates of all major and many minor currencies, 
along term structures of implied volatilities;
    iii. Term structures of government rates (e.g., U.S. Treasuries), 
interbank rates (e.g., swap rates) and other key rates (e.g., commercial 
paper) for all developed markets and for developing and emerging market 
nations to which companies may have exposure;
    iv. Term structures of implied volatilities that are key inputs to 
the pricing of interest rate derivatives;
    v. Term structures of futures prices for energy products including 
crude oil (differentiated by country of origin), natural gas, and power;
    vi. Term structures of futures prices for metals and agricultural 
commodities;
    vii. ``Value-drivers'' (credit spreads or instrument prices 
themselves) for credit-sensitive product segments including: corporate 
bonds, credit default swaps, and collateralized debt obligations by 
risk; non-agency residential mortgage-backed securities and commercial 
mortgage-backed securities by risk and vintage; sovereign debt; and, 
municipal bonds; and
    viii. Shocks to the values of private equity positions.

[[Page 450]]

 4. Approach for Formulating the Macroeconomic Assumptions for Scenarios

    a. This section describes the Board's approach for formulating 
macroeconomic assumptions for each scenario. The methodologies for 
formulating this part of each scenario differ by scenario, so these 
methodologies for the baseline, severely adverse, and the adverse 
scenarios are described separately in each of the following subsections.
    b. In general, the baseline scenario will reflect the most recently 
available consensus views of the macroeconomic outlook expressed by 
professional forecasters, government agencies, and other public-sector 
organizations as of the beginning of the annual stress-test cycle. The 
severely adverse scenario will consist of a set of economic and 
financial conditions that reflect the conditions of post-war U.S. 
recessions. The adverse scenario will consist of a set of economic and 
financial conditions that are more adverse than those associated with 
the baseline scenario but less severe than those associated with the 
severely adverse scenario.
    c. Each of these scenarios is described further in sections below as 
follows: baseline (subsection 4.1), severely adverse (subsection 4.2), 
and adverse (subsection 4.3)

4.1  Approach for Formulating Macroeconomic Assumptions in the Baseline 
                                Scenario

    a. The stress test rules define the baseline scenario as a set of 
conditions that affect the U.S. economy or the financial condition of a 
banking organization, and that reflect the consensus views of the 
economic and financial outlook. Projections under a baseline scenario 
are used to evaluate how companies would perform in more likely economic 
and financial conditions. The baseline serves also as a point of 
comparison to the severely adverse and adverse scenarios, giving some 
sense of how much of the company's capital decline could be ascribed to 
the scenario as opposed to the company's capital adequacy under expected 
conditions.
    b. The baseline scenario will be developed around a macroeconomic 
projection that captures the prevailing views of private-sector 
forecasters (e.g. Blue Chip Consensus Forecasts and the Survey of 
Professional Forecasters), government agencies, and other public-sector 
organizations (e.g., the International Monetary Fund and the 
Organization for Economic Co-operation and Development) near the 
beginning of the annual stress-test cycle. The baseline scenario is 
designed to represent a consensus expectation of certain economic 
variables over the time period of the tests and it is not the Board's 
internal forecast for those economic variables. For example, the 
baseline path of short-term interest rates is constructed from consensus 
forecasts and may differ from that implied by the FOMC's Summary of 
Economic Projections.
    c. For some scenario variables--such as U.S. real GDP growth, the 
unemployment rate, and the consumer price index--there will be a large 
number of different forecasts available to project the paths of these 
variables in the baseline scenario. For others, a more limited number of 
forecasts will be available. If available forecasts diverge notably, the 
baseline scenario will reflect an assessment of the forecast that is 
deemed to be most plausible. In setting the paths of variables in the 
baseline scenario, particular care will be taken to ensure that, 
together, the paths present a coherent and plausible outlook for the 
U.S. and global economy, given the economic climate in which they are 
formulated.

   4.2  Approach for Formulating the Macroeconomic Assumptions in the 
                        Severely Adverse Scenario

    The stress test rules define a severely adverse scenario as a set of 
conditions that affect the U.S. economy or the financial condition of a 
financial company and that overall are more severe than those associated 
with the adverse scenario. The financial company will be required to 
publicly disclose a summary of the results of its stress test under the 
severely adverse scenario, and the Board intends to publicly disclose 
the results of its analysis of the financial company under the adverse 
scenario and the severely adverse scenario.

             4.2.1  General Approach: The Recession Approach

    a. The Board intends to use a recession approach to develop the 
severely adverse scenario. In the recession approach, the Board will 
specify the future paths of variables to reflect conditions that 
characterize post-war U.S. recessions, generating either a typical or 
specific recreation of a post-war U.S. recession. The Board chose this 
approach because it has observed that the conditions that typically 
occur in recessions--such as increasing unemployment, declining asset 
prices, and contracting loan demand--can put significant stress on 
companies' balance sheets. This stress can occur through a variety of 
channels, including higher loss provisions due to increased 
delinquencies and defaults; losses on trading positions through sharp 
moves in market prices; and lower bank income through reduced loan 
originations. For these reasons, the Board believes that the paths of 
economic and financial variables in the severely adverse scenario 
should, at a minimum, resemble the paths of those variables observed 
during a recession.
    b. This approach requires consideration of the type of recession to 
feature. All post-war U.S. recessions have not been identical: some

[[Page 451]]

recessions have been associated with very elevated interest rates, some 
have been associated with sizable asset price declines, and some have 
been relatively more global. The most common features of recessions, 
however, are increases in the unemployment rate and contractions in 
aggregate incomes and economic activity. For this and the following 
reasons, the Board intends to use the unemployment rate as the primary 
basis for specifying the severely adverse scenario. First, the 
unemployment rate is likely the most representative single summary 
indicator of adverse economic conditions. Second, in comparison to GDP, 
labor market data have traditionally featured more prominently than GDP 
in the set of indicators that the National Bureau of Economic Research 
reviews to inform its recession dates.\13\ Third and finally, the growth 
rate of potential output can cause the size of the decline in GDP to 
vary between recessions. While changes in the unemployment rate can also 
vary over time due to demographic factors, this seems to have more 
limited implications over time relative to changes in potential output 
growth. The unemployment rate used in the severely adverse scenario will 
reflect an unemployment rate that has been observed in severe post-war 
U.S. recessions, measuring severity by the absolute level of and 
relative increase in the unemployment rate.\14\
---------------------------------------------------------------------------

    \13\ More recently, a monthly measure of GDP has been added to the 
list of indicators.
    \14\ Even though all recessions feature increases in the 
unemployment rate and contractions in incomes and economic activity, the 
size of this change has varied over post-war U.S. recessions. Table 1 
documents the variability in the depth of post-war U.S. recessions. Some 
recessions--labeled mild in Table 1--have been relatively modest with 
GDP edging down just slightly and the unemployment rate moving up about 
a percentage point. Other recessions--labeled severe in Table 1--have 
been much harsher with GDP dropping 3\3/4\ percent and the unemployment 
rate moving up a total of about 4 percentage points.
---------------------------------------------------------------------------

    c. After specifying the unemployment rate, the Board will specify 
the paths of other macroeconomic variables based on the paths of 
unemployment, income, and activity. However, many of these other 
variables have taken wildly divergent paths in previous recessions 
(e.g., house prices), requiring the Board to use its informed judgment 
in selecting appropriate paths for these variables. In general, the path 
for these other variables will be based on their underlying structure at 
the time that the scenario is designed (e.g., the relative fragility of 
the housing finance system).
    d. The Board considered alternative methods for scenario design of 
the severely adverse scenario, including a probabilistic approach. The 
probabilistic approach constructs a baseline forecast from a large-scale 
macroeconomic model and identifies a scenario that would have a specific 
probabilistic likelihood given the baseline forecast. The Board believes 
that, at this time, the recession approach is better suited for 
developing the severely adverse scenario than a probabilistic approach 
because it guarantees a recession of some specified severity. In 
contrast, the probabilistic approach requires the choice of an extreme 
tail outcome--relative to baseline--to characterize the severely adverse 
scenario (e.g., a 5 percent or a 1 percent. tail outcome). In practice, 
this choice is difficult as adverse economic outcomes are typically 
thought of in terms of how variables evolve in an absolute sense rather 
than how far away they lie in the probability space away from the 
baseline. In this sense, a scenario featuring a recession may be 
somewhat clearer and more straightforward to communicate. Finally, the 
probabilistic approach relies on estimates of uncertainty around the 
baseline scenario and such estimates are in practice model-dependent.

4.2.2  Setting the Unemployment Rate Under the Severely Adverse Scenario

    a. The Board anticipates that the severely adverse scenario will 
feature an unemployment rate that increases between 3 to 5 percentage 
points from its initial level over the course of 6 to 8 calendar 
quarters.\15\ The initial level will be set based on the conditions at 
the time that the scenario is designed. However, if a 3 to 5 percentage 
point increase in the unemployment rate does not raise the level of the 
unemployment rate to at least 10 percent--the average level to which it 
has increased in the most recent three severe recessions--the path of 
the unemployment rate in most cases will be specified so as to raise the 
unemployment rate to at least 10 percent.
---------------------------------------------------------------------------

    \15\ Six to eight quarters is the average number of quarters for 
which a severe recession lasts plus the average number of subsequent 
quarters over which the unemployment rate continues to rise. The 
variable length of the timeframe reflects the different paths to the 
peak unemployment rate depending on the severity of the scenario.
---------------------------------------------------------------------------

    b. This methodology is intended to generate scenarios that feature 
stressful outcomes but do not induce greater procyclicality in the 
financial system and macroeconomy. When the economy is in the early 
stages of a recovery, the unemployment rate in a baseline scenario 
generally trends downward, resulting in a larger difference between the 
path of the unemployment rate in the severely adverse scenario

[[Page 452]]

and the baseline scenario and a severely adverse scenario that is 
relatively more intense. Conversely, in a sustained strong expansion--
when the unemployment rate may be below the level consistent with full 
employment--the unemployment in a baseline scenario generally trends 
upward, resulting in a smaller difference between the path of the 
unemployment rate in the severely adverse scenario and the baseline 
scenario and a severely adverse scenario that is relatively less 
intense. Historically, a 3 to 5 percentage point increase in 
unemployment rate is reflective of stressful conditions. As illustrated 
in Table 1, over the last half-century, the U.S. economy has experienced 
four severe post-war recessions. In all four of these recessions the 
unemployment rate increased 3 to 5 percentage points and in the three 
most recent of these recessions the unemployment rate reached a level 
between 9 percent and 11 percent.
    c. Under this method, if the initial unemployment rate were low--as 
it would be after a sustained long expansion--the unemployment rate in 
the scenario would increase to a level as high as what has been seen in 
past severe recessions. However, if the initial unemployment rate were 
already high--as would be the case in the early stages of a recovery--
the unemployment rate would exhibit a change as large as what has been 
seen in past severe recessions.
    d. The Board believes that the typical increase in the unemployment 
rate in the severely adverse scenario will be about 4 percentage points. 
However, the Board will calibrate the increase in unemployment based on 
its views of the status of cyclical systemic risk. The Board intends to 
set the unemployment rate at the higher end of the range if the Board 
believed that cyclical systemic risks were high (as it would be after a 
sustained long expansion), and to the lower end of the range if cyclical 
systemic risks were low (as it would be in the earlier stages of a 
recovery). This may result in a scenario that is slightly more intense 
than normal if the Board believed that cyclical systemic risks were 
increasing in a period of robust expansion.\16\ Conversely, it will 
allow the Board to specify a scenario that is slightly less intense than 
normal in an environment where systemic risks appeared subdued, such as 
in the early stages of an expansion. However, even at the lower end of 
the range of unemployment-rate increases, the scenario will still 
feature an increase in the unemployment rate similar to what has been 
seen in about half of the severe recessions of the last 50 years.
---------------------------------------------------------------------------

    \16\ Note, however, that the severity of the scenario would not 
exceed an implausible level: even at the upper end of the range of 
unemployment-rate increases, the path of the unemployment rate would 
still be consistent with severe post-war U.S. recessions.
---------------------------------------------------------------------------

    e. As indicated previously, if a 3 to 5 percentage point increase in 
the unemployment rate does not raise the level of the unemployment rate 
to 10 percent--the average level to which it has increased in the most 
recent three severe recessions--the path of the unemployment rate will 
be specified so as to raise the unemployment rate to 10 percent. Setting 
a floor for the unemployment rate at 10 percent recognizes the fact that 
not only do cyclical systemic risks build up at financial intermediaries 
during robust expansions but that these risks are also easily obscured 
by the buoyant environment.
    f. In setting the increase in the unemployment rate, the Board will 
consider the extent to which analysis by economists, supervisors, and 
financial market experts finds cyclical systemic risks to be elevated 
(but difficult to be captured more precisely in one of the scenario's 
other variables). In addition, the Board--in light of impending shocks 
to the economy and financial system--will also take into consideration 
the extent to which a scenario of some increased severity might be 
necessary for the results of the stress test and the associated 
supervisory actions to sustain confidence in financial institutions.
    g. While the approach to specifying the severely adverse scenario is 
designed to avoid adding sources of procyclicality to the financial 
system, it is not designed to explicitly offset any existing procyclical 
tendencies in the financial system. The purpose of the stress test 
scenarios is to make sure that the companies are properly capitalized to 
withstand severe economic and financial conditions, not to serve as an 
explicit countercyclical offset to the financial system.
    h. In developing the approach to the unemployment rate, the Board 
also considered a method that would increase the unemployment rate to 
some fairly elevated fixed level over the course of 6 to 8 quarters. 
This will result in scenarios being more severe in robust expansions 
(when the unemployment rate is low) and less severe in the early stages 
of a recovery (when the unemployment rate is high) and so would not 
result in pro-cyclicality. Depending on the initial level of the 
unemployment rate, this approach could lead to only a very modest 
increase in the unemployment rate--or even a decline. As a result, this 
approach--while not procyclical--could result in scenarios not featuring 
stressful macroeconomic outcomes.

   4.2.3  Setting the Other Variables in the Severely Adverse Scenario

    a. Generally, all other variables in the severely adverse scenario 
will be specified to be consistent with the increase in the unemployment 
rate. The approach for specifying the paths of these variables in the 
scenario

[[Page 453]]

will be a combination of (1) how economic models suggest that these 
variables should evolve given the path of the unemployment rate, (2) how 
these variables have typically evolved in past U.S. recessions, and (3) 
and evaluation of these and other factors.
    b. Economic models--such as medium-scale macroeconomic models--
should be able to generate plausible paths consistent with the 
unemployment rate for a number of scenario variables, such as real GDP 
growth, CPI inflation and short-term interest rates, which have 
relatively stable (direct or indirect) relationships with the 
unemployment rate (e.g., Okun's Law, the Phillips Curve, and interest 
rate feedback rules). For some other variables, specifying their paths 
will require a case-by-case consideration. For example, declining house 
prices, which are an important source of stress to a company's balance 
sheet, are not a steadfast feature of recessions, and the historical 
relationship of house prices with the unemployment rate or any other 
variable that deteriorates in recessions is not strong. Simply adopting 
their typical path in a severe recession would likely underestimate 
risks stemming from the housing sector. In this case, some modified 
approach--in which perhaps recessions in which house prices declined 
were judgmentally weighted more heavily--will be appropriate.
    c. In addition, judgment is necessary in projecting the path of a 
scenario's international variables. Recessions that occur simultaneously 
across countries are an important source of stress to the balance sheets 
of companies with notable international exposures but are not an 
invariable feature of the international economy. As a result, simply 
adopting the typical path of international variables in a severe U.S. 
recession would likely underestimate the risks stemming from the 
international economy. Consequently, an approach like that used for 
projecting house prices is followed where judgment and economic models 
together inform the path of international variables.

      4.2.4  Adding Salient Risks to the Severely Adverse Scenario

    a. The severely adverse scenario will be developed to reflect 
specific risks to the economic and financial outlook that are especially 
salient but will feature minimally in the scenario if the Board were 
only to use approaches that looked to past recessions or relied on 
historical relationships between variables.
    b. There are some important instances when it will be appropriate to 
augment the recession approach with salient risks. For example, if an 
asset price were especially elevated and thus potentially vulnerable to 
an abrupt and potentially destabilizing decline, it would be appropriate 
to include such a decline in the scenario even if such a large drop were 
not typical in a severe recession. Likewise, if economic developments 
abroad were particularly unfavorable, assuming a weakening in 
international conditions larger than what typically occurs in severe 
U.S. recessions would likely also be appropriate.
    c. Clearly, while the recession component of the severely adverse 
scenario is within some predictable range, the salient risk aspect of 
the scenario is far less so, and therefore, needs an annual assessment. 
Each year, the Board will identify the risks to the financial system and 
the domestic and international economic outlooks that appear more 
elevated than usual, using its internal analysis and supervisory 
information and in consultation with the Federal Deposit Insurance 
Corporation (FDIC) and the Office of the Comptroller of the Currency 
(OCC). Using the same information, the Board will then calibrate the 
paths of the macroeconomic and financial variables in the scenario to 
reflect these risks.
    d. Detecting risks that have the potential to weaken the banking 
sector is particularly difficult when economic conditions are buoyant, 
as a boom can obscure the weaknesses present in the system. In sustained 
robust expansions, therefore, the selection of salient risks to augment 
the scenario will err on the side of including risks of uncertain 
significance.
    e. The Board will factor in particular risks to the domestic and 
international macroeconomic outlook identified by its economists, bank 
supervisors, and financial market experts and make appropriate 
adjustments to the paths of specific economic variables. These 
adjustments will not be reflected in the general severity of the 
recession and, thus, all macroeconomic variables; rather, the 
adjustments will apply to a subset of variables to reflect co-movements 
in these variables that are historically less typical. The Board plans 
to discuss the motivation for the adjustments that it makes to variables 
to highlight systemic risks in the narrative describing the 
scenarios.\17\
---------------------------------------------------------------------------

    \17\ The means of effecting an adjustment to the severely adverse 
scenario to address salient systemic risks differs from the means used 
to adjust the unemployment rate. For example, in adjusting the scenario 
for an increased unemployment rate, the Board would modify all variables 
such that the future paths of the variables are similar to how these 
variables have moved historically. In contrast, to address salient 
risks, the Board may only modify a small number of variables in the 
scenario and, as such, their future paths in the scenario would be 
somewhat more atypical, albeit not implausible, given existing risks.

---------------------------------------------------------------------------

[[Page 454]]

 4.3  Approach for Formulating Macroeconomic Assumptions in the Adverse 
                                Scenario

    a. The adverse scenario can be developed in a number of different 
ways, and the selected approach will depend on a number of factors, 
including how the Board intends to use the results of the adverse 
scenario.\18\ Generally, the Board believes that the companies should 
consider multiple adverse scenarios for their internal capital planning 
purposes, and likewise, it is appropriate that the Board consider more 
than one adverse scenario to assess a company's ability to withstand 
stress. Accordingly, the Board does not identify a single approach for 
specifying the adverse scenario. Rather, the adverse scenario will be 
formulated according to one of the possibilities listed below. The Board 
may vary the approach it uses for the adverse scenario each year so that 
the results of the scenario provide the most value to supervisors, in 
light of current condition of the economy and the financial services 
industry.
---------------------------------------------------------------------------

    \18\ For example, in the context of CCAR, the Board currently uses 
the adverse scenario as one consideration in evaluating a bank holding 
company's capital adequacy.
---------------------------------------------------------------------------

    b. The simplest method to specify the adverse scenario is to develop 
a less severe version of the severely adverse scenario. For example, the 
adverse scenario could be formulated such that the deviations of the 
paths of the variables relative to the baseline were simply one-half of 
or two-thirds of the deviations of the paths of the variables relative 
to the baseline in the severely adverse scenario. A priori, specifying 
the adverse scenario in this way may appear unlikely to provide the 
greatest possible informational value to supervisors--given that it is 
just a less severe version of the severely adverse scenario. However, to 
the extent that the effect of macroeconomic variables on company loss 
positions and incomes are nonlinear, there could be potential value from 
this approach.
    c. Another method to specify the adverse scenario is to capture 
risks in the adverse scenario that the Board believes should be 
understood better or should be monitored, but does not believe should be 
included in the severely adverse scenario, perhaps because these risks 
would render the scenario implausibly severe. For instance, the adverse 
scenario could feature sizable increases in oil or natural gas prices or 
shifts in the yield curve that are atypical in a recession. The adverse 
scenario might also feature less acute, but still consequential, adverse 
outcomes, such as a disruptive slowdown in growth from emerging-market 
economies.
    d. Under the Board's stress test rules, covered companies are 
required to develop their own scenarios for mid-cycle company-run stress 
tests.\19\ A particular combination of risks included in these scenarios 
may inform the design of the adverse scenario for annual stress tests. 
In this same vein, another possibility would be to use modified versions 
of the circumstances that companies describe in their living wills as 
being able to cause their failures.
---------------------------------------------------------------------------

    \19\ 12 CFR 252.55.
---------------------------------------------------------------------------

    e. It might also be informative to periodically use a stable adverse 
scenario, at least for a few consecutive years. Even if the scenario 
used for the stress test does not change over the credit cycle, if 
companies tighten and relax lending standards over the cycle, their loss 
rates under the adverse scenario--and indirectly the projected changes 
to capital--would decrease and increase, respectively. A consistent 
scenario would allow the direct observation of how capital fluctuates to 
reflect growing cyclical risks.
    f. The Board may consider specifying the adverse scenario using the 
probabilistic approach described in section 4.2.1 (that is, with a 
specified lower probability of occurring than the severely adverse 
scenario but a greater probability of occurring than the baseline 
scenario). The approach has some intuitive appeal despite its 
shortcomings. For example, using this approach for the adverse scenario 
could allow the Board to explore an alternative approach to develop 
stress testing scenarios and their effect on a company's net income and 
capital.
    g. Finally, the Board could design the adverse scenario based on a 
menu of historical experiences--such as, a moderate recession (e.g., the 
1990-1991 recession); a stagflation event (e.g., stagflation during 
1974); an emerging markets crisis (e.g., the Asian currency crisis of 
1997-1998); an oil price shock (e.g., the shock during the run up to the 
1990-1991 recession); or high inflation shock (e.g., the inflation 
pressures of 1977-1979). The Board believes these are important stresses 
that should be understood; however, there may be notable benefits from 
formulating the adverse scenario following other approaches--
specifically, those described previously in this section--and 
consequently the Board does not believe that the adverse scenario should 
be limited to historical episodes only.
    h. With the exception of cases in which the probabilistic approach 
is used to generate the adverse scenario, the adverse scenario will at a 
minimum contain a mild to moderate recession. This is because most of 
the value from investigating the implications of the risks described 
above is likely to be obtained from considering them in the context of 
balance sheets of companies that are under some stress.

[[Page 455]]

         5. Approach for Formulating the Market Shock Component

    a. This section discusses the approach the Board proposes to adopt 
for developing the market shock component of the adverse and severely 
adverse scenarios appropriate for companies with significant trading 
activities. The design and specification of the market shock component 
differs from that of the macroeconomic scenarios because profits and 
losses from trading are measured in mark-to-market terms, while revenues 
and losses from traditional banking are generally measured using the 
accrual method. As noted above, another critical difference is the time-
evolution of the market shock component. The market shock component 
consists of an instantaneous ``shock'' to a large number of risk factors 
that determine the mark-to-market value of trading positions, while the 
macroeconomic scenarios supply a projected path of economic variables 
that affect traditional banking activities over the entire planning 
period.
    b. The development of the market shock component that are detailed 
in this section are as follows: baseline (subsection 5.1), severely 
adverse (subsection 5.2), and adverse (subsection 5.3).

   5.1  Approach for Formulating the Market Shock Component Under the 
                            Baseline Scenario

    By definition, market shocks are large, previously unanticipated 
moves in asset prices and rates. Because asset prices should, broadly 
speaking, reflect consensus opinions about the future evolution of the 
economy, large price movements, as envisioned in the market shock, 
should not occur along the baseline path. As a result, the market shock 
will not be included in the baseline scenario.

   5.2  Approach for Formulating the Market Shock Component Under the 
                        Severely Adverse Scenario

    This section addresses possible approaches to designing the market 
shock component in the severely adverse scenario, including important 
considerations for scenario design, possible approaches to designing 
scenarios, and a development strategy for implementing the preferred 
approach.

             5.2.1  Design Considerations for Market Shocks

    a. The general market practice for stressing a trading portfolio is 
to specify market shocks either in terms of extreme moves in observable, 
broad market indicators and risk factors or directly as large changes to 
the mark-to-market values of financial instruments. These moves can be 
specified either in relative terms or absolute terms. Supplying values 
of risk factors after a ``shock'' is roughly equivalent to the 
macroeconomic scenarios, which supply values for a set of economic and 
financial variables; however, trading stress testing differs from 
macroeconomic stress testing in several critical ways.
    b. In the past, the Board used one of two approaches to specify 
market shocks. During SCAP and CCAR in 2011, the Board used a very 
general approach to market shocks and required companies to stress their 
trading positions using changes in market prices and rates experienced 
during the second half of 2008, without specifying risk factor shocks. 
This broad guidance resulted in inconsistency across companies both in 
terms of the severity and the application of shocks. In certain areas 
companies were permitted to use their own experience during the second 
half of 2008 to define shocks. This resulted in significant variation in 
shock severity across companies.
    c. To enhance the consistency and comparability in market shocks for 
the stress tests in 2012 and 2013, the Board provided to each trading 
company more than 35,000 specific risk factor shocks, primarily based on 
market moves in the second half of 2008. While the number of risk 
factors used in companies' pricing and stress-testing models still 
typically exceed that provided in the Board's scenarios, the greater 
specificity resulted in more consistency in the scenario across 
companies. The benefit of the comprehensiveness of risk factor shocks is 
at least partly offset by potential difficulty in creating shocks that 
are coherent and internally consistent, particularly as the framework 
for developing market shocks deviates from historical events.
    d. Also importantly, the ultimate losses associated with a given 
market shock will depend on a company's trading positions, which can 
make it difficult to rank order, ex ante, the severity of the scenarios. 
In certain instances, market shocks that include large market moves may 
not be particularly stressful for a given company. Aligning the market 
shock with the macroeconomic scenario for consistency may result in 
certain companies actually benefiting from risk factor moves of larger 
magnitude in the market scenario if the companies are hedging against 
salient risks to other parts of their business. Thus, the severity of 
market shocks must be calibrated to take into account how a complex set 
of risks, such as directional risks and basis risks, interacts with each 
other, given the companies' trading positions at the time of stress. For 
instance, a large depreciation in a foreign currency would benefit 
companies with net short positions in the currency while hurting those 
with net long positions. In addition, longer maturity positions may move 
differently from shorter maturity positions, adding further complexity.
    e. The instantaneous nature of market shocks and the immediate 
recognition of

[[Page 456]]

mark-to-market losses add another element to the design of market 
shocks, and to determining the appropriate severity of shocks. For 
instance, in previous stress tests, the Board assumed that market moves 
that occurred over the six-month period in late 2008 would occur 
instantaneously. The design of the market shocks must factor in 
appropriate assumptions around the period of time during which market 
events will unfold and any associated market responses.

                5.2.2  Approaches to Market Shock Design

    a. As an additional component of the adverse and severely adverse 
scenarios, the Board plans to use a standardized set of market shocks 
that apply to all companies with significant trading activity. The 
market shocks could be based on a single historical episode, multiple 
historical periods, hypothetical (but plausible) events, or some 
combination of historical episodes and hypothetical events (hybrid 
approach). Depending on the type of hypothetical events, a scenario 
based on such events may result in changes in risk factors that were not 
previously observed. In the supervisory scenarios for 2012 and 2013, the 
shocks were largely based on relative moves in asset prices and rates 
during the second half of 2008, but also included some additional 
considerations to factor in the widening of spreads for European 
sovereigns and financial companies based on actual observation during 
the latter part of 2011.
    b. For the market shock component in the severely adverse scenario, 
the Board plans to use the hybrid approach to develop shocks. The hybrid 
approach allows the Board to maintain certain core elements of 
consistency in market shocks each year while providing flexibility to 
add hypothetical elements based on market conditions at the time of the 
stress tests. In addition, this approach will help ensure internal 
consistency in the scenario because of its basis in historical episodes; 
however, combining the historical episode and hypothetical events may 
require small adjustments to ensure mutual consistency of the joint 
moves. In general, the hybrid approach provides considerable flexibility 
in developing scenarios that are relevant each year, and by introducing 
variations in the scenario, the approach will also reduce the ability of 
companies with significant trading activity to modify or shift their 
portfolios to minimize expected losses in the severely adverse market 
shock.
    c. The Board has considered a number of alternative approaches for 
the design of market shocks. For example, the Board explored an option 
of providing tailored market shocks for each trading company, using 
information on the companies' portfolio gathered through ongoing 
supervision, or other means. By specifically targeting known or 
potential vulnerabilities in a company's trading position, the tailored 
approach will be useful in assessing each company's capital adequacy as 
it relates to the company's idiosyncratic risk. However, the Board does 
not believe this approach to be well-suited for the stress tests 
required by regulation. Consistency and comparability are key features 
of annual supervisory stress tests and annual company-run stress tests 
required in the stress test rules. It would be difficult to use the 
information on the companies' portfolio to design a common set of shocks 
that are universally stressful for all covered companies. As a result, 
this approach will be better suited to more customized, tailored stress 
tests that are part of the company's internal capital planning process 
or to other supervisory efforts outside of the stress tests conducted 
under the capital rule and the stress test rules.

                 5.2.3  Development of the Market Shock

    a. Consistent with the approach described above, the market shock 
component for the severely adverse scenario will incorporate key 
elements of market developments during the second half of 2008, but also 
incorporate observations from other periods or price and rate movements 
in certain markets that the Board deems to be plausible though such 
movements may not have been observed historically. Over time the Board 
also expects to rely less on market events of the second half of 2008 
and more on hypothetical events or other historical episodes to develop 
the market shock.
    b. The developments in the credit markets during the second half of 
2008 were unprecedented, providing a reasonable basis for market shocks 
in the severely adverse scenario. During this period, key risk factors 
in virtually all asset classes experienced extremely large shocks; the 
collective breadth and intensity of the moves have no parallels in 
modern financial history and, on that basis, it seems likely that this 
episode will continue to be the most relevant historical scenario, 
although experience during other historical episodes may also guide the 
severity of the market shock component of the severely adverse scenario. 
Moreover, the risk factor moves during this episode are directly 
consistent with the ``recession'' approach that underlies the 
macroeconomic assumptions. However, market shocks based only on 
historical events could become stale and less relevant over time as the 
company's positions change, particularly if more salient features are 
not added each year.
    c. While the market shocks based on the second half of 2008 are of 
unparalleled magnitude, the shocks may become less relevant over time as 
the companies' trading positions change. In addition, more recent events 
could highlight the companies' vulnerability

[[Page 457]]

to certain market events. For example, in 2011, Eurozone credit spreads 
in the sovereign and financial sectors surpassed those observed during 
the second half of 2008, necessitating the modification of the severely 
adverse market shock in 2012 and 2013 to reflect a salient source of 
stress to trading positions. As a result, it is important to incorporate 
both historical and hypothetical outcomes into market shocks for the 
severely adverse scenario. For the time being, the development of market 
shocks in the severely adverse scenario will begin with the risk factor 
movements in a particular historical period, such as the second half of 
2008. The Board will then consider hypothetical but plausible outcomes, 
based on financial stability reports, supervisory information, and 
internal and external assessments of market risks and potential flash 
points. The hypothetical outcomes could originate from major 
geopolitical, economic, or financial market events with potentially 
significant impacts on market risk factors. The severity of these 
hypothetical moves will likely be guided by similar historical events, 
assumptions embedded in the companies' internal stress tests or market 
participants, and other available information.
    d. Once broad market scenarios are agreed upon, specific risk factor 
groups will be targeted as the source of the trading stress. For 
example, a scenario involving the failure of a large, interconnected 
globally active financial institution could begin with a sharp increase 
in credit default swap spreads and a precipitous decline in asset prices 
across multiple markets, as investors become more risk averse and market 
liquidity evaporates. These broad market movements will be extrapolated 
to the granular level for all risk factors by examining transmission 
channels and the historical relationships between variables, though in 
some cases, the movement in particular risk factors may be amplified 
based on theoretical relationships, market observations, or the saliency 
to company trading books. If there is a disagreement between the risk 
factor movements in the historical event used in the scenario and the 
hypothetical event, the Board will reconcile the differences by 
assessing a priori expectation based on financial and economic theory 
and the importance of the risk factors to the trading positions of the 
covered companies.

    5.3  Approach for Formulating the Market Shock Under the Adverse 
                                Scenario

    a. The market shock component included in the adverse scenario will 
feature risk factor movements that are generally less significant than 
the market shock component of the severely adverse scenario. However, 
the adverse market shock may also feature risk factor shocks that are 
substantively different from those included in the severely adverse 
scenario, in order to provide useful information to supervisors. As in 
the case of the macroeconomic scenario, the market shock component in 
the adverse scenario can be developed in a number of different ways.
    b. The adverse scenario could be differentiated from the severely 
adverse scenario by the absolute size of the shock, the scenario design 
process (e.g., historical events versus hypothetical events), or some 
other criteria. The Board expects that as the market shock component of 
the adverse scenario may differ qualitatively from the market shock 
component of the severely adverse scenario, the results of adverse 
scenarios may be useful in identifying a particularly vulnerable area in 
a trading company's positions.
    c. There are several possibilities for the adverse scenario and the 
Board may use a different approach each year to better explore the 
vulnerabilities of companies with significant trading activity. One 
approach is to use a scenario based on some combination of historical 
events. This approach is similar to the one used for for the market 
shock in 2012, where the market shock component was largely based on the 
second half of 2008, but also included a number of risk factor shocks 
that reflected the significant widening of spreads for European 
sovereigns and financials in late 2011. This approach will provide some 
consistency each year and provide an internally consistent scenario with 
minimal implementation burden. Having a relatively consistent adverse 
scenario may be useful as it potentially serves as a benchmark against 
the results of the severely adverse scenario and can be compared to past 
stress tests.
    d. Another approach is to have an adverse scenario that is identical 
to the severely adverse scenario, except that the shocks are smaller in 
magnitude (e.g., 100 basis points for adverse versus 200 basis points 
for severely adverse). This ``scaling approach'' generally fits well 
with an intuitive interpretation of ``adverse'' and ``severely 
adverse.'' Moreover, since the nature of the moves will be identical 
between the two classes of scenarios, there will be at least directional 
consistency in the risk factor inputs between scenarios. While under 
this approach the adverse scenario will be superficially identical to 
the severely adverse, the logic underlying the severely adverse scenario 
may not be applicable. For example, if the severely adverse scenario was 
based on a historical scenario, the same could not be said of the 
adverse scenario. It is also remains possible, although unlikely, that a 
scaled adverse scenario actually will result in greater losses, for some 
companies, than the severely adverse scenario with similar moves of 
greater magnitude. For example, if some companies are hedging against 
tail outcomes then the more extreme trading book dollar losses may not 
correspond to the most extreme market

[[Page 458]]

moves. The market shock component of the adverse scenario in 2013 was 
largely based on the scaling approach where a majority of risk factor 
shocks were smaller in magnitude than the severely adverse scenario, but 
it also featured long-term interest rate shocks that were not part of 
the severely adverse market shock.
    e. Alternatively, the market shock component of an adverse scenario 
could differ substantially from the severely adverse scenario with 
respect to the sizes and nature of the shocks. Under this approach, the 
market shock component could be constructed using some combination of 
historical and hypothetical events, similar to the severely adverse 
scenario. As a result, the market shock component of the adverse 
scenario could be viewed as an alternative to the severely adverse 
scenario and, therefore, it is possible that the adverse scenario could 
have larger losses for some companies than the severely adverse 
scenario.
    f. Finally, the design of the adverse scenario for annual stress 
tests could be informed by the companies' own trading scenarios used for 
their BHC-designed scenarios in CCAR and in their mid-cycle company-run 
stress tests.\20\
---------------------------------------------------------------------------

    \20\ 12 CFR 252.55.
---------------------------------------------------------------------------

 6. Consistency Between the Macroeconomic Scenarios and the Market Shock

    a. As discussed earlier, the market shock comprises a set of 
movements in a very large number of risk factors that are realized 
instantaneously. Among the risk factors specified in the market shock 
are several variables also specified in the macroeconomic scenarios, 
such as short- and long-maturity interest rates on Treasury and 
corporate debt, the level and volatility of U.S. stock prices, and 
exchange rates.
    b. The market shock component is an add-on to the macroeconomic 
scenarios that is applied to a subset of companies, with no assumed 
effect on other aspects of the stress tests such as balances, revenues, 
or other losses. As a result, the market shock component may not be 
always directionally consistent with the macroeconomic scenario. Because 
the market shock is designed, in part, to mimic the effects of a sudden 
market dislocation, while the macroeconomic scenarios are designed to 
provide a description of the evolution of the real economy over two or 
more years, assumed economic conditions can move in significantly 
different ways. In effect, the market shock can simulate a market panic, 
during which financial asset prices move rapidly in unexpected 
directions, and the macroeconomic assumptions can simulate the severe 
recession that follows. Indeed, the pattern of a financial crisis, 
characterized by a short period of wild swings in asset prices followed 
by a prolonged period of moribund activity, and a subsequent severe 
recession is familiar and plausible.
    c. As discussed in section 4.2.4, the Board may feature a 
particularly salient risk in the macroeconomic assumptions for the 
severely adverse scenario, such as a fall in an elevated asset price. In 
such instances, the Board may also seek to reflect the same risk in one 
of the market shocks. For example, if the macroeconomic scenario were to 
feature a substantial decline in house prices, it may seem plausible for 
the market shock to also feature a significant decline in market values 
of any securities that are closely tied to the housing sector or 
residential mortgages.
    d. In addition, as discussed in section 4.3, the Board may specify 
the macroeconomic assumptions in the adverse scenario in such a way as 
to explore risks qualitatively different from those in the severely 
adverse scenario. Depending on the nature and type of such risks, the 
Board may also seek to reflect these risks in one of the market shocks 
as appropriate.

                  7. Timeline for Scenario Publication

    a. The Board will provide a description of the macroeconomic 
scenarios by no later than November 15, 2014 (for the stress test cycle 
beginning on October 1, 2014) and no later than February 15 (for each 
stress test cycle beginning thereafter). During the period immediately 
preceding the publication of the scenarios, the Board will collect and 
consider information from academics, professional forecasters, 
international organizations, domestic and foreign supervisors, and other 
private-sector analysts that regularly conduct stress tests based on 
U.S. and global economic and financial scenarios, including analysts at 
the covered companies. In addition, the Board will consult with the FDIC 
and the OCC on the salient risks to be considered in the scenarios. For 
the stress test cycle beginning on October 1, 2014, the Board expects to 
conduct this process in July and August of 2014 and to update the 
scenarios based on incoming macroeconomic data releases and other 
information through the end of October. For each stress test cycle 
beginning thereafter, the Board expects to conduct this process in 
October and November of each year and to update the scenarios based on 
incoming macroeconomic data releases and other information through the 
end of January.
    b. The Board expects to provide a broad overview of the market shock 
component along with the macroeconomic scenarios. The Board will publish 
the market shock templates by no later than December 1 of each year, and 
intends to publish the market shock earlier in the stress test and 
capital plan cycles to allow companies more time to conduct their stress 
tests.

[[Page 459]]



                                                       Table 1--Classification of U.S. Recessions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Total change
                                                                                                                           Change in the      in the
                                                                                                            Decline in     Unemployment    Unemployment
           Peak                      Trough                   Severity             Duration (quarters)       Real GDP       Rate during     rate (incl.
                                                                                                                           the Recession     after the
                                                                                                                                            Recession)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1957Q3...................  1958Q2...................  Severe..................  4 (Medium)..............            -3.6             3.2             3.2
1960Q2...................  1961Q1...................  Moderate................  4 (Medium)..............            -1.0             1.6             1.8
1969Q4...................  1970Q4...................  Moderate................  5 (Medium)..............            -0.2             2.2             2.4
1973Q4...................  1975Q1...................  Severe..................  6 (Long)................            -3.1             3.4             4.1
1980Q1...................  1980Q3...................  Moderate................  3 (Short)...............            -2.2             1.4             1.4
1981Q3...................  1982Q4...................  Severe..................  6 (Long)................            -2.8             3.3             3.3
1990Q3...................  1991Q1...................  Mild....................  3 (Short)...............            -1.3             0.9             1.9
2001Q1...................  2001Q4...................  Mild....................  4 (Medium)..............             0.2             1.3             2.0
2007Q4...................  2009Q2...................  Severe..................  7 (Long)................            -4.3             4.5             5.1
Average..................  .........................  Severe..................  6.......................            -3.5             3.7             3.9
Average..................  .........................  Moderate................  4.......................            -1.1             1.8             1.8
Average..................  .........................  Mild....................  3.......................            -0.6             1.1             1.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Bureau of Economic Analysis, National Income and Product Accounts, Comprehensive Revision on July 31, 2013.


[78 FR 71440, Nov. 29, 2013, as amended at 79 FR 64055, Oct. 27, 2014]



PART 261_RULES REGARDING AVAILABILITY OF INFORMATION--Table of Contents



                      Subpart A_General Provisions

Sec.
261.1  Authority, purpose, and scope.
261.2  Definitions.
261.3  Custodian of records; certification; service; alternative 
          authority.

    Subpart B_Published Information and Records Available to Public; 
                         Procedures for Requests

261.10  Published information.
261.11  Records available for public inspection.
261.12  Records available to public upon request.
261.13  Processing requests.
261.14  Exemptions from disclosure.
261.15  Request for confidential treatment.
261.16  Request for access to confidential commercial or financial 
          information.
261.17  Fee schedules; waiver of fees.

    Subpart C_Confidential Information Made Available to Supervised 
     Institutions, Financial Institution Supervisory Agencies, Law 
        Enforcement Agencies, and Others in Certain Circumstances

261.20  Confidential supervisory information made available to 
          supervised financial institutions and financial institution 
          supervisory agencies.
261.21  Confidential information made available to law enforcement 
          agencies and other nonfinancial institution supervisory 
          agencies.
261.22  Other disclosure of confidential supervisory information.
261.23  Subpoenas, orders compelling production and other process.

    Authority: 5 U.S.C. 552; 12 U.S.C. 248(i) and (k), 321 et seq., 611 
et seq., 1442, 1467a, 1817(a)(2)(A), 1817(a)(8), 1818(u) and (v), 
1821(o), 1821(t), 1830, 1844, 1951 et seq., 2601, 2801 et seq., 2901 et 
seq., 3101 et seq., 3401 et seq.; 15 U.S.C. 77uuu(b), 78q(c)(3); 29 
U.S.C. 1204; 31 U.S.C. 5301 et seq.; 42 U.S.C. 3601; 44 U.S.C. 3510.

    Source: 53 FR 20815, June 7, 1988, unless otherwise noted.



                      Subpart A_General Provisions

    Source: 62 FR 54359, Oct. 20, 1997, unless otherwise noted.



Sec. 261.1  Authority, purpose, and scope.

    (a) Authority. (1) This part is issued by the Board of Governors of 
the Federal Reserve System (the Board) pursuant to the Freedom of 
Information Act, 5 U.S.C. 552; Sections 9, 11, and 25A of the Federal 
Reserve Act, 12 U.S.C. 248(i) and (k), 321 et seq., (including 326), 611 
et seq.; Section 22 of the Federal Home Loan Bank Act, 12 U.S.C 1442; 
section 10 of the Home Owners' Loan Act, 12 U.S.C. 1467a; the Federal 
Deposit Insurance Act, 12 U.S.C. 1817(a)(2)(A), 1817(a)(8), 1818(u) and 
(v), 1821(o); section 5 of the Bank Holding Company Act, 12 U.S.C. 1844; 
the Bank Secrecy Act, 12 U.S.C. 1951 et seq., and Chapter 53 of title 
31; the Home Mortgage Disclosure Act, 12 U.S.C. 2801 et seq.; the 
Community Reinvestment

[[Page 460]]

Act, 12 U.S.C. 2901 et seq.; the International Banking Act, 12 U.S.C. 
3101 et seq.; the Right to Financial Privacy Act, 12 U.S.C. 3401 et 
seq.; the Securities and Exchange Commission Authorization Act, 15 
U.S.C. 77uuu(b), 78q(c)(3); the Employee Retirement Income Security Act, 
29 U.S.C. 1204; the Money Laundering Suppression Act, 31 U.S.C. 5301, 
the Fair Housing Act, 42 U.S.C. 3601; the Paperwork Reduction Act, 44 
U.S.C. 3510; and any other applicable law that establishes a basis for 
the exercise of governmental authority by the Board.
    (2) This part establishes mechanisms for carrying out the Board's 
statutory responsibilities under statutes in paragraph (a)(1) of this 
section to the extent those responsibilities require the disclosure, 
production, or withholding of information. In this regard, the Board has 
determined that the Board, or its delegees, may disclose exempt 
information of the Board, in accordance with the procedures set forth in 
this part, whenever it is necessary or appropriate to do so in the 
exercise of any of the Board's supervisory or regulatory authorities, 
including but not limited to, authority granted to the Board in the 
Federal Reserve Act, 12 U.S.C. 221 et seq., the Bank Holding Company 
Act, 12 U.S.C. 1841 et seq., the Home Owners' Loan Act, 12 U.S.C. 1461 
et seq., and the International Banking Act, 12 U.S.C. 3101 et seq. The 
Board has determined that all such disclosures, made in accordance with 
the rules and procedures specified in this part, are authorized by law.
    (3) The Board has also determined that it is authorized by law to 
disclose information to a law enforcement or other federal or state 
government agency that has the authority to request and receive such 
information in carrying out its own statutory responsibilities, or in 
response to a valid order of a court of competent jurisdiction or of a 
duly constituted administrative tribunal.
    (b) Purpose. This part sets forth the categories of information made 
available to the public, the procedures for obtaining documents and 
records, the procedures for limited release of exempt and confidential 
supervisory information, and the procedures for protecting confidential 
business information.
    (c) Scope. (1) This subpart A contains general provisions and 
definitions of terms used in this part.
    (2) Subpart B of this part implements the Freedom of Information Act 
(FOIA) (5 U.S.C. 552).
    (3) Subpart C of this part sets forth:
    (i) The kinds of exempt information made available to supervised 
institutions, supervisory agencies, law enforcement agencies, and others 
in certain circumstances;
    (ii) The procedures for disclosure; and
    (iii) The procedures with respect to subpoenas, orders compelling 
production, and other process.

[62 FR 54359, Oct. 20, 1997; 62 FR 62508, Nov. 24, 1997, as amended at 
76 FR 56600, Sept. 13, 2011]



Sec. 261.2  Definitions.

    For purposes of this part:
    (a) Board's official files means the Board's central records.
    (b) Commercial use request refers to a request from or on behalf of 
one who seeks information for a use or purpose that furthers the 
commercial, trade, or profit interests of the requester or the person on 
whose behalf the request is made.
    (c)(1) Confidential supervisory information means:
    (i) Exempt information consisting of reports of examination, 
inspection and visitation, confidential operating and condition reports, 
and any information derived from, related to, or contained in such 
reports;
    (ii) Information gathered by the Board in the course of any 
investigation, suspicious activity report, cease-and-desist orders, 
civil money penalty enforcement orders, suspension, removal or 
prohibition orders, or other orders or actions under the Financial 
Institutions Supervisory Act of 1966, Public Law 89-695, 80 Stat. 1028 
(codified as amended in scattered sections of 12 U.S.C.), the Bank 
Holding Company Act of 1956, 12 U.S.C. 1841 et seq., the Home Owners' 
Loan Act, 12 U.S.C. 1461 et seq., the Federal Reserve Act, 12 U.S.C. 221 
et seq., the International Banking Act of 1978, Public Law 95-369, 92 
Stat. 607 (codified as amended in scattered sections of 12 U.S.C.), and 
the

[[Page 461]]

International Lending Supervision Act of 1983, 12 U.S.C. 3901 et seq.; 
except--
    (A) Such final orders, amendments, or modifications of final orders, 
or other actions or documents that are specifically required to be 
published or made available to the public pursuant to 12 U.S.C. 1818(u), 
or other applicable law, including the record of litigated proceedings; 
and (B) The public section of Community Reinvestment Act examination 
reports, pursuant to 12 U.S.C. 2906(b); and
    (B) The public section of Community Reinvestment Act examination 
reports, pursuant to 12 U.S.C. 2906(b); and
    (iii) Any documents prepared by, on behalf of, or for the use of the 
Board, a Federal Reserve Bank, a federal or state financial institutions 
supervisory agency, or a bank or bank holding company or other 
supervised financial institution.
    (2) Confidential supervisory information does not include documents 
prepared by a supervised financial institution for its own business 
purposes and that are in its possession.
    (d) Direct costs mean those expenditures that the Board actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under Sec. 261.12.
    (e) Duplication refers to the process of making a copy of a document 
in response to a request for disclosure of records or for inspection of 
original records that contain exempt material or that otherwise cannot 
be inspected directly. Among others, such copies may take the form of 
paper, microform, audiovisual materials, or machine-readable 
documentation (e.g., magnetic tape or disk).
    (f) Educational institution refers to a preschool, a public or 
private elementary or secondary school, or an institution of 
undergraduate higher education, graduate higher education, professional 
education, or an institution of vocational education, which operates a 
program of scholarly research.
    (g) Exempt information means information that is exempt from 
disclosure under Sec. 261.14.
    (h) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and that is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (i)(1) Records of the Board include:
    (i) In written form, or in nonwritten or machine-readable form; all 
information coming into the possession and under the control of the 
Board, any Board member, any Federal Reserve Bank, or any officer, 
employee, or agent of the Board or of any Federal Reserve Bank, in the 
performance of functions for or on behalf of the Board that constitute 
part of the Board's official files; or
    (ii) That are maintained for administrative reasons in the regular 
course of business in official files in any division or office of the 
Board or any Federal Reserve Bank in connection with the transaction of 
any official business.
    (2) Records of the Board does not include personal files of Board 
members and employees; tangible exhibits, formulas, designs, or other 
items of valuable intellectual property; extra copies of documents and 
library and museum materials kept solely for reference or exhibition 
purposes; unaltered publications otherwise available to the public in 
Board publications, libraries, or established distribution systems.
    (j) Report of examination means the report prepared by the Board, or 
other federal or state financial institution supervisory agency, 
concerning the examination of a financial institution, and includes 
reports of inspection and reports of examination of U.S. branches or 
agencies of foreign banks and representative offices of foreign 
organizations, and other institutions examined by the Federal Reserve 
System.
    (k) Report of inspection means a report prepared by the Board 
concerning its inspection of a bank holding company and its bank and 
nonbank subsidiaries or other supervised financial institution.
    (l) Representative of the news media refers to any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public.
    (1) The term ``news'' means information that is about current events 
or

[[Page 462]]

that would be of current interest to the public.
    (2) Examples of news media entities include, but are not limited to, 
television or radio stations broadcasting to the public at large, and 
publishers of periodicals (but only in those instances when they can 
qualify as disseminators of ``news'') who make their products available 
for purchase or subscription by the general public.
    (3) ``Freelance'' journalists may be regarded as working for a news 
organization if they can demonstrate a solid basis for expecting 
publication through that organization, even though they are not actually 
employed by it.
    (m)(1) Review refers to the process of examining documents, located 
in response to a request for access, to determine whether any portion of 
a document is exempt information. It includes doing all that is 
necessary to excise the documents and otherwise to prepare them for 
release.
    (2) Review does not include time spent resolving general legal or 
policy issues regarding the application of exemptions.
    (n)(1) Search means a reasonable search, by manual or automated 
means, of the Board's official files and any other files containing 
Board records as seem reasonably likely in the particular circumstances 
to contain information of the kind requested. For purposes of computing 
fees under Sec. 261.17, search time includes all time spent looking for 
material that is responsive to a request, including line-by-line 
identification of material within documents. Such activity is distinct 
from ``review'' of material to determine whether the material is exempt 
from disclosure.
    (2) Search does not mean or include research, creation of any 
document, or extensive modification of an existing program or system 
that would significantly interfere with the operation of the Board's 
automated information systems.
    (o) Supervised financial institution includes a bank, bank holding 
company (including subsidiaries), savings and loan holding company 
(including non-depository subsidiaries), U.S. branch or agency of a 
foreign bank, or any other institution that is supervised by the Board.

[62 FR 54359, Oct. 20, 1997, as amended at 76 FR 56601, Sept. 13, 2011]



Sec. 261.3  Custodian of records; certification; service; alternative authority.

    (a) Custodian of records. The Secretary of the Board (Secretary) is 
the official custodian of all Board records, including records that are 
in the possession or control of the Board, any Federal Reserve Bank, or 
any Board or Reserve Bank employee.
    (b) Certification of record. The Secretary may certify the 
authenticity of any Board record, or any copy of such record, for any 
purpose, and for or before any duly constituted federal or state court, 
tribunal, or agency.
    (c) Service of subpoenas or other process. Subpoenas or other 
judicial or administrative process, demanding access to any Board 
records or making any claim against the Board, shall be addressed to and 
served upon the Secretary of the Board at the Board's office at 20th and 
C Streets, N.W., Washington, D.C. 20551. Neither the Board nor the 
Secretary are agents for service of process on behalf of any employee in 
respect of purely private legal disputes, except as specifically 
provided by law.
    (d) Alternative authority. Any action or determination required or 
permitted by this part to be done by the Secretary, the General Counsel, 
or the Director of any Division may be done by any employee who has been 
duly designated for this purpose by the Secretary, General Counsel, or 
the appropriate Director.



    Subpart B_Published Information and Records Available to Public; 
                         Procedures for Requests

    Source: 62 FR 54359, 54361, Oct. 20, 1997, unless otherwise noted.



Sec. 261.10  Published information.

    (a) Federal Register. The Board publishes in the Federal Register 
for the guidance of the public:

[[Page 463]]

    (1) Descriptions of the Board's central and field organization;
    (2) Statements of the general course and method by which the Board's 
functions are channeled and determined, including the nature and 
requirements of procedures;
    (3) Rules of procedure, descriptions of forms available and the 
place where they may be obtained, and instructions on the scope and 
contents of all papers, reports, and examinations;
    (4) Substantive rules, interpretations of general applicability, and 
statements of general policy;
    (5) Every amendment, revision, or repeal of the foregoing in 
paragraphs (a)(1) through (a)(4) of this section;
    (6) Notices of proposed rulemaking;
    (7) Notices of applications received under the Bank Holding Company 
Act of 1956 (12 U.S.C. 1841 et seq.), the Home Owners' Loan Act (12 
U.S.C. 1461 et seq.), and the Change in Bank Control Act (12 U.S.C. 
1817);
    (8) Notices of all Board meetings, pursuant to the Government in the 
Sunshine Act (5 U.S.C. 552b);
    (9) Notices identifying the Board's systems of records, pursuant to 
the Privacy Act of 1974 (5 U.S.C. 552a); and
    (10) Notices of agency data collection forms being reviewed under 
the Paperwork Reduction Act (5 U.S.C. 3501 et seq.).
    (b) Board's Reports to Congress. The Board's annual report to 
Congress pursuant to the Federal Reserve Act (12 U.S.C. 247), which is 
made public upon its submission to Congress, contains a full account of 
the Board's operations during the year, the policy actions by the 
Federal Open Market Committee, an economic review of the year, and 
legislative recommendations to Congress. The Board also makes periodic 
reports to Congress under certain statutes, including but not limited to 
the Freedom of Information Act (5 U.S.C. 552); the Government in the 
Sunshine Act (5 U.S.C. 552b); the Full Employment and Balanced Growth 
Act of 1978 (12 U.S.C. 225a); and the Privacy Act (5 U.S.C. 552a).
    (c) Federal Reserve Bulletin. This publication is issued monthly and 
contains economic and statistical information, articles relating to the 
economy or Board activities, and descriptions of recent actions by the 
Board.
    (d) Other published information. Among other things, the Board 
publishes the following information:
    (1) Weekly publications. The Board issues the following publications 
weekly:
    (i) A statement showing the condition of each Federal Reserve Bank 
and a consolidated statement of the condition of all Federal Reserve 
Banks, pursuant to 12 U.S.C. 248(a);
    (ii) An index of applications received and the actions taken on the 
applications, as well as other matters issued, adopted, or promulgated 
by the Board; and
    (iii) A statement showing changes in the structure of the banking 
industry resulting from mergers and the establishment of branches.
    (2) Press releases. The Board frequently issues statements to the 
press and public regarding monetary and credit actions, regulatory 
actions, actions taken on certain types of applications, and other 
matters.
    (3) Call Report and other data. Certain data from Reports of 
Condition and Income submitted to the Board are available through the 
National Technical Information Service and may be obtained by the 
procedure described in Sec. 261.11(c)(2).
    (4) Federal Reserve Regulatory Service. This is a multivolume 
looseleaf service published by the Board, containing statutes, 
regulations, interpretations, rulings, staff opinions, and procedural 
rules under which the Board operates. Portions of the service are also 
published as separate looseleaf handbooks relating to consumer and 
community affairs, monetary policy and reserve requirements, payments 
systems, and securities credit transactions. The service and each 
handbook contain subject and citation indexes, are updated monthly, and 
may be subscribed to on a yearly basis.
    (e) Index to Board actions. The Board's Freedom of Information 
Office maintains, in electronic format, an index to Board actions, which 
is updated weekly and provides identifying information about any matters 
issued, adopted, and promulgated by the Board since July 4,

[[Page 464]]

1967. Copies of the index may be obtained upon request to the Freedom of 
Information Office subject to the current schedule of fees in 
Sec. 261.17.
    (f) Obtaining Board publications. The Publications Services Section 
maintains a list of Board publications that are available to the public. 
In addition, a partial list of publications is published in the Federal 
Reserve Bulletin. All publications issued by the Board, including 
available back issues, may be obtained from Publications Services, Board 
of Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551. Subscription or other charges may 
apply to some publications.

[62 FR 54359, 54361, Oct. 20, 1997, as amended at 76 FR 56601, Sept. 13, 
2011; 81 FR 94933, Dec. 27, 2016]



Sec. 261.11  Records available for public inspection.

    (a) Types of records made available. Unless they were published 
promptly and made available for sale or without charge, the following 
records shall be made available for inspection in an electronic format:
    (1) Final opinions, including concurring and dissenting opinions, as 
well as final orders and written agreements, made in the adjudication of 
cases;
    (2) Statements of policy and interpretations adopted by the Board 
that are not published in the Federal Register;
    (3) Administrative staff manuals and instructions to staff that 
affect the public;
    (4) Copies of all records, regardless of form or format--
    (i) That have been released to any person under Sec. 261.12; and
    (ii)(A) That because of the nature of their subject matter, the 
Board determines have become or are likely to become the subject of 
subsequent requests for substantially the same records; or
    (B) That have been requested three or more times;
    (5) A general index of the records referred to in paragraph (a)(4) 
of this section; and
    (6) The public section of Community Reinvestment Act examination 
reports.
    (b) Reading room procedures. (1) Information available under this 
section is available for inspection and copying, from 9:00 a.m. to 5:00 
p.m. weekdays, at the Freedom of Information Office of the Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW., Washington, DC 20551.
    (2) The Board may determine that certain classes of publicly 
available filings shall be made available for inspection and copying 
only at the Federal Reserve Bank where those records are filed.
    (c) Privacy protection. The Board may delete identifying details 
from any record to prevent a clearly unwarranted invasion of personal 
privacy.

[62 FR 54359, 54361, Oct. 20, 1997, as amended at 81 FR 94933, Dec. 27, 
2016]



Sec. 261.12  Records available to public upon request.

    (a) Types of records made available. All records of the Board that 
are not available under Secs. 261.10 and 261.11 shall be made available 
upon request, pursuant to the procedures and exceptions in this subpart 
B.
    (b) Procedures for requesting records. (1) A request for 
identifiable records shall reasonably describe the records in a way that 
enables the Board's staff to identify and produce the records with 
reasonable effort and without unduly burdening or significantly 
interfering with any of the Board's operations.
    (2) The request shall be submitted in writing to the Freedom of 
Information Office, Board of Governors of the Federal Reserve System, 
20th & C Street NW., Washington, DC 20551; or sent by facsimile to the 
Freedom of Information Office, (202) 872-7565; or submitted 
electronically to http://www.federalreserve.gov/forms/efoiaform.aspx. 
The request shall be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (3) A request may not be combined with any other request to the 
Board except for a request under 12 CFR 261a.3(a) (Rules Regarding 
Access to and Review of Personal Information under the Privacy Act of 
1974) and a request made under Sec. 261.22(b).

[[Page 465]]

    (c) Contents of request. The request shall contain the following 
information:
    (1) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (2) Whether the requested information is intended for commercial 
use, and whether the requester is an educational or noncommercial 
scientific institution, or news media representative;
    (3) A statement agreeing to pay the applicable fees, or a statement 
identifying any desired fee limitation, or a request for a waiver or 
reduction of fees that satisfies Sec. 261.17(f); and
    (4) If the request is being made in connection with on-going 
litigation, a statement indicating whether the requester will seek 
discretionary release of exempt information from the General Counsel 
upon denial of the request by the Secretary. A requester who intends to 
make such a request to the General Counsel may also address the factors 
set forth in Sec. 261.22(b).
    (d) Defective requests. The Board need not accept or process a 
request that does not reasonably describe the records requested or that 
does not otherwise comply with the requirements of this section. The 
Board may return a defective request, specifying the deficiency. The 
requester may submit a corrected request, which will be treated as a new 
request.
    (e) Oral requests. The Freedom of Information Office may honor an 
oral request for records, but if the requester is dissatisfied with the 
Board's response and wishes to seek review, the requester must submit a 
written request, which shall be treated as an initial request.

[62 FR 54362, Oct. 20, 1997; 62 FR 62508, Nov. 24, 1997, as amended at 
81 FR 94933, Dec. 27, 2016]



Sec. 261.13  Processing requests.

    (a) Receipt of requests. Upon receipt of any request that satisfies 
Sec. 261.12(b), the Freedom of Information Office shall assign the 
request to the appropriate processing schedule, pursuant to paragraph 
(b) of this section. The date of receipt for any request, including one 
that is addressed incorrectly or that is referred to the Board by 
another agency or by a Federal Reserve Bank, is the date the Freedom of 
Information Office actually receives the request.
    (b) Multitrack processing. (1) The Board provides different levels 
of processing for categories of requests under this section. Requests 
for records that are readily identifiable by the Freedom of Information 
Office and that have already been cleared for public release may qualify 
for fast-track processing. All other requests shall be handled under 
normal processing procedures, unless expedited processing has been 
granted pursuant to paragraph (c)(2) of this section.
    (2) The Freedom of Information Office will make the determination 
whether a request qualifies for fast-track processing. A requester may 
contact the Freedom of Information Office to learn whether a particular 
request has been assigned to fast-track processing. If the request has 
not qualified for fast-track processing, the requester will be given an 
opportunity to limit the request in order to qualify for fast-track 
processing. Limitations of requests must be in writing.
    (c) Expedited processing. When a person requesting expedited access 
to records has demonstrated a compelling need for the records, or when 
the Board has determined to expedite the response, the Board shall 
process the request as soon as practicable.
    (1) To demonstrate a compelling need for expedited processing, the 
requester shall provide a certified statement, a sample of which may be 
obtained from the Freedom of Information Office. The statement, which 
must be certified to be true and correct to the best of the requester's 
knowledge and belief, shall demonstrate that:
    (i) The failure to obtain the records on an expedited basis could 
reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual; or
    (ii) The requester is a representative of the news media, as defined 
in Sec. 261.2, and there is urgency to inform the public concerning 
actual or alleged Board activity.
    (2) In response to a request for expedited processing, the Secretary 
shall

[[Page 466]]

notify a requester of the determination within ten calendar days of 
receipt of the request. If the Secretary denies a request for expedited 
processing, the requester may file an appeal pursuant to the procedures 
set forth in paragraph (i) of this section, and the Board shall respond 
to the appeal within ten working days after the appeal was received by 
the Board.
    (d) Priority of responses. The Secretary will assign responsible 
staff to process particular requests. The Freedom of Information Office 
will normally process requests in the order they are received in the 
separate processing tracks, except when expedited processing is granted. 
However, in the Secretary's discretion, or upon a court order in a 
matter to which the Board is a party, a particular request may be 
processed out of turn.
    (e) Time limits. The time for response to requests shall be 20 
working days, except:
    (1) In the case of expedited treatment under paragraph (c) of this 
section;
    (2) Where the running of such time is suspended for payment of fees 
pursuant to Sec. 261.17(b)(2);
    (3) In unusual circumstances, as defined in 5 U.S.C. 552(a)(6)(B), 
the Board may:
    (i) Extend the 20-day time limit for a period of time not to exceed 
10 working days, where the Board has provided written notice to the 
requester setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; and
    (ii) Extend the 20-day time limit for a period of more than 10 
working days where the Board has provided the requester with an 
opportunity to modify the scope of the FOIA request so that it can be 
processed within that time frame or with an opportunity to arrange an 
alternative time frame for processing the original request or a modified 
request, and has notified the requester that the Board's FOIA Public 
Liaison is available to assist the requester for this purpose and in the 
resolution of any disputes between the requester and the Board and of 
the requester's right to seek dispute resolution services from the 
Office of Government Information Services.
    (f) Response to request. In response to a request that satisfies 
Sec. 261.12(b), an appropriate search shall be conducted of records of 
the Board in existence on the date of receipt of the request, and a 
review made of any responsive information located. The Secretary shall 
notify the requester of:
    (1) The Board's determination of the request;
    (2) The reasons for the determination;
    (3) The amount of information withheld;
    (4) The right of the requester to seek assistance from the Board's 
FOIA Public Liaison; and
    (5) When an adverse determination is made (including determinations 
that the requested record is exempt, in whole or in part; the request 
does not reasonably describe the records sought; the information 
requested is not a record subject to the FOIA; the requested record does 
not exist, cannot be located, or has been destroyed; the requested 
record is not readily reproducible in the form or format sought by the 
requester; deny fee waiver requests or other fee categorization matters; 
and deny requests for expedited processing), the Secretary will advise 
the requester in writing of that determination and will further advise 
the requester of:
    (i) The right of the requester to appeal to the Board any adverse 
determination within 90 days after the date of the determination as 
specified in paragraph (i) of this section;
    (ii) The right of the requester to seek dispute resolution services 
from the Board's FOIA Public Liaison or the Office of Government 
Information Services; and
    (iii) The name and title or position of the person responsible for 
the adverse determination.
    (g) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, or classified by another 
agency, the Board may refer the request to that agency for a response 
and inform the requester promptly of the referral.
    (h) Providing responsive records. (1) Copies of requested records 
shall be sent to the requester by regular U.S.

[[Page 467]]

mail to the address indicated in the request, unless the requester 
elects to take delivery of the documents at the Freedom of Information 
Office or makes other acceptable arrangements, or the Board deems it 
appropriate to send the documents by another means.
    (2) The Board shall provide a copy of the record in any form or 
format requested if the record is readily reproducible by the Board in 
that form or format, but the Board need not provide more than one copy 
of any record to a requester.
    (i) Appeal of an adverse determination. In the case of an adverse 
determination, the requester may file a written appeal with the Board, 
as follows:
    (1) The appeal shall prominently display the phrase FREEDOM OF 
INFORMATION ACT APPEAL on the first page, and shall be addressed to the 
Freedom of Information Office, Board of Governors of the Federal Reserve 
System, 20th & C Streets NW., Washington, DC 20551; or sent by facsimile 
to the Freedom of Information Office, (202) 872-7562 or 7565; or sent by 
email to [email protected].
    (2) An initial request for records may not be combined in the same 
letter with an appeal.
    (3) The appeal shall be filed within 90 days of the date on which 
the adverse determination was issued, or the date on which documents in 
partial response to the request were transmitted to the requester, 
whichever is later. The Board may consider an untimely appeal if:
    (4) The Board shall make a determination regarding any appeal within 
20 working days of actual receipt of the appeal by the Freedom of 
Information Office, and the determination letter shall notify the 
appealing party of the right to seek judicial review.
    (5) The Secretary may reconsider a denial being appealed if 
intervening circumstances or additional facts not known at the time of 
the denial come to the attention of the Secretary while an appeal is 
pending.

[62 FR 54359, 54361, Oct. 20, 1997, as amended at 81 FR 94933, Dec. 27, 
2016]



Sec. 261.14  Exemptions from disclosure.

    (a) Types of records exempt from disclosure. Pursuant to 5 U.S.C. 
552(b), the following records of the Board are exempt from disclosure 
under this part. The Board shall withhold records or information only 
when it reasonably foresees that disclosure would harm an interest 
protected by an exemption described in this paragraph 261.14(a) or when 
disclosure is prohibited by law. In applying the exemption in 
subparagraph (a)(5) of this section, the Board will not withhold records 
based on the deliberative process privilege if the records were created 
25 years or more before the date on which the records were requested.
    (1) National defense. Any information that is specifically 
authorized under criteria established by an Executive Order to be kept 
secret in the interest of national defense or foreign policy and is in 
fact properly classified pursuant to the Executive Order.
    (2) Internal personnel rules and practices. Any information related 
solely to the internal personnel rules and practices of the Board.
    (3) Statutory exemption. Any information specifically exempted from 
disclosure by statute (other than 5 U.S.C. 552b), if the statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding or refers to 
particular types of matters to be withheld.
    (4) Trade secrets; commercial or financial information. Any matter 
that is a trade secret or that constitutes commercial or financial 
information obtained from a person and that is privileged or 
confidential.
    (5) Inter- or intra-agency memorandums. Information contained in 
inter- or intra-agency memorandums or letters that would not be 
available by law to a party (other than an agency) in litigation with an 
agency, including, but not limited to:
    (i) Memorandums;
    (ii) Reports;
    (iii) Other documents prepared by the staffs of the Board, Federal 
Reserve Banks, or the Office of Thrift Supervision (including documents 
transferred to the Board pursuant to section 323(b)(2) of the Dodd-Frank 
Wall Street

[[Page 468]]

Reform and Consumer Protection Act (12 U.S.C. 5433)); and
    (iv) Records of deliberations of the Board and of discussions at 
meetings of the Board, any Board committee, or Board staff, that are not 
subject to 5 U.S.C. 552b (the Government in the Sunshine Act).
    (6) Personnel and medical files. Any information contained in 
personnel and medical files and similar files the disclosure of which 
would constitute a clearly unwarranted invasion of personal privacy.
    (7) Information compiled for law enforcement purposes. Any records 
or information compiled for law enforcement purposes, to the extent 
permitted under 5 U.S.C. 552(b)(7); including information relating to 
administrative enforcement proceedings of the Board.
    (8) Examination, inspection, operating, or condition reports, and 
confidential supervisory information. Any matter that is contained in or 
related to examination, operating, or condition reports prepared by, on 
behalf of, or for the use of an agency responsible for the regulation or 
supervision of financial institutions, including a state financial 
institution supervisory agency.
    (b) Segregation of nonexempt information. The Board shall provide 
any reasonably segregable portion of a record that is requested after 
deleting those portions that are exempt under this section.
    (c) Discretionary release. (1) Except where disclosure is expressly 
prohibited by statute, regulation, or order, the Board may release 
records that are exempt from mandatory disclosure whenever the Board or 
designated Board members, the Secretary of the Board, the General 
Counsel of the Board, the Director of the Division of Banking 
Supervision and Regulation, or the appropriate Federal Reserve Bank, 
acting pursuant to this part or 12 CFR part 265, determines that such 
disclosure would be in the public interest.
    (2) The Board may make any exempt information furnished in 
connection with an application for Board approval of a transaction 
available to the public in accordance with Sec. 261.12, and without 
prior notice and to the extent it deems necessary, may comment on such 
information in any opinion or statement issued to the public in 
connection with a Board action to which such information pertains.
    (d) Delayed release. Publication in the Federal Register or 
availability to the public of certain information may be delayed if 
immediate disclosure would likely:
    (1) Interfere with accomplishing the objectives of the Board in the 
discharge of its statutory functions;
    (2) Interfere with the orderly conduct of the foreign affairs of the 
United States;
    (3) Permit speculators or others to gain unfair profits or other 
unfair advantages by speculative trading in securities or otherwise;
    (4) Result in unnecessary or unwarranted disturbances in the 
securities markets;
    (5) Interfere with the orderly execution of the objectives or 
policies of other government agencies; or
    (6) Impair the ability to negotiate any contract or otherwise harm 
the commercial or financial interest of the United States, the Board, 
any Federal Reserve Bank, or any department or agency of the United 
States.
    (e) Prohibition against disclosure. Except as provided in this part, 
no officer, employee, or agent of the Board or any Federal Reserve Bank 
shall disclose or permit the disclosure of any unpublished information 
of the Board to any person (other than Board or Reserve Bank officers, 
employees, or agents properly entitled to such information for the 
performance of official duties).

[62 FR 54359, 54361, Oct. 20, 1997, as amended at 76 FR 56601, Sept. 13, 
2011; 81 FR 94934, Dec. 27, 2016]



Sec. 261.15  Request for confidential treatment.

    (a) Submission of request. Any submitter of information to the Board 
who desires confidential treatment pursuant to 5 U.S.C. 552(b)(4) and 
Sec. 261.14 (a)(4) shall file a request for confidential treatment with 
the Board (or in the case of documents filed with a Federal Reserve 
Bank, with that Federal Reserve Bank) at the time the information is 
submitted or a reasonable time after submission.

[[Page 469]]

    (b) Form of request. Each request for confidential treatment shall 
state in reasonable detail the facts supporting the request and its 
legal justification. Conclusory statements that release of the 
information would cause competitive harm generally will not be 
considered sufficient to justify confidential treatment.
    (c) Designation and separation of confidential material. All 
information considered confidential by a submitter shall be clearly 
designated CONFIDENTIAL in the submission and separated from information 
for which confidential treatment is not requested. Failure to segregate 
confidential information from other material may result in release of 
the nonsegregated material to the public without notice to the 
submitter.
    (d) Exceptions. This section does not apply to:
    (1) Data collected on forms that are approved pursuant to the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) and are deemed 
confidential by the Board. Any such form deemed confidential by the 
Board shall so indicate on the face of the form or in its instructions. 
The data may, however, be disclosed in aggregate form in such a manner 
that individual company data is not disclosed or derivable.
    (2) Any comments submitted by a member of the public on applications 
and regulatory proposals being considered by the Board, unless the Board 
or the Secretary determines that confidential treatment is warranted.
    (3) A determination by the Board to comment upon information 
submitted to the Board in any opinion or statement issued to the public 
as described in Sec. 261.14(c).
    (e) Special procedures. The Board may establish special procedures 
for particular documents, filings, or types of information by express 
provisions in this part or by instructions on particular forms that are 
approved by the Board. These special procedures shall take precedence 
over this section.



Sec. 261.16  Request for access to confidential commercial or financial 
information.

    (a) Request for confidential information. A request by a submitter 
for confidential treatment of any information shall be considered in 
connection with a request for access to that information. At their 
discretion, appropriate Board or staff members (including Federal 
Reserve Bank staff) may act on the request for confidentiality prior to 
any request for access to the documents.
    (b) Notice to the submitter. When a request for access is received 
pursuant to the Freedom of Information Act (5 U.S.C. 552):
    (1) The Secretary shall notify a submitter of the request, if:
    (i) The submitter requested confidential treatment of the 
information pursuant to 5 U.S.C. 552(b)(4); and
    (ii) The request by the submitter for confidential treatment was 
made within 10 years preceding the date of the request for access.
    (2) Absent a request for confidential treatment, the Secretary may 
notify a submitter of a request for access to information provided by 
the submitter if the Secretary reasonably believes that disclosure of 
the information may cause substantial competitive harm to the submitter.
    (3) The notice given to the submitter shall:
    (i) Be given as soon as practicable after receipt of the request for 
access;
    (ii) Describe the request; and
    (iii) Give the submitter a reasonable opportunity, not to exceed ten 
working days from the date of notice, to submit written objections to 
disclosure of the information.
    (c) Exceptions to notice to submitter. Notice to the submitter need 
not be given if:
    (1) The Secretary determines that the request for access should be 
denied;
    (2) The requested information lawfully has been made available to 
the public;
    (3) Disclosure of the information is required by law (other than 5 
U.S.C. 552); or
    (4) The submitter's claim of confidentiality under 5 U.S.C. 
552(b)(4) appears obviously frivolous or has already been denied by the 
Secretary, except that in this last instance the Secretary shall give 
the submitter written notice of

[[Page 470]]

the determination to disclose the information at least five working days 
prior to disclosure.
    (d) Notice to requester. At the same time the Secretary notifies the 
submitter, the Secretary also shall notify the requester that the 
request is subject to the provisions of this section.
    (e) Written objections by submitter. Upon receipt of notice of a 
request for access to its information, the submitter may provide written 
objections to release of the information. Such objections shall state 
whether the information was provided voluntarily or involuntarily to the 
Board.
    (1) If the information was voluntarily provided to the Board, the 
submitter shall provide detailed facts showing that the information is 
customarily withheld from the public.
    (2) If the information was not provided voluntarily to the Board, 
the submitter shall provide detailed facts and arguments showing:
    (i) The likelihood of substantial harm that would be caused to the 
submitter's competitive position; or
    (ii) That release of the information would impair the Board's 
ability to obtain necessary information in the future.
    (f) Determination by Secretary. The Secretary's determination 
whether or not to disclose any information for which confidential 
treatment has been requested pursuant to this section shall be 
communicated to the submitter and the requester immediately. If the 
Secretary determines to disclose the information and the submitter has 
objected to such disclosure pursuant to paragraph (e) of this section, 
the Secretary shall provide the submitter with the reasons for 
disclosure, and shall delay disclosure for ten working days from the 
date of the determination.
    (g) Notice of lawsuit. (1) The Secretary shall promptly notify any 
submitter of information covered by this section of the filing of any 
suit against the Board to compel disclosure of such information.
    (2) The Secretary shall promptly notify the requester of any suit 
filed against the Board to enjoin the disclosure of any documents 
requested by the requester.



Sec. 261.17  Fee schedules; waiver of fees.

    (a) Fee schedules. The fees applicable to a request for records 
pursuant to Secs. 261.11 and 261.12 are set forth in appendix A to this 
section. These fees cover only the full allowable direct costs of 
search, duplication, and review. No fees will be charged where the 
average cost of collecting the fee (calculated at $5.00) exceeds the 
amount of the fee.
    (b) Payment procedures. The Secretary may assume that a person 
requesting records pursuant to Sec. 261.12 will pay the applicable fees, 
unless the request includes a limitation on fees to be paid or seeks a 
waiver or reduction of fees pursuant to paragraph (f) of this section.
    (1) Advance notification of fees. If the estimated charges are 
likely to exceed $100, the Freedom of Information Office shall notify 
the requester of the estimated amount, unless the requester has 
indicated a willingness to pay fees as high as those anticipated. Upon 
receipt of such notice, the requester may confer with the Freedom of 
Information Office to reformulate the request to lower the costs. The 
time period for responding to requests under Sec. 261.13(e), and the 
processing of the request will be suspended until the requester agrees 
to pay the applicable fees.
    (2) Advance payment. The Secretary may require advance payment of 
any fee estimated to exceed $250. The Secretary may also require full 
payment in advance where a requester has previously failed to pay a fee 
in a timely fashion. The time period for responding to requests under 
Sec. 261.13(e), and the processing of the request will be suspended 
until the Freedom of Information Office receives the required payment.
    (3) Late charges. The Secretary may assess interest charges when fee 
payment is not made within 30 days of the date on which the billing was 
sent. Interest is at the rate prescribed in 31 U.S.C. 3717 and accrues 
from the date of the billing.
    (c) Categories of uses. The fees assessed depend upon the intended 
use for the records requested. In determining which category is 
appropriate, the Secretary shall look to the intended use set forth in 
the request for records. Where a requester's description of the

[[Page 471]]

use is insufficient to make a determination, the Secretary may seek 
additional clarification before categorizing the request.
    (1) Commercial use. The fees for search, duplication, and review 
apply when records are requested for commercial use.
    (2) Educational, research, or media use. The fees for duplication 
apply when records are not sought for commercial use, and the requester 
is a representative of the news media or an educational or noncommercial 
scientific institution, whose purpose is scholarly or scientific 
research. The first 100 pages of duplication, however, will be provided 
free.
    (3) All other uses. For all other requests, the fees for document 
search and duplication apply. The first two hours of search time and the 
first 100 pages of duplication, however, will be provided free.
    (d) Nonproductive search. Fees for search and review may be charged 
even if no responsive documents are located or if the request is denied.
    (e) Aggregated requests. A requester may not file multiple requests 
at the same time, solely in order to avoid payment of fees. If the 
Secretary reasonably believes that a requester is separating a request 
into a series of requests for the purpose of evading the assessment of 
fees, the Secretary may aggregate any such requests and charge 
accordingly. It is considered reasonable for the Secretary to presume 
that multiple requests of this type made within a 30-day period have 
been made to avoid fees.
    (f) Waiver or reduction of fees. A request for a waiver or reduction 
of the fees, and the justification for the waiver, shall be included 
with the request for records to which it pertains. If a waiver is 
requested and the requester has not indicated in writing an agreement to 
pay the applicable fees if the waiver request is denied, the time for 
response to the request for documents, as set forth in Sec. 261.13(e), 
shall not begin until a waiver has been granted; or if the waiver is 
denied, until the requester has agreed to pay the applicable fees.
    (1) Standards for determining waiver or reduction. The Secretary 
shall grant a waiver or reduction of fees where it is determined both 
that disclosure of the information is in the public interest because it 
is likely to contribute significantly to public understanding of the 
operation or activities of the government, and that the disclosure of 
information is not primarily in the commercial interest of the 
requester. In making this determination, the following factors shall be 
considered:
    (i) Whether the subject of the records concerns the operations or 
activities of the government;
    (ii) Whether disclosure of the information is likely to contribute 
significantly to public understanding of government operations or 
activities;
    (iii) Whether the requester has the intention and ability to 
disseminate the information to the public;
    (iv) Whether the information is already in the public domain;
    (v) Whether the requester has a commercial interest that would be 
furthered by the disclosure; and, if so,
    (vi) Whether the magnitude of the identified commercial interest of 
the requester is sufficiently large, in comparison with the public 
interest in disclosure, that disclosure is primarily in the commercial 
interest of the requester.
    (2) Contents of request for waiver. A request for a waiver or 
reduction of fees shall include:
    (i) A clear statement of the requester's interest in the documents;
    (ii) The use proposed for the documents and whether the requester 
will derive income or other benefit for such use;
    (iii) A statement of how the public will benefit from such use and 
from the Board's release of the documents;
    (iv) A description of the method by which the information will be 
disseminated to the public; and
    (v) If specialized use of the information is contemplated, a 
statement of the requester's qualifications that are relevant to that 
use.
    (3) Burden of proof. The burden shall be on the requester to present 
evidence or information in support of a request for a waiver or 
reduction of fees.
    (4) Determination by Secretary. The Secretary shall make a 
determination

[[Page 472]]

on the request for a waiver or reduction of fees and shall notify the 
requester accordingly. A denial may be appealed to the Board in 
accordance with Sec. 261.13(i).
    (g) Employee requests. In connection with any request by an 
employee, former employee, or applicant for employment, for records for 
use in prosecuting a grievance or complaint of discrimination against 
the Board, fees shall be waived where the total charges (including 
charges for information provided under the Privacy Act of 1974 (5 U.S.C. 
552a) are $50 or less; but the Secretary may waive fees in excess of 
that amount.
    (h) Special services. The Secretary may agree to provide, and set 
fees to recover the costs of, special services not covered by the 
Freedom of Information Act, such as certifying records or information 
and sending records by special methods such as express mail or overnight 
delivery.
    (i) Restrictions on charging fees. (1) If the Board fails to comply 
with the FOIA's time limits in which to respond to a request, the Board 
may not charge search fees, or, in the instances of requests from 
requesters described in paragraph (c)(2) of this section, may not charge 
duplication fees, except as permitted under paragraphs (i)(2) through 
(4) of this section.
    (2) If the Board determines that unusual circumstances exist, as 
described in 5 U.S.C. 552(a)(6)(B), and has provided timely written 
notice to the requester and subsequently responds within the additional 
10 working days as provided in Sec. 261.13(e)(3), the Board may charge 
search fees, or, in the case of requests from requesters described in 
paragraph (c)(2) of this section, may charge duplication fees.
    (3) If the Board determines that unusual circumstances exist, as 
described in 5 U.S.C. 552(a)(6)(B), and more than 5,000 pages are 
necessary to respond to the request, then the Board may charge search 
fees, or, in the case of requesters described in paragraph (c)(2) of 
this section, may charge duplication fees, if the Board has:
    (i) Provided timely written notice to the requester in accordance 
with the FOIA; and
    (ii) Discussed with the requester via written mail, email, or 
telephone (or made not less than three good-faith attempts to do so) how 
the requester could effectively limit the scope of the request in 
accordance with 5 U.S.C. 552(a)(6)(B)(ii).
    (4) If a court has determined that exceptional circumstances exist, 
as defined by the FOIA, a failure to comply with the time limits shall 
be excused for the length of time provided by the court order.

     Appendix A to Sec.  261.17--Freedom of Information Fee Schedule
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Duplication:
  Photocopy, per standard page................................     $0.10
  Paper copies of microfiche, per frame.......................       .10
  Duplicate microfiche, per microfiche........................       .35
Search and review:
  Clerical/Technical, hourly rate.............................     20.00
  Professional/Supervisory, hourly rate.......................     38.00
  Manager/Senior Professional, hourly rate....................     65.00
Computer search and production:
  Computer operator search, hourly rate.......................     32.00
  Tapes (cassette) per tape...................................      6.00
  Tapes (cartridge), per tape.................................      9.00
  Tapes (reel), per tape......................................     18.00
  Diskettes (3\1/2\"), per diskette...........................      4.00
  Diskettes (5\1/4\"), per diskette...........................      5.00
  Computer Output (PC), per minute............................       .10
  Computer Output (mainframe).................................     (\1\)
------------------------------------------------------------------------
\1\ Actual cost.


[62 FR 54365, Oct. 20, 1997; 62 FR 62508, Nov. 24, 1997, as amended at 
81 FR 94934, Dec. 27, 2016]



    Subpart C_Confidential Information Made Available to Supervised 
     Institutions, Financial Institution Supervisory Agencies, Law 
        Enforcement Agencies, and Others in Certain Circumstances



Sec. 261.20  Confidential supervisory information made available to supervised 
financial institutions and financial institution supervisory agencies.

    (a) Disclosure of confidential supervisory information to supervised 
financial institutions. Confidential supervisory information concerning 
a supervised bank, bank holding company (including subsidiaries), U.S. 
branch or agency of

[[Page 473]]

a foreign bank, savings and loan holding company (including 
subsidiaries), or other institution examined by the Federal Reserve 
System (``supervised financial institution'') may be made available by 
the Board or the appropriate Federal Reserve Bank to the supervised 
financial institution.
    (b) Disclosure of confidential supervisory information by supervised 
financial institution--(1) Parent bank holding company, parent savings 
and loan holding company, directors, officers, and employees. Any 
supervised financial institution lawfully in possession of confidential 
supervisory information of the Board pursuant to this section may 
disclose such information, or portions thereof, to its directors, 
officers, and employees, and to its parent bank holding company or 
parent savings and loan holding company and its directors, officers, and 
employees.
    (2) Certified public accountants and legal counsel. Any supervised 
financial institution lawfully in possession of confidential supervisory 
information of the Board pursuant to this section may disclose such 
information, or portions thereof, to any certified public accountant or 
legal counsel employed by the supervised financial institution, subject 
to the following conditions:
    (i) Certified public accountants or legal counsel shall review the 
confidential supervisory information only on the premises of the 
supervised financial institution, and shall not make or retain any 
copies of such information;
    (ii) The certified public accountants or legal counsel shall not 
disclose the confidential supervisory information for any purpose 
without the prior written approval of the Board's General Counsel except 
as necessary to provide advice to the supervised financial institution, 
its parent bank holding company, or the officers, directors, and 
employees of such supervised financial institution and parent bank 
holding company.
    (c) Disclosure upon request to Federal financial institution 
supervisory agencies. Upon requests, the Director of the Division of 
Banking Supervision and Regulation or the appropriate Federal Reserve 
Bank, may make available to the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, and the Federal Home Loan Bank Board and 
their regional offices and representatives, confidential supervisory 
information and other appropriate information (such as confidential 
operating and condition reports) relating to a bank, bank holding 
company (including subsidiaries), savings and loan holding company 
(including subsidiaries), U.S. branch or agency of a foreign bank, or 
other supervised financial institution.
    (d) Disclosure upon request to state financial institution 
supervisory agencies. Upon requests, the Director of the Division of 
Banking Supervision and Regulation or the appropriate Federal Reserve 
Bank may make available confidential supervisory information and other 
appropriate information (such as confidential operating and condition 
reports) relating to a bank, bank holding company (including 
subsidiaries), savings and loan holding company (including 
subsidiaries), U.S. branch or agency of a foreign bank, or other 
supervised financial institution to:
    (1) A state financial institution supervisory agency having direct 
supervisory authority over such supervised financial institution; or
    (2) A state financial institution supervisory agency not having 
direct supervisory authority over such supervised financial institution 
if the requesting agency has entered into an information sharing 
agreement with the appropriate Federal Reserve Bank and the information 
to be provided concerns a supervised financial institution that has 
acquired or has applied to acquire a financial institution subject to 
that agency's direct supervisory authority.
    (e) Discretionary disclosures. The Board may determine, from time to 
time, to authorize other disclosures of confidential information as 
necessary.
    (f) Conditions and limitations. The Board may impose any conditions 
or limitations on disclosure under this section that it determines are 
necessary to effect the purposes of this regulation.
    (g) Other disclosure prohibited. All confidential supervisory 
information or other information made available under this section shall 
remain the

[[Page 474]]

property of the Board. No supervised financial institution, financial 
institution supervisory agency, person, or any other party to whom the 
information is made available, or any other officer, director, employee 
or agent thereof, may disclose such information without the prior 
written permission of the Board's General Counsel except in published 
statistical material that does not disclose, either directly or when 
used in conjunction with publicly available information, the affairs of 
any individual, corporation, or other entity. No person obtaining access 
to confidential supervisory information pursuant to this section may 
make a personal copy of any such information; and no person may remove 
confidential supervisory information from the premises of the 
institution or agency in possession of such information except as 
permitted by specific language in this regulation or by the Board.
    (h) Disclosure of Foreign Bank Confidential Report of Operations--
(1) Availability of Foreign Bank Confidential Report of Operations to 
Bank Supervisory Agencies. Notwithstanding any other provision of this 
regulation, any Confidential Report of Operations (Form F.R. 2068) of a 
foreign banking organization may, upon written request to and approval 
by the Director of the Division of Banking Supervision and Regulation 
(or his delegee), and with the concurrence of the General Counsel (or 
his delegee), be made available for inspection to another bank 
supervisory authority having general supervision of any United States 
branch, agency, subsidiary bank or commercial lending company of the 
foreign banking organization, only for use where necessary in the 
performance of official duties. These reports shall be made available 
for inspection by authorized persons only on Federal Reserve premises 
under the same procedures as apply to personnel of the Federal Reserve 
System. All reports made available under this paragraph shall remain the 
property of the Board; and no person, agency or authority who obtains 
access to any such report, or any officer, director, or employee 
thereof, shall publish, publicize, or otherwise disclose any information 
contained in the report to any person.
    (2) Restrictions on disclosure by Federal Reserve System employees. 
It is the Board's policy that the confidentiality of a foreign banking 
organization's Confidential Report of Operations (Form F.R. 2068) should 
be maintained at all times. Except as provided by paragraph (h)(1) of 
this section, information submitted to the Board as part of any 
Confidential Report of Operations is not available for public inspection 
by any person other than an officer, employee, or agent of the Board or 
of a Federal Reserve Bank properly entitled to such information in the 
performance of such person's official duties. Any employee that violates 
this section by releasing such a report to any unauthorized person may 
be subject to disciplinary action under 12 CFR 264.735-5 (Rules of 
Employee Responsibilities and Conduct).

[53 FR 20815, June 7, 1988. Redesignated at 62 FR 54359, Oct. 20, 1997, 
as amended at 76 FR 56601, Sept. 13, 2011; 79 FR 6077, Feb. 3, 2014]



Sec. 261.21  Confidential information made available to law enforcement 
agencies and other nonfinancial institution supervisory agencies.

    (a) Disclosure upon request. Upon written request, the Board may 
make available to appropriate law enforcement agencies and to other 
nonfinancial institution supervisory agencies for use where necessary in 
the performance of official duties, reports of examination and 
inspection, confidential supervisory information, and other confidential 
documents and information of the Board concerning banks, bank holding 
companies and their subsidiaries, U.S. branches and agencies of foreign 
banks, savings and loan holding companies and their subsidiaries, and 
other examined institutions.
    (b) Eligibility. Federal, state, and local law enforcement agencies 
and other nonfinancial institution supervisory agencies may file written 
requests with the Board for access to confidential documents and 
information under this section of the regulation. Properly accredited 
foreign law enforcement agencies and other foreign government agencies 
may also file written requests with the Board.

[[Page 475]]

    (c) Contents of request. To obtain access to confidential documents 
or information under this section of the regulation, the head of the law 
enforcement agency or nonfinancial institution supervisory agency (or 
their designees) shall address a letter request to the Board's General 
Counsel, specifying:
    (1) The particular information, kinds of information, and where 
possible, the particular documents to which access is sought;
    (2) The reasons why such information cannot be obtained from the 
examined institution in question rather than from the Board;
    (3) A statement of the law enforcement purpose or other purpose for 
which the information shall be used;
    (4) Whether the requested disclosure is permitted or restricted in 
any way by applicable law or regulation;
    (5) A commitment that the information requested shall not be 
disclosed to any person outside the agency without the written 
permission of the Board or its General Counsel; and
    (6) If the document or information requested includes customer 
account information subject to the Right to Financial Privacy Act, as 
amended (12 U.S.C. 3401 et seq.), a statement that such customer account 
information need not be provided, or a statement as to why the Act does 
not apply to the request, or a certification that the requesting agency 
has complied with the requirements of the Act.
    (d) Action on request. (1) The General Counsel shall review each 
request and may approve the request upon determining that:
    (i) The request complies with this section;
    (ii) The information is needed in connection with a formal 
investigation or other official duties of the requesting agency;
    (iii) Satisfactory assurances of confidentiality have been given; 
and
    (iv) No law prohibits the requested disclosure.
    (2) The General Counsel may impose any conditions or limitations on 
disclosure that the General Counsel determines to be necessary to effect 
the purposes of this regulation or to insure compliance with applicable 
laws or regulations.
    (e) Federal and state grand jury, criminal trial, and government 
administrative subpoenas. The Board's General Counsel shall review and 
may approve the disclosure of confidential information pursuant to 
Federal and state grand jury, criminal trial, and government 
administrative subpoenas. The General Counsel may impose such conditions 
or limitations on disclosure under this section that the General Counsel 
determines are necessary to effect the purposes of this regulation, to 
insure compliance with applicable laws or regulations, or to protect the 
confidentiality of the Board's information.
    (f) Requests for testimony or interviews. Government agencies 
seeking to obtain testimony or interviews from current and former 
Federal Reserve System staff concerning any confidential information of 
the Board shall use the procedures set out in paragraph (c) of this 
section.
    (g) Other disclosure prohibited. All reports and information made 
available under this section remain the property of the Board, and 
except as otherwise provided in this regulation, no person, agency, or 
authority to whom the information is made available, or any officer, 
director, or employee thereof, may disclose any such information except 
in published statistical material that does not disclose, either 
directly or when used in conjunction with publicly available 
information, the affairs of any individual or corporation.

[53 FR 20815, June 7, 1988. Redesignated at 62 FR 54359, Oct. 20, 1997, 
as amended at 76 FR 56601, Sept. 13, 2011]



Sec. 261.22  Other disclosure of confidential supervisory information.

    (a) Board policy. It is the Board's policy regarding confidential 
supervisory information that such information is confidential and 
privileged. Accordingly, the Board will not normally disclose this 
information to the public. The Board, when considering a request for 
disclosure of confidential supervisory information under this section, 
will not authorize disclosure unless the person requesting disclosure is 
able to

[[Page 476]]

show a substantial need for such information that outweighs the need to 
maintain confidentiality.
    (b) Requests for disclosure--(1) Requests from litigants for 
information or testimony. Any person (except agencies identified in 
Secs. 261.20 and 261.21 of this regulation) seeking access to 
confidential supervisory information or seeking to obtain the testimony 
of present or former Board or Reserve Bank employees on matters 
involving confidential supervisory information of the Board, whether by 
deposition or otherwise, for use in litigation before a court, board, 
commission, or agency, shall file a written request with the General 
Counsel of the Board. The request shall describe:
    (i) The particular information, kinds of information, and where 
possible, the particular documents to which access is sought;
    (ii) The judicial or administrative action for which the 
confidential supervisory information is sought;
    (iii) The relationship of the confidential supervisory information 
to the issues or matters raised by the judicial or administrative 
action;
    (iv) The requesting person's need for the information;
    (v) The reason why the requesting person cannot obtain the 
information sought from any other source; and
    (vi) A commitment to obtain a protective order acceptable to the 
Board from the judicial or administrative tribunal hearing the action 
preserving the confidentiality of any information that is provided.
    (2) All other requests. Any other person (except agencies identified 
in Secs. 261.20 and 261.21 of this regulation) seeking access to 
confidential supervisory information for any other purpose shall file a 
written request with the General Counsel of the Board. A request under 
this paragraph (b)(2) shall describe the purpose for which such 
disclosure is sought.
    (c) Action on request-- (1) Determination of approval. The General 
Counsel of the Board may approve a request made under this section 
provided that he or she determines that:
    (i) The person making the request has shown a substantial need for 
confidential supervisory information that outweighs the need to maintain 
confidentiality; and
    (ii) Disclosure is consistent with the supervisory and regulatory 
responsibilities and policies of the Board.
    (2) Conditions or limitations. The General Counsel of the Board may, 
in approving a request, impose such conditions or limitations on use of 
any information disclosed as is deemed necessary to protect the 
confidentiality of the Board's information.
    (d) Exhaustion of administrative remedies for discovery purposes in 
civil, criminal, or administrative action. Action on a request under 
this section by the General Counsel of the Board shall exhaust 
administrative remedies for discovery purposes in any civil, criminal, 
or administrative proceeding. A request made pursuant to Sec. 261.12 of 
this regulation does not exhaust administrative remedies for discovery 
purposes. Therefore, it is not necessary to file a request pursuant to 
Sec. 261.12 to exhaust administrative remedies under this section.
    (e) Other disclosure prohibited. All confidential supervisory 
information made available under this section shall remain the property 
of the Board. Any person in possession of such information shall not use 
or disclose such information for any purpose other than that authorized 
by the General Counsel of the Board without his or her prior written 
approval.

[53 FR 20815, June 7, 1988. Redesignated at 62 FR 54359, Oct. 20, 1997; 
corrected at 62 FR 62508, Nov. 24, 1997]



Sec. 261.23  Subpoenas, orders compelling production, and other process.

    (a) Advice by person served. Any person (including any officers, 
employee, or agent of the Board or any Federal Reserve Bank) who has 
documents or information of the Board that may not be disclosed and who 
is served with a subpoena, order, or other judicial or administrative 
process requiring his or her personal attendance as a witness or 
requiring the production of documents or information in any proceeding, 
shall:
    (1) Promptly inform the Board's General Counsel of the service and 
all relevant facts, including the documents and information requested, 
and any

[[Page 477]]

facts of assistance to the Board in determining whether the material 
requested should be made available; and
    (2) At the appropriate time inform the court or tribunal that issued 
the process and the attorney for the party at whose instance the process 
was issued of the substance of these rules.
    (b) Appearance by person served. Unless the Board has authorized 
disclosure of the information requested, any person who has Board 
information that may not be disclosed, and who is required to respond to 
a subpoena or other legal process, shall attend at the time and place 
required and decline to disclose or to give any testimony with respect 
to the information, basing such refusal upon the provisions of this 
regulation. If the court or other body orders the disclosure of the 
information or the giving of testimony, the person having the 
information shall continue to decline to disclose the information and 
shall promptly report the facts to the Board for such action as the 
Board may deem appropriate.

[53 FR 20815, June 7, 1988. Redesignated at 62 FR 54359, Oct. 20, 1997]



PART 261a_RULES REGARDING ACCESS TO PERSONAL INFORMATION UNDER THE 
PRIVACY ACT 1974--Table of Contents



                      Subpart A_General Provisions

Sec.
261a.1  Authority, purpose and scope.
261a.2  Definitions.
261a.3  Custodian of records; delegations of authority.
261a.4  Fees.

 Subpart B_Procedures for Requests by Individual to Whom Record Pertains

261a.5  Request for access to record.
261a.6  Board procedures for responding to request for access.
261a.7  Special procedures for medical records.
261a.8  Request for amendment of record.
261a.9  Board review of request for amendment of record.
261a.10  Appeal of adverse determination of request for access or 
          amendment.

                     Subpart C_Disclosure of Records

261a.11  Restrictions on disclosure.
261a.12  Exempt records.

    Authority: 5 U.S.C. 552a.

    Source: 75 FR 63704, Oct. 18, 2010, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 261a.1  Authority, purpose and scope.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (the Board) pursuant to the Privacy Act of 1974 
(5 U.S.C. 552a).
    (b) Purpose and scope. This part implements the provisions of the 
Privacy Act of 1974 with regard to the maintenance, protection, 
disclosure, and amendment of records contained within systems of records 
maintained by the Board. It sets forth the procedures for requests for 
access to, or amendment of, records concerning individuals that are 
contained in systems of records maintained by the Board.



Sec. 261a.2  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Business day means any day except Saturday, Sunday or a legal 
Federal holiday.
    (b) Guardian means the parent of a minor, or the legal guardian of 
any individual who has been declared to be incompetent due to physical 
or mental incapacity or age by a court of competent jurisdiction.
    (c) Individual means a natural person who is either a citizen of the 
United States or an alien lawfully admitted for permanent residence.
    (d) Maintain includes maintain, collect, use, or disseminate.
    (e) Record means any item, collection, or grouping of information 
about an individual maintained by the Board that contains the 
individual's name or the identifying number, symbol, or other 
identifying particular assigned to the individual, such as a 
fingerprint, voice print, or photograph.
    (f) Routine use means, with respect to disclosure of a record, the 
use of such record for a purpose that is compatible with the purpose for 
which it was collected or created.
    (g) System of records means a group of any records under the control 
of the Board from which information is retrieved by the name of the 
individual

[[Page 478]]

or by some identifying number, symbol, or other identifying particular 
assigned to the individual.
    (h) You means an individual making a request under the Privacy Act.
    (i) We means the Board.



Sec. 261a.3  Custodian of records; delegations of authority.

    (a) Custodian of records. The Secretary of the Board is the official 
custodian of all Board records.
    (b) Delegated authority of the Secretary. The Secretary of the Board 
is authorized to--
    (1) Respond to requests for access to, accounting of, or amendment 
of records contained in a system of records, except for requests 
regarding systems of records maintained by the Board's Office of 
Inspector General (OIG);
    (2) Approve the publication of new systems of records and amend 
existing systems of records, except those systems of records exempted 
pursuant to Sec. 261a.12(b), (c) and (d); and
    (3) File any necessary reports related to the Privacy Act.
    (c) Delegated authority of designee. Any action or determination 
required or permitted by this part to be done by the Secretary of the 
Board may be done by a Deputy or Associate Secretary or other 
responsible employee of the Board who has been duly designated for this 
purpose by the Secretary.
    (d) Delegated authority of Inspector General. The Inspector General 
is authorized to respond to requests for access to, accounting of, or 
amendment of records contained in a system of records maintained by the 
OIG.



Sec. 261a.4  Fees.

    (a) Copies of records. We will provide you with copies of the 
records you request under Sec. 261a.5 of this part at the same cost we 
charge for duplication of records and/or production of computer output 
under the Board's Rules Regarding Availability of Information, 12 CFR 
Part 261.
    (b) No fee. We will not charge you a fee if:
    (1) Your total charges are less than $5, or
    (2) You are a Board employee or former employee, or an applicant for 
employment with the Board, and you request records pertaining to you.



Subpart B_Procedures for Requests by Individuals to Whom Record Pertains



Sec. 261a.5  Request for access to records.

    (a) Procedures for making request. (1) Except as provided in 
paragraph (a)(2) or (f) of this section, if you (or your guardian) want 
to learn of the existence of, or to gain access to, your record in a 
system of records, you may submit a request in writing to the Secretary 
of the Board, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue, NW., Washington, DC 20551.
    (2) If you request information contained in a system of records 
maintained by the Board's OIG, you may submit the request in writing to 
the Inspector General, Board of Governors of the Federal Reserve System, 
20th Street and Constitution Avenue, NW., Washington, DC 20551.
    (b) Contents of request. Except for requests made under paragraph 
(f) of this section, your written request must include-
    (1) A statement that the request is made pursuant to the Privacy Act 
of 1974;
    (2) The name of the system of records you believe contains the 
record you request, or a concise description of that system of records;
    (3) Information necessary to verify your identity pursuant to 
paragraph (c) of this section; and
    (4) Any other information that might assist us in identifying the 
record you seek (e.g., maiden name, dates of employment, etc.).
    (c) Verification of identity. We will require proof of your 
identity, and we reserve the right to determine whether the proof you 
submit is adequate. In general, we will consider the following to be 
adequate proof of identity:
    (1) If you are a current or former Board employee, your Board 
identification card; or
    (2) If you are not a current or former Board employee, either

[[Page 479]]

    (i) Two forms of identification, including one photo identification, 
or
    (ii) A notarized statement attesting to your identity.
    (d) Verification of identity not required. We will not require 
verification of identity when the records you seek are available to any 
person under the Freedom of Information Act (5 U.S.C. 552).
    (e) Request for accounting of previous disclosures. You may request 
an accounting of previous disclosures of records pertaining to you in a 
system of records as provided in 5 U.S.C. 552a(c).
    (f) Requests Made by Board Employees. Unless the Secretary provides 
and you are notified otherwise, if you are a current or former Board 
employee, you also may request access to your record in a system of 
records by appearing in person before or writing directly to the Board 
office that maintains the record.



Sec. 261a.6  Board procedures for responding to request for access.

    (a) Compliance with Freedom of Information Act. We will handle every 
request made pursuant to Sec. 261a.5 of this part (other than requests 
submitted under Sec. 261a.5(f) that were granted) as a request for 
information pursuant to the Freedom of Information Act. The time limits 
set forth in paragraph (b) of this section and the fees specified in 
Sec. 261a.4 of this part will apply to such requests.
    (b) Time for response. We will acknowledge every request made 
pursuant to Sec. 261a.5 of this part within 20 business days from 
receipt of the request and will, where practicable, respond to each 
request within that 20-day period. When a full response is not 
practicable within the 20-day period, we will respond as promptly as 
possible.
    (c) Disclosure. (1) When we disclose information in response to your 
request, except for information maintained by the Board's OIG, we will 
make the information available for inspection and copying during regular 
business hours at the Board's Freedom of Information Office, or we will 
mail it to you on your request. For requests made under paragraph 
Sec. 261a.5(f), you may request that the information be provided orally 
or in person.
    (2) When the information to be disclosed is maintained by the 
Board's OIG, the OIG will make the information available for inspection 
and copying or will mail it to you on request.
    (3) You may bring with you anyone you choose to see the requested 
material. All visitors to the Board's buildings must comply with the 
Board's security procedures.
    (d) Denial of request. If we deny a request made pursuant to 
Sec. 261a.5 of this part, we will tell you the reason(s) for denial and 
the procedures for appealing the denial. If a request made under 
paragraph Sec. 261a.5(f) is denied, in whole or in part, the Board 
office that denied your request will simultaneously notify the Secretary 
of the Board of its action.



Sec. 261a.7  Special procedures for medical records.

    If you request medical or psychological records pursuant to 
Sec. 261a.5, we will disclose them directly to you unless the Chief 
Privacy Officer, in consultation with the Board's physician or Employee 
Assistance Program counselor, determines that such disclosure could have 
an adverse effect on you. If the Chief Privacy Officer makes that 
determination, we will provide the information to a licensed physician 
or other appropriate representative that you designate, who may disclose 
those records to you in a manner he or she deems appropriate.



Sec. 261a.8  Request for amendment of record.

    (a) Procedures for making request. (1) If you wish to amend a record 
that pertains to you in a system of records, you may submit the request 
in writing to the Secretary of the Board (or to the Inspector General 
for records in a system of records maintained by the OIG) in an envelope 
clearly marked ``Privacy Act Amendment Request.''
    (2) Your request for amendment of a record must--
    (i) Identify the system of records containing the record for which 
amendment is requested;
    (ii) Specify the portion of that record requested to be amended; and
    (iii) Describe the nature of and reasons for each requested 
amendment.

[[Page 480]]

    (3) We will require you to verify your identity under the procedures 
set forth in Sec. 261a.5(c) of this part, unless you have already done 
so in a related request for access or amendment.
    (b) Burden of proof. Your request for amendment of a record must 
tell us why you believe the record is not accurate, relevant, timely, or 
complete. You have the burden of proof for demonstrating the 
appropriateness of the requested amendment, and you must provide 
relevant and convincing evidence in support of your request.



Sec. 261a.9  Board review of request for amendment of record.

    (a) Time limits. We will acknowledge your request for amendment of 
your record within 10 business days after we receive your request. In 
the acknowledgment, we may request additional information necessary for 
a determination on the request for amendment. We will make a 
determination on a request to amend a record promptly.
    (b) Contents of response to request for amendment. When we respond 
to a request for amendment, we will tell you whether your request is 
granted or denied. If we grant your request, we will take the necessary 
steps to amend your record and, when appropriate and possible, notify 
prior recipients of the record of our action. If we deny the request, in 
whole or in part, we will tell you--
    (1) Why we denied the request (or portion of the request);
    (2) That you have a right to appeal; and
    (3) How to file an appeal.



Sec. 261a.10  Appeal of adverse determination of request for access or 
amendment.

    (a) Appeal. You may appeal a denial of a request made pursuant to 
Sec. 261a.5 or Sec. 261a.8 of this part within 10 business days after we 
notify you that we denied your request. Your appeal must--
    (1) Be made in writing with the words ``PRIVACY ACT APPEAL'' written 
prominently on the first page and addressed to the Secretary of the 
Board, Board of Governors of the Federal Reserve System, 20th Street and 
Constitution Avenue, NW., Washington, DC 20551;
    (2) Specify the background of the request; and
    (3) Provide reasons why you believe the initial denial is in error.
    (b) Determination. We will make a determination on your appeal 
within 30 business days from the date we receive it, unless we extend 
the time for good cause.
    (1) If we grant your appeal regarding a request for amendment, we 
will take the necessary steps to amend your record and, when appropriate 
and possible, notify prior recipients of the record of our action.
    (2) If we deny your appeal, we will inform you of such 
determination, tell you our reasons for the denial, and tell you about 
your rights to file a statement of disagreement and to have a court 
review our decision.
    (c) Statement of disagreement. (1) If we deny your appeal regarding 
a request for amendment, you may file a concise statement of 
disagreement with the denial. We will maintain your statement with the 
record you sought to amend and any disclosure of the record will include 
a copy of your statement of disagreement.
    (2) When practicable and appropriate, we will provide a copy of the 
statement of disagreement to any prior recipients of the record.



                     Subpart C_Disclosure of Records



Sec. 261a.11  Restrictions on disclosure.

    We will not disclose any record about you contained in a system of 
records to any person or agency without your prior written consent 
unless the disclosure is authorized by 5 U.S.C. 552a(b).



Sec. 261a.12  Exempt records.

    (a) Information compiled for civil action. This regulation does not 
permit you to have access to any information compiled in reasonable 
anticipation of a civil action or proceeding.
    (b) Law enforcement information. Pursuant to 5 U.S.C. 552a(k)(2), we 
have determined that it is necessary to exempt the systems of records 
listed below from the requirements of the Privacy Act concerning access 
to records, accounting of disclosures of records,

[[Page 481]]

maintenance of only relevant and necessary information in files, and 
certain publication provisions, respectively, 5 U.S.C. 552a(c)(3), (d), 
(e)(1), (e)(4)(G), (H) and (I), and (f), and Secs. 261a.5, 261a.7, and 
261a.8 of this part. The exemption applies only to the extent that a 
system of records contains investigatory materials compiled for law 
enforcement purposes.
    (1) BGFRS-1  Recruiting and Placement Records
    (2) BGFRS-2  Personnel Security Systems
    (3) BGFRS-4  General Personnel Records
    (4) BGFRS-5  EEO Discrimination Complaint File
    (5) BGFRS-18  Consumer Complaint Information
    (6) BGFRS-21  Supervisory Enforcement Actions and Special 
Examinations Tracking System
    (7) BGFRS-31  Protective Information System
    (8) BGFRS-32  Visitor Registration System
    (9) BGFRS-36  Federal Reserve Application Name Check System
    (10) BGFRS-37  Electronic Applications
    (11) BGFRS/OIG-1  OIG Investigative Records
    (c) Confidential references. Pursuant to 5 U.S.C. 552a(k)(5), we 
have determined that it is necessary to exempt the systems of records 
listed below from the requirements of the Privacy Act concerning access 
to records, accounting of disclosures of records, maintenance of only 
relevant and necessary information in files, and certain publication 
provisions, respectively, 5 U.S.C. 552a(c)(3), (d), (e)(1), (e)(4)(G), 
(H) and (I), and (f), and Secs. 261a.5, 261a.7, and 261a.8 of this part. 
The exemption applies only to the extent that a system of records 
contains investigatory material compiled to determine an individual's 
suitability, eligibility, and qualifications for Board employment or 
access to classified information, and the disclosure of such material 
would reveal the identity of a source who furnished information to the 
Board under a promise of confidentiality.
    (1) BGFRS-1  Recruiting and Placement Records
    (2) BGFRS-2  Personnel Security Systems
    (3) BGFRS-4  General Personnel Records
    (4) BGFRS-10  General Files on Board Members
    (5) BGFRS-11  Official General Files
    (6) BGFRS-13  Federal Reserve System Bank Supervision Staff 
Qualifications
    (7) BGFRS-14  General File on Federal Reserve Bank and Branch 
Directors
    (8) BGFRS-25  Multi-Rater Feedback Records
    (9) BGFRS/OIG-1  OIG Investigative Records
    (10) BGFRS/OIG-2  OIG Personnel Records
    (d) Criminal law enforcement information. Pursuant to 5 U.S.C. 
552a(j)(2), we have determined that the OIG Investigative Records 
(BGFRS/OIG-1) are exempt from the Privacy Act, except the provisions 
regarding disclosure, the requirement to keep an accounting, certain 
publication requirements, certain requirements regarding the proper 
maintenance of systems of records, and the criminal penalties for 
violation of the Privacy Act, respectively, 5 U.S.C. 552a(b), (c)(1), 
and (2), (e)(4)(A) through (F), (e)(6), (e)(7), (e)(9), (e)(10), (e)(11) 
and (i).



PART 261b_RULES REGARDING PUBLIC OBSERVATION OF MEETINGS--Table of Contents



Sec.
261b.1  Basis and scope.
261b.2  Definitions.
261b.3  Conduct of agency business.
261b.4  Meetings open to public observation.
261b.5  Exemptions.
261b.6  Public announcement of meetings.
261b.7  Meetings closed to public observation under expedited 
          procedures.
261b.8  Meetings closed to public observation under regular procedures.
261b.9  Changes with respect to publicly announced meeting.
261b.10  Certification of General Counsel.
261b.11  Transcripts, recordings, and minutes.
261b.12  Procedures for inspection and obtaining copies of 
          transcriptions and minutes.
261b.13  Fees.

    Authority: 5 U.S.C. 552b.

[[Page 482]]


    Source: 42 FR 13297, Mar. 10, 1977, unless otherwise noted.



Sec. 261b.1  Basis and scope.

    This part is issued by the Board of Governors of the Federal Reserve 
System (``the Board'') under section 552b of title 5 of the United 
States Code, the Government in the Sunshine Act (``the Act''), to carry 
out the policy of the Act that the public is entitled to the fullest 
practicable information regarding the decision making processes of the 
Board while at the same time preserving the rights of individuals and 
the ability of the Board to carry out its responsibilities. These 
regulations fulfill the requirement of subsection (g) of the Act that 
each agency subject to the provisions of the Act shall promulgate 
regulations to implement the open meeting requirements of subsections 
(b) through (f) of the Act.



Sec. 261b.2  Definitions.

    For purposes of this part, the following definitions shall apply:
    (a) The term agency means the Board and subdivisions thereof.
    (b) The term subdivision means any group composed of two or more 
Board members that is authorized to act on behalf of the Board.
    (c) The term meeting means the deliberations of at least the number 
of individual agency members required to take action on behalf of the 
agency where such deliberations determine or result in the joint conduct 
or disposition of official Board business, but does not include (1) 
deliberations required or permitted by subsections (d) or (e) of the 
Act, or (2) the conduct or disposition of official agency business by 
circulating written material to individual members.
    (d) The term number of individual agency members required to take 
action on behalf of the agency means in the case of the Board, a 
majority of its members except that (1) Board determination of the ratio 
of reserves against deposits under section 19(b) of the Federal Reserve 
Act requires the vote of four members, (2) Board action with respect to 
advances, discounts and rediscounts under sections 10(a), 11(b), and 
13(3) of the Federal Reserve Act requires the vote of five members and 
(3) Board action with respect to the percentage of individual member 
bank capital and surplus which may be represented by loans secured by 
stock and bond collateral under section 11(m) of the Federal Reserve Act 
requires the vote of six members. In the case of subdivisions of the 
Board, the term means the number of members constituting a quorum of the 
designated subdivision.
    (e) The term member means a member of the Board appointed under 
section 10 of the Federal Reserve Act. In the case of certain Board 
proceedings pursuant to 12 U.S.C. 1818(e), the Comptroller of the 
Currency is entitled to sit as a member of the Board and for these 
proceedings he shall be deemed a member for the purposes of this part. 
In the case of any subdivision of the Board, the term member means a 
member of the Board designated to serve on that subdivision.
    (f) The term public observation means that the public shall have the 
right to listen and observe but not to record any of the meetings by 
means of cameras or electronic or other recording devices unless 
approval in advance is obtained from the Public Affairs Office of the 
Board and shall not have the right to participate in the meeting, unless 
participation is provided for in the Board's Rules of Procedure.
    (g) The term Federal agency means an agency as defined in 5 U.S.C. 
551(1).
    (h) Committee means the Action Committee established pursuant to 12 
CFR 265.1a(c).

[42 FR 13297, Mar. 10, 1977, as amended at 43 FR 34481, Aug. 4, 1978]



Sec. 261b.3  Conduct of agency business.

    Members shall not jointly conduct or dispose of official agency 
business other than in accordance with this part.



Sec. 261b.4  Meetings open to public observation.

    (a) Except as provided in Sec. 261b.5, every portion of every 
meeting of the agency shall be open to public observation.
    (b) Copies of staff documents considered in connection with agency 
discussion of agenda items for a meeting that is open to public 
observation shall be made available for distribution to

[[Page 483]]

members of the public attending the meeting, in accordance with the 
provisions of 12 CFR part 261.
    (c) The agency will maintain a complete electronic recording 
adequate to record fully the proceedings of each meeting or portion of a 
meeting open to public observation. Cassettes will be available for 
listening in the Freedom of Information Office, and copies may be 
ordered for $5 per cassette by telephoning or by writing Freedom of 
Information Office, Board of Governors of the Federal Reserve System, 
Washington, DC 20551.
    (d) The agency will maintain mailing lists of names and addresses of 
all persons who wish to receive copies of agency announcements of 
meetings open to public observation. Requests for announcements may be 
made by telephoning or by writing Freedom of Information Office, Board 
of Governors of the Federal Reserve System, Washington, DC 20551.

[44 FR 11750, Mar. 2, 1979]



Sec. 261b.5  Exemptions.

    (a) Except in a case where the agency finds that the public interest 
requires otherwise, the agency may close a meeting or a portion or 
portions of a meeting under the procedures specified in Sec. 261b.7 or 
Sec. 261b.8 of this part, and withhold information under the provisions 
of Secs. 261b.6, 261b.7, 261b.8, or 261b.11 of this part, where the 
agency properly determines that such meeting or portion or portions of 
its meeting or the disclosure of such information is likely to:
    (1) Disclose matters that are (i) specifically authorized under 
criteria established by an Executive order to be kept secret in the 
interests of national defense or foreign policy, and (ii) in fact 
properly classified pursuant to such Executive order;
    (2) Relate solely to internal personnel rules and practices;
    (3) Disclose matters specifically exempted from disclosure by 
statute (other than section 552 of title 5 of the United States Code), 
provided that such statute (i) requires that the matters be withheld 
from the public in such a manner as to leave no discretion on the issue, 
or (ii) establishes particular criteria for withholding or refers to 
particular types of matters to be withheld;
    (4) Disclose trade secrets and commercial or financial information 
obtained from a person and privileged or confidential;
    (5) Involve accusing any person of a crime, or formally censuring 
any person;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would--
    (i) Interfere with enforcement proceedings,
    (ii) Deprive a person of a right to a fair trial or an impartial 
adjudication,
    (iii) Constitute an unwarranted invasion of personal privacy,
    (iv) Disclose the identity of a confidential source and, in the case 
of a record compiled by a criminal law enforcement authority in the 
course of a criminal investigation, or by a Federal agency conducting a 
lawful national security intelligence investigation, confidential 
information furnished only by the confidential source,
    (v) Disclose investigative techniques and procedures, or
    (vi) Endanger the life or physical safety of law enforcement 
personnel;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Board or other Federal agency responsible for the regulation 
or supervision of financial institutions;
    (9) Disclose information the premature disclosure of which would--
    (i) Be likely to (A) lead to significant speculation in currencies, 
securities, or commodities, or (B) significantly endanger the stability 
of any financial institution; or
    (ii) Be likely to significantly frustrate implementation of a 
proposed action, except that paragraph (a)(9)(ii) of this section shall 
not apply in any instance where the Board has already disclosed to the 
public the content or nature of its proposed action, or where

[[Page 484]]

the Board is required by law to make such disclosure on its own 
initiative prior to taking final action on such proposal; or
    (10) Specifically concern the issuance of a subpoena, participation 
in a civil action or proceeding, an action in a foreign court or 
international tribunal, or an arbitration, or the initiation, conduct, 
or disposition of a particular case of formal agency adjudication 
pursuant to the procedures in section 554 of title 5 of the United 
States Code or otherwise involving a determination on the record after 
opportunity for a hearing.



Sec. 261b.6  Public announcement of meetings.

    (a) Except as otherwise provided by the Act, public announcement of 
meetings open to public observation and meetings to be partially or 
completely closed to public observation pursuant to Sec. 261b.8 of this 
part will be made at least one week in advance of the meeting. Except to 
the extent such information is determined to be exempt from disclosure 
under Sec. 261b.5 of this part, each such public announcement will state 
the time, place and subject matter of the meeting, whether it is to be 
open or closed to the public, and the name and phone number of the 
official designated to respond to requests for information about the 
meeting.
    (b) If a majority of the members of the agency determines by a 
recorded vote that agency business requires that a meeting covered by 
paragraph (a) of this section be called at a date earlier than that 
specified in paragraph (a) of this section, the agency will make a 
public announcement of the information specified in paragraph (a) of 
this section at the earliest practicable time.
    (c) Changes in the subject matter of a publicly announced meeting, 
or in the determination to open or close a publicly announced meeting or 
any portion of a publicly announced meeting to public observation, or in 
the time or place of a publicly announced meeting made in accordance 
with the procedures specified in Sec. 261b.9 of this part will be 
publicly announced at the earliest practicable time.
    (d) Public announcements required by this section will be posted at 
the Board's Public Affairs Office and Freedom of Information Office and 
may be made available by other means or at other locations as may be 
desirable.
    (e) Immediately following each public announcement required by this 
section, notice of the time, place and subject matter of a meeting, 
whether the meeting is open or closed, any change in one of the 
preceding announcements and the name and telephone number of the 
official designated by the Board to respond to requests about the 
meeting, shall also be submitted for publication in the Federal 
Register.



Sec. 261b.7  Meetings closed to public observation under expedited procedures.

    (a) Since the Board and the Committee qualifies for the use of 
expedited procedures under subsection (d)(4) of the Act, meetings or 
portions thereof exempt under paragraph (a)(4), (a)(8), (a)(9)(i) or 
(a)(10) of Sec. 261b.5 of this part, will be closed to public 
observation under the expedited procedures of this section. Following 
are examples of types of items that, absent compelling contrary 
circumstances, will qualify for these exemptions: Matters relating to a 
specific bank or bank holding company, such as bank branches or mergers, 
bank holding company formations, or acquisition of an additional bank or 
acquisition or de novo undertaking of a permissible nonbanking activity; 
matters relating to a specific savings and loan holding company or its 
subsidiaries, such as acquisitions, reorganizations, savings and loan 
holding company formations, conversions, or acquisition or de novo 
undertaking of a permissible activity; bank regulatory matters, such as 
applications for membership, issuance of capital notes and investment in 
bank premises; foreign banking matters; bank supervisory and enforcement 
matters, such as cease-and-desist and officer removal proceedings; 
monetary policy matters, such as discount rates, use of the discount 
window, changes in the limitations on payment of interest on time and 
savings accounts, and changes in reserve requirements or margin 
regulations.

[[Page 485]]

    (b) At the beginning of each meeting, a portion or portions of which 
is closed to public observation under expedited procedures pursuant to 
this section, a recorded vote of the members present will be taken to 
determine whether a majority of the members of the agency votes to close 
such meeting of portions of such meeting to public observation.
    (c) A copy of the vote, reflecting the vote of each member, and 
except to the extent such information is determined to be exempt from 
disclosure under Sec. 261b.5, a public announcement of the time, place 
and subject matter of the meeting or each closed portion thereof, will 
be made available at the earliest practicable time at the Board's Public 
Affairs Office and Freedom of Information Office.

[42 FR 13297, Mar. 10, 1977, as amended at 43 FR 34481, Aug. 4, 1978; 76 
FR 56601, Sept. 13, 2011]



Sec. 261b.8  Meetings closed to public observation under regular procedures.

    (a) A meeting or a portion of a meeting will be closed to public 
observation under regular procedures, or information as to such meeting 
or portion of a meeting will be withheld only by recorded vote of a 
majority of the members of the agency when it is determined that the 
meeting or the portion of the meeting or the withholding of information 
qualifies for exemption under Sec. 261b.5. Votes by proxy are not 
allowed.
    (b) Except as provided in subsection (c) of this section, a separate 
vote of the members of the agency will be taken with respect to the 
closing or the withholding of information as to each meeting or portion 
thereof which is proposed to be closed to public observation or with 
respect to which information is proposed to be withheld pursuant to this 
section.
    (c) A single vote may be taken with respect to a series of meetings, 
a portion or portions of which are proposed to be closed to public 
observation or with respect to any information concerning such series of 
meetings proposed to be withheld, so long as each meeting or portion 
thereof in such series involves the same particular matters and is 
scheduled to be held no more than thirty days after the initial meeting 
in such series.
    (d) Whenever any person's interests may be directly affected by a 
portion of a meeting for any of the reasons referred to in exemption 
(a)(5), (a)(6) or (a)(7) of Sec. 261b.5 of this part, such person may 
request in writing to the Secretary of the Board that such portion of 
the meeting be closed to public observation. The Secretary, or in his or 
her absence, the Acting Secretary of the Board, will transmit the 
request to the members and upon the request of any one of them a 
recorded vote will be taken whether to close such meeting to public 
observation.
    (e) Within one day of any vote taken pursuant to paragraphs (a) 
through (d) of this section, the agency will make publicly available at 
the Board's Public Affairs Office and Freedom of Information Office a 
written copy of such vote reflecting the vote of each member on the 
question. If a meeting or a portion of a meeting is to be closed to 
public observation, the agency, within one day of the vote taken 
pursuant to paragraphs (a) through (d) of this section, will make 
publicly available at the Board's Public Affairs Office and Freedom of 
Information Office a full, written explanation of its action closing the 
meeting or portion of the meeting together with a list of all persons 
expected to attend the meeting and their affiliation, except to the 
extent such information is determined by the agency to be exempt from 
disclosure under subsection (c) of the Act and Sec. 261b.5 of this part.
    (f) Any person may request in writing to the Secretary of the Board 
that an announced closed meeting, or portion of the meeting, be held 
open to public observation. The Secretary, or in his or her absence, the 
Acting Secretary of the Board, will transmit the request to the members 
of the Board and upon the request of any member a recorded vote will be 
taken whether to open such meeting to public observation.

[42 FR 13297, Mar. 10, 1977, as amended at 44 FR 11750, Mar. 2, 1979]



Sec. 261b.9  Changes with respect to publicly announced meeting.

    The subject matter of a meeting or the determination to open or 
close a

[[Page 486]]

meeting or a portion of a meeting to public observation may be changed 
following public announcement under Sec. 261b.6 only if a majority of 
the members of the agency determines by a recorded vote that agency 
business so requires and that no earlier announcement of the change was 
possible. Public announcement of such change and the vote of each member 
upon such change will be made pursuant to Sec. 261b.6(c). Changes in 
time, including postponements and cancellations of a publicly announced 
meeting or portion of a meeting or changes in the place of a publicly 
announced meeting will be publicly announced pursuant to Sec. 261b.6(c) 
by the Secretary of the Board or, in the Secretary's absence, the Acting 
Secretary of the Board.



Sec. 261b.10  Certification of General Counsel.

    Before every meeting or portion of a meeting closed to public 
observation under Sec. 261b.7 or 261b.8 of this part, the General 
Counsel, or in the General Counsel's absence, the Acting General 
Counsel, shall publicly certify whether or not in his or her opinion the 
meeting may be closed to public observation and shall state each 
relevant exemptive provision. A copy of such certification, together 
with a statement from the presiding officer of the meeting setting forth 
the time and place of the meeting and the persons present, will be 
retained for the time prescribed in Sec. 261b.11(d).



Sec. 261b.11  Transcripts, recordings, and minutes.

    (a) The agency will maintain a complete transcript or electronic 
recording or transcription thereof adequate to record fully the 
proceedings of each meeting or portion of a meeting closed to public 
observation pursuant to exemption (a)(1), (a)(2), (a)(3), (a)(4), 
(a)(5), (a)(6), (a)(7) or (a)(9)(ii) of Sec. 261b.5 of this part. 
Transcriptions of recordings will disclose the identity of each speaker.
    (b) The agency will maintain either such a transcript, recording or 
transcription thereof, or a set of minutes that will fully and clearly 
describe all matters discussed and provide a full and accurate summary 
of any actions taken and the reasons therefor, including a description 
of each of the views expressed on any item and the record of any roll 
call vote (reflecting the vote of each member on the question), for 
meetings or portions of meetings closed to public observation pursuant 
to exemptions (a)(8), (a)(9)(A) or (a)(10) of Sec. 261b.5 of this part. 
The minutes will identify all documents considered in connection with 
any action taken.
    (c) Transcripts, recordings or transcriptions thereof, or minutes 
will promptly be made available to the public in the Freedom of 
Information Office except for such item or items of such discussion or 
testimony as may be determined to contain information that may be 
withheld under subsection (c) of the Act and Sec. 261b.5 of this part.
    (d) A complete verbatim copy of the transcript, a complete copy of 
the minutes, or a complete electronic recording or verbatim copy of a 
transcription thereof of each meeting or portion of a meeting closed to 
public observation will be maintained for a period of at least two years 
or one year after the conclusion of any agency proceeding with respect 
to which the meeting or portion thereof was held, whichever occurs 
later.



Sec. 261b.12  Procedures for inspection and obtaining copies of 
transcriptions and minutes.

    (a) Any person may inspect or copy a transcript, a recording or 
transcription of a recording, or minutes described in Sec. 261b.11(c) of 
this part.
    (b) Requests for copies of transcripts, recordings or transcriptions 
of recordings, or minutes described in Sec. 261b.11(c) of this part 
shall specify the meeting or the portion of meeting desired and shall be 
submitted in writing to the Secretary of the Board, Board of Governors 
of the Federal Reserve System, Washington, DC 20551. Copies of documents 
identified in minutes may be made available to the public upon request 
under the provisions of 12 CFR part 261 (Rules Regarding Availability of 
Information).



Sec. 261b.13  Fees.

    (a) Copies of transcripts, recordings or transcriptions of 
recordings, or minutes requested pursuant to section

[[Page 487]]

Sec. 261b.12(b) of this part will be provided at the cost of 10[cent] 
per standard page for photocopying or at a cost not to exceed the actual 
cost of printing, typing, or otherwise preparing such copies.
    (b) Documents may be furnished without charge where total charges 
are less than $2.



PART 262_RULES OF PROCEDURE--Table of Contents



Sec.
262.1  Basis and scope.
262.2  Procedure for regulations.
262.3  Applications.
262.4  Adjudication with formal hearing.
262.5  Appearance and practice.
262.6  Forms.
262.7-262.24  [Reserved]
262.25  Policy statement regarding notice of applications; timeliness of 
          comments; informal meetings.

    Authority: 5 U.S.C. 552, 12 U.S.C. 321, 1467a, 1828(c), and 1842.

    Source: 38 FR 6807, Mar. 13, 1973, unless otherwise noted.



Sec. 262.1  Basis and scope.

    This part is issued pursuant to section 552 of title 5 of the United 
States Code, which requires that every agency shall publish in the 
Federal Register statements of the general course and method by which 
its functions are channeled and determined, rules of procedure, and 
descriptions of forms available or the places at which forms may be 
obtained.



Sec. 262.2  Procedure for regulations.

    (a) Notice. Notices of proposed regulations of the Board of 
Governors of the Federal Reserve System (the ``Board'') or amendments 
thereto are published in the Federal Register, except as specified in 
paragraph (e) of this section or otherwise excepted by law. Such notices 
include a statement of the terms of the proposed regulations or 
amendments and a description of the subjects and issues involved; but 
the giving of such notices does not necessarily indicate the Board's 
final approval of any feature of any such proposal. The notices also 
include a reference to the authority for the proposed regulations or 
amendments and a statement of the time, place, and nature of public 
participation.
    (b) Public participation. The usual method of public submission of 
data, views, or arguments is in writing. It is ordinarily preferable 
that they be sent to the Secretary of the Board, Washington, DC 20551, 
with copies to the appropriate Federal Reserve Bank. The locations of 
the 12 Federal Reserve Banks and the boundaries of the Federal Reserve 
districts are shown in the appendix to the Board's rules of 
organization. Such material will be made available for inspection and 
copying upon request, except as provided in Sec. 261.6(b) of this 
chapter regarding availability of information.
    (c) Preparation of draft and action by Board. In the light of 
consideration of all relevant matter presented or ascertained, the 
appropriate division of the Board's staff, in collaboration with other 
divisions, prepares drafts of proposed regulations or amendments, and 
the staff submits them to the Board. The Board takes such action as it 
deems appropriate in the public interest. Any other documents that may 
be necessary to carry out any decision by the Board in the matter are 
usually prepared by the Legal Division, in collaboration with the other 
divisions of the staff.
    (d) Effective dates. Any substantive regulation or amendment thereto 
issued by the Board is published not less than 30 days prior to the 
effective date thereof, except as specified in paragraph (e) of this 
section or as otherwise excepted by law.
    (e) Exceptions as to notice or effective date. In certain 
situations, notice and public participation with respect to proposed 
regulations may be impracticable, unnecessary, contrary to the public 
interest, or otherwise not required in the public interest, or there may 
be reason and good cause in the public interest why the effective date 
should not be deferred for 30 days. The reason or reasons in such cases 
usually are that such notice, public participation, or deferment of 
effective date would prevent the action from becoming effective as 
promptly as necessary in the public interest, would permit speculators 
or others to reap unfair profits or to interfere with the Board's 
actions taken with a view to accommodating commerce and business and

[[Page 488]]

with regard to their bearing upon the general credit situation of the 
country, would provoke other consequences contrary to the public 
interest, would unreasonably interfere with the Board's necessary 
functions with respect to management or personnel, would not aid the 
persons affected, or would otherwise serve no useful purpose. The 
following may be mentioned as some examples of situations in which 
advance notice or deferred effective date, or both, will ordinarily be 
omitted in the public interest: The review and determination of discount 
rates established by Federal Reserve Banks, and changes in general 
requirements regarding reserves of member banks, maximum interest rates 
on time and savings deposits, or credit for purchasing or carrying 
securities.

[38 FR 6807, Mar. 13, 1973, as amended at 54 FR 33183, Aug. 14, 1989]



Sec. 262.3  Applications.

    (a) Forms. Any application, request, or petition (hereafter referred 
to as ``application'') for the approval, authority, determination, or 
permission of the Board with respect to any action for which such 
approval, authority, determination, or permission is required by law or 
regulation of the Board (including actions authorized to be taken by a 
Federal Reserve Bank or others on behalf of the Board pursuant to 
authority delegated under Part 265 of this chapter) shall be submitted 
in accordance with the pertinent form, if any, prescribed by the Board. 
Copies of any such form and details regarding information to be included 
therein may be obtained from any Federal Reserve Bank. Any application 
for which no form is prescribed should be signed by the person making 
the application or by his duly authorized agent, should state the facts 
involved, the action requested, and the applicant's interest in the 
matter, and should indicate the reasons why the application should be 
granted. Applications for access to, or copying of, records of the Board 
should be submitted as provided in Sec. 261.9(a) of this chapter.
    (b) Notice of applications. (1)(i) In the case of applications,
    (A) By a State member bank for the establishment of a domestic 
branch or other facility that would be authorized to receive deposits,
    (B) To become a bank holding company (except as provided in 
Sec. 225.15 of this chapter),
    (C) By a bank holding company to acquire ownership or control of 
shares or assets of a bank, or to merge or consolidate with any other 
bank holding company,
    (D) To become a savings and loan holding company (except as provided 
in Sec. 238.14 of this chapter), and
    (E) By a savings and loan holding company to acquire ownership or 
control of shares or assets of a savings association, or to merge or 
consolidate with any other savings and loan holding company, the 
applicant shall cause to be published a notice in the form prescribed by 
the Board.
    (ii) The notice shall be placed in the classified advertising legal 
notices section of the newspaper, and must provide an opportunity for 
the public to give written comment on the application to the appropriate 
Federal Reserve Bank for the period specified in Regulation H (12 CFR 
part 208) in the case of applications specified in 
Sec. 262.3(b)(1)(i)(A), and for at least thirty days after the date of 
publication in the case of applications specified in 
Sec. 262.3(b)(1)(i)(B) and (C). Within 7 days of publication, the 
applicant shall submit its application to the appropriate Reserve Bank 
for acceptance along with a copy of the notice. If the Reserve Bank has 
not accepted the application as complete within ninety days of the date 
of publication of the notice, the applicant may be required to republish 
notice of the application. Such notice shall be published in a newspaper 
of general circulation in--
    (A) [Reserved]
    (B) The community or communities in which the head office of the 
bank and the proposed branch or other facility (other than an electronic 
funds transfer facility) are located in the case of an application for 
the establishment of a domestic branch or other facility that would be 
authorized to receive deposits, other than an application incidental to 
an application by a bank for merger, consolidation, or acquisition of 
assets or assumption of liabilities,

[[Page 489]]

    (C) The community or communities in which the head office of the 
bank, the office to be closed, and the office to be opened are located 
in the case of an application for the relocation of a domestic branch 
office,
    (D) The community or communities in which the head office of each of 
the banks to be party to the merger, consolidation, or acquisition of 
assets or assumption of liabilities are located in the case of an 
application by a bank for merger, consolidation, or acquisition of 
assets or assumption of liabilities,
    (E) The community or communities in which the head offices of the 
largest subsidiary bank, if any, or an applicant and of each bank, 
shares of which are to be directly or indirectly acquired, are located 
in the case of applications under section 3 of the Bank Holding Company 
Act, or
    (F) The community or communities in which the head offices of the 
largest subsidiary savings association, if any, or an applicant and of 
each savings association, shares of which are to be directly or 
indirectly acquired, are located in the case of applications under 
section 10 of the Home Owners' Loan Act.
    (2) In addition to the foregoing notice, an applicant, in the case 
of an application to relocate a domestic branch office or other facility 
that would be authorized to receive deposits, shall post in a 
conspicuous public place in the lobby of the office to be closed a 
notice containing the information specified in Sec. 262.3(b)(1). Such 
notice should be posted on the date of the notice required by 
Sec. 262.3(b)(1).
    (3) In the case of an application for a merger, consolidation, or 
acquisition of assets or assumption of liabilities, if the acquiring, 
assuming, or resulting bank is to be a State member bank, the applicant 
shall cause to be published notice in the form prescribed by the Board. 
The notice shall be published in a newspaper of general circulation in 
the community or communities in which the head office of each of the 
banks to be a party to the merger, consolidation, or acquisition of 
assets or assumption of liabilities is located. The notice shall be 
published on at least three occasions at appropriate intervals. The last 
publication of the notice shall appear at least thirty days after the 
first publication. The notice must provide an opportunity for the public 
to give written comment on the application to the appropriate Federal 
Reserve Bank for at least thirty days after the date of the first 
publication of the notice. Within seven days of publication of notice 
for the first time, the applicant shall submit its application to the 
appropriate Reserve Bank for acceptance, along with a copy of the 
notice. If the Reserve Bank has not accepted the application as complete 
within ninety days of the date of the first publication of the notice, 
the applicant may be required to republish notice of the application.
    (c) Filing of applications. Any application should be sent to the 
Federal Reserve Bank of the district in which the head office of the 
parent banking organization is located, except as otherwise specified on 
application forms, and that Bank will forward it to the Board when 
appropriate; however, in the case of foreign banking organization, as 
defined in Sec. 211.23(a)(2) of this chapter, applications shall be sent 
to the Federal Reserve Bank of the district in which the operations of 
the organization's subsidiary banks are principally conducted. In the 
case of a foreign banking organization that is not a bank holding 
company but that has one or more branches, agencies, or commercial 
lending companies in any State of the United States or the District of 
Columbia, applications shall be sent to the Federal Reserve Bank of the 
district in which the organization's banking assets are the largest. 
Applications of a member bank subsidiary, however, should be filed with 
the Reserve Bank of the district in which the member bank is located.
    (d) Analysis by staff. In every case, the Reserve Bank makes such 
investigation as may be necessary, and, except when acting pursuant to 
delegated authority, reports the relevant facts, with its 
recommendation, to the Board. In the light of consideration of all 
relevant matter presented or ascertained, the Board's staff prepares and 
submits to the Board comments on the subject.

[[Page 490]]

    (e) Submission of comments and requests for hearing. The Board is 
only required to consider a comment or a request for a hearing with 
respect to an application or notice if it is in writing and received by 
the Secretary of the Board or the appropriate Federal Reserve Bank on or 
before the latest date prescribed in any notice with respect to the 
application or notice, or where no such date is prescribed, on or before 
the 30th day after the date notice is first published. Similarly, the 
Board will consider comments on an application from the Attorney General 
or a banking supervisory authority to which notification of receipt of 
an application has been given, only if such comment is received by the 
Secretary of the Board within 30 days of the date of the letter giving 
such notification. Any comment on an application or notice that requests 
a hearing must include a statement of why a written presentation would 
not suffice in lieu of a hearing, identifying specifically any questions 
of fact that are in dispute and summarizing the evidence that would be 
presented at a hearing. In every case where a timely comment or request 
for hearing is received as provided herein, a copy of such comment or 
request shall be forwarded promptly to the applicant for its response. 
The Board will consider the applicant's response only if it is in 
writing and sent to the Secretary of the Board on or before eight 
business days after the date of the letter by which it is forwarded to 
the applicant. At the same time it transmits its response to the Board, 
the applicant should transmit a copy of its response to the person or 
supervisory authority making such comment or requesting a hearing. 
Notwithstanding the foregoing, the Board may, in its sole discretion and 
without notifying the parties, take into consideration the substance of 
comments with respect to an application, (but not requests for hearing) 
that are not received within the time periods provided herein.
    (f) Action on applications. The Board takes such action as it deems 
appropriate in the public interest. Such documents as may be necessary 
to carry out any decision by the Board are prepared by the Board's 
staff. With respect to actions taken by a Federal Reserve Bank on behalf 
of the Board under delegated authority, statements and necessary 
documents are prepared by the staff of such Federal Reserve Bank.
    (g) Notice of action. Prompt notice is given to the applicant of the 
granting or denial in whole or in part of any application. In the case 
of a denial, except in affirming a prior denial or where the denial is 
self-explanatory, such notice is accompanied by a simple statement of 
the grounds for such action.
    (h) Action at Board's initiative. When the Board, without receiving 
an application, takes action with respect to any matter as to which 
opportunity for hearing is not required by statute or Board regulation, 
similar procedure is followed, including investigations, reports, and 
recommendations by the Board's staff and by the Reserve Banks, where 
appropriate.
    (i) General procedures for bank holding company, savings and loan 
holding company, and merger applications. In addition to procedures 
applicable under other provisions of this part, the following procedures 
are applicable in connection with the Board's consideration of 
applications under sections 3 and 4 of the Bank Holding Company Act of 
1956 (12 U.S.C. 1842 and 1843), hereafter referred to as ``section 3 
applications'' or ``section 4 applications,'' applications under section 
10(c), (e), and (o) of the Home Owners' Loan Act (12 U.S.C. 1467a), 
hereafter referred to as ``section 10 applications,'' and of 
applications under section 18(c) of the Federal Deposit Insurance Act 
(12 U.S.C. 1823), hereafter called ``merger applications.'' Except as 
otherwise indicated, the following procedures apply to all such 
applications.
    (1) The Board issues each week a list that identifies section 3, 
section 4, section 10, and merger applications received and acted upon 
during the preceding week by the Board or the Reserve Banks pursuant to 
delegated authority. Notice of receipt of all section 3 section 4(c)(8), 
and section 10 applications acted on by the Board is published in the 
Federal Register.
    (2) If a hearing is required by law or if the Board determines that 
a formal

[[Page 491]]

hearing for the purpose of taking evidence is desirable, the Board 
issues an order for such a hearing, and a notice thereof is published in 
the Federal Register. Any such formal hearing is conducted by an 
administrative law judge in accordance with subparts A and B of the 
Board's Rules of Practice for Hearings (part 263 of this chapter).
    (3) In any case in which a formal hearing is not ordered by the 
Board, the Board may afford the applicant and other properly interested 
persons (including Governmental agencies) an opportunity to present 
views orally before the Board or its designated representative. Unless 
otherwise ordered by the Board, any such oral presentation is public and 
notice of such public proceeding is published in the Federal Register.
    (4) Each action taken by the Board on an application is embodied in 
an order that indicates the votes of members of the Board. The order 
either contains reasons for the Board's action (i.e., an expanded order) 
or is accompanied by a statement of the reasons for the Board's action. 
Both the order and any accompanying statement are released to the press. 
Each order accompanied by a statement and any order of general interest, 
together with a list of other orders, are published in the Federal 
Reserve Bulletin. Action by a Reserve Bank under delegated authority as 
provided for under part 265 of this chapter is reflected in a letter of 
notification to the applicant.
    (5) Unless the Board shall otherwise direct, each section 3, section 
4, section 10, and merger application is made available for inspection 
by the public except for portions thereof as to which the Board 
determines that nondisclosure is warranted under section 552(b) of title 
5 of the United States Code.
    (j) Special procedures for certain applications. The following types 
of applications require procedures exclusive of, or in addition to, 
those described in paragraphs (i)(1) through (5) of this section.
    (1) Special rules pertaining to section 3 and merger applications 
follow:
    (i) Each order of the Board and each letter of notification by a 
Reserve Bank acting pursuant to delegated authority approving a section 
3 application includes, pursuant to the Act approved July 1, 1966 (12 
U.S.C. 1849(b)), a requirement that the transaction approved shall not 
be consummated before the 30th calendar day following the date of such 
order.
    (ii) Each order of the Board approving a merger application 
includes, pursuant to the Act approved February 21, 1966 (12 U.S.C. 
1828(c)(6)), a requirement that the transaction approved shall not be 
consummated before the 30th calendar day following the date of such 
order, except as the Board may otherwise determine pursuant to emergency 
situations as to which the Act permits consummation at earlier dates.
    (iii) Each order or each letter of notification approving an 
application also includes, as a condition of approval, a requirement 
that the transaction approved shall be consummated within 3 months and, 
in the case of acquisition by a holding company of stock of a newly 
organized bank, a requirement that such bank shall be opened for 
business within 6 months, but such periods may be extended for good 
cause by the Board (or by the appropriate Federal Reserve Bank where 
authority to grant such extensions is delegated to the Reserve Bank).
    (2) For special rules governing procedures for section 4 
applications, refer to Sec. 225.23 of this chapter.
    (3) Special rules pertaining to applications filed pursuant to 
section 10(e) and (o) of HOLA follow:
    (i) Each order or each letter of notification approving an 
application also includes, as a condition of approval, a requirement 
that the transaction approved shall be consummated within 3 months and, 
in the case of acquisition by a holding company of stock of a newly 
organized savings association, a requirement that such savings 
association shall be opened for business within 6 months, but such 
periods may be extended for good cause by the Board (or by the 
appropriate Federal Reserve Bank where authority to grant such 
extensions is delegated to the Reserve Bank).
    (ii) [Reserved]
    (4) [Reserved]
    (5) For special rules governing procedures for section 4(c)(13) 
applications, refer to Sec. 225.4(f) of this chapter.

[[Page 492]]

    (k) Reconsideration of certain Board actions. The Board may 
reconsider any action taken by it on an application upon receipt by the 
Secretary of the Board of a written request for reconsideration from any 
party to such application, on or before the 15th day after the effective 
date of the Board's action. Such request should specify the reasons why 
the Board should reconsider its action, and present relevant facts that 
for good cause shown, were not previously presented to the Board. Within 
10 days of receipt of such a request, the General Counsel, acting 
pursuant to delegated authority (12 CFR 265.2(b)(7)), shall determine 
whether or not the request for reconsideration should be granted, and 
shall notify all parties to the application orally by telephone of this 
determination within 10 days. Such notification will be confirmed 
promptly in writing. In the exercise of this authority, the General 
Counsel shall confer with the Directors of other interested Divisions of 
the Board or their designees. Notwithstanding the foregoing, the Board 
may, on its own motion if it deems reconsideration appropriate, elect to 
reconsider its action with respect to any application, and the parties 
to such application shall be notified by the Secretary of the Board of 
its election as provided above. If it is determined that the Board 
should reconsider its action with respect to an application, such action 
will be stayed and will not be final until the Board has acted on the 
application upon reconsideration. If appropriate, notice of 
reconsideration of an application will be published promptly in the 
Federal Register.
    (l) Waiver. The Board, or the officer or Reserve Bank authorized to 
approve an application, may waive or modify any procedural requirements 
for that application prescribed or cited in this section and may excuse 
any failure to comply with them upon a finding that immediate action on 
the application is necessary to prevent the probable failure of a bank 
or company or that an emergency exists requiring expeditious action.

(12 U.S.C. 1842(a), 1843, and 1844(b), 12 U.S.C. 1828(c), 321 and 
248(i))

[38 FR 6807, Mar. 13, 1973]

    Editorial Note: For Federal Register citations affecting Sec. 262.3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 262.4  Adjudication with formal hearing.

    In connection with adjudication with respect to which a formal 
hearing is required by law or is ordered by the Board, the procedure is 
set forth in part 263 of this chapter, entitled ``Rules of Practice for 
Formal Hearings.''



Sec. 262.5  Appearance and practice.

    Appearance and practice before the Board in all matters are governed 
by Sec. 263.3 of this chapter.



Sec. 262.6  Forms.

    Necessary forms to be used in connection with applications and other 
matters are available at the Federal Reserve Banks. A list of all such 
forms, which is reviewed and revised periodically, may be obtained from 
any Federal Reserve Bank.
    (a) This action is taken pursuant to and in accordance with the 
provisions of section 552 of title 5 of the United States Code.
    (b) The provisions of section 553 of title 5, United States Code, 
relating to notice and public participation and to deferred effective 
dates, are not followed in connection with the adoption of this action, 
because the rules involved are procedural in nature and accordingly do 
not constitute substantive rules subject to the requirements of such 
section.



Secs. 262.7-262.24  [Reserved]



Sec. 262.25  Policy statement regarding notice of applications; timeliness 
of comments; informal meetings.

    (a) Notice of applications. A bank or company applying to the Board 
for a deposit-taking facility must first publish notice of its 
application in local newspapers. This requirement, found in 
Sec. 262.3(b)(1) of the Board's Rules of Procedure covers applications 
under the Bank Holding Company Act, Bank Merger Act, and Home Owners' 
Loan Act, as well as applications for membership in the Federal Reserve 
System and for new branches of State member

[[Page 493]]

banks. Notices of these applications are published in newspapers of 
general circulation in the communities where the applicant intends to do 
business as well as in the community where the applicant's head office 
is located. These notices are important in calling the public's 
attention to an applicant's plans and giving the public a chance to 
comment on these plans. To improve the effectiveness of the notices, the 
Board has supplemented its notice procedures as follows.
    (1) The Board has adopted standard forms of notice for use by 
applicants that will specify the exact date on which the comment period 
on the application ends, which may not be less than thirty calendar days 
from the date of publication of the notice. The newspaper forms also 
provide the name and telephone number of the Community Affairs Officer 
of the appropriate Reserve Bank as the person to call to obtain more 
information about submitting comments on an application. In general, the 
Community Affairs Officer will be available to answer questions of a 
general nature concerning the submission of comments and the processing 
of applications.
    (2) The Board also publishes notice of bank holding company 
applications for bank acquisitions (but not for bank mergers or 
branches) and savings and loan holding company applications for savings 
association acquisitions (but not for savings association mergers or 
branches) in the Federal Register after the application is received and 
the Community Affairs Officer can provide the exact date on which this 
comment period ends. (The Federal Register comment period will generally 
end after the date specified in the newspaper notice.)
    (3) In addition to the formal newspaper and Federal Register notices 
discussed above, each Reserve Bank publishes a weekly list of 
applications submitted to the Reserve Bank for which newspaper notices 
have been published. Any person or organization may arrange to have the 
list mailed to them regularly, or may request particular lists, by 
contacting the Reserve Bank's Community Affairs Officer. Each Reserve 
Bank's list includes only applications submitted to that particular 
Reserve Bank, and persons or groups should request lists from each 
Reserve Bank having jurisdiction over applications in which they may be 
interested. Since the lists are prepared as a courtesy by the Reserve 
Bank, and are not intended to replace any formal notice required by 
statute or regulation, the Reserve Banks and the Board do not assume 
responsibility for errors or omissions. In addition, the weekly lists 
prepared by Reserve Banks include certain applications by bank holding 
companies and savings and loan holding companies for nonbank and non-
depository institution acquisitions, respectively, filed with the 
Reserve Bank.
    (4) With respect to applications by bank holding companies and 
savings and loan holding companies to engage de novo in nonbank 
activities or make acquisitions of nonbank firms, the Board publishes 
notice of most of these applications in the Federal Register when the 
applications are filed. Notice of certain small acquisitions may be 
published in a newspaper of general circulation in the area(s) to be 
served. While applications for nonbanking activities are not covered by 
the provisions of the Community Reinvestment Act or the notice 
provisions of Sec. 262.3 of the Board's Rules of Procedure, the 
provisions of this Statement apply to such applications.
    (b) Timeliness of comments. (1) All comments must be actually 
received by the Board or the Reserve Bank on or before the last date of 
the comment period specified in the notice. Where more than one notice 
is published with respect to an application, comments must be received 
on or before the last date of the latest comment period. The Board's 
Rules allow it to disregard comments received after the comment period 
expires. In particular, Sec. 262.3(e) of the Board's Rules of Procedure 
states that the Board will not consider comments on an application that 
are not received on or before the expiration of the comment period. 
Thus, a commenter who fails to comment on an application within the 
specified comment period (or any extension) may be precluded from 
participating in the consideration of the application.

[[Page 494]]

    (2) In cases where a commenter for good cause is unable to send its 
comment within the specified comment period, Sec. 265.2(a)(10) of the 
Board's Rules Regarding Delegation of Authority (12 CFR 265.2(a)(10)) 
allows the Secretary of the Board to grant requests for an extension of 
the period. Under this provision, upon receipt of a request received on 
or before the expiration of the comment period, the Secretary may grant 
a brief extension upon clear demonstration of hardship or other 
meritorious reason for seeking additional time.
    (c) Private meetings. When a timely protest to approval of an 
application is received, the Reserve Bank may arrange a meeting between 
the applicant and the protestant to clarify and narrow the issues, and 
to provide a forum for the resolution of differences between the 
protestant and the applicant. If the Reserve Bank decides that a private 
meeting would be appropriate, the Reserve Bank will arrange a private 
meeting soon after the receipt of a protest and the applicant's 
response, if any, to the protest. In scheduling the meeting, the Reserve 
Bank will consider convenience to the parties with respect to the time 
and place of the meeting. A decision to hold a private meeting will not 
preclude the Reserve Bank or the Board from holding a public meeting or 
other proceeding if it is deemed appropriate.
    (d) Public meetings. The Board's General Counsel (in consultation 
with the Reserve Bank and the directors of other interested divisions of 
the Board) may order that a public meeting or other proceeding be held 
if requested by the applicant or a protestant who files a timely 
protest, or if such a proceeding appears appropriate. In most instances, 
the determination to order a public meeting will be made after a private 
meeting has been held; however, where appropriate a public meeting may 
be convened immediately after receipt of the protest and the applicant's 
response, if any. Additional information may be requested prior to 
making a determination to convene a public meeting. In these cases, a 
determination will be made within ten days from the date all relevant 
information is received. The public meeting will be scheduled as soon as 
possible, but in no event, later than 30 days after the decision to hold 
the proceeding is made. The purpose of the public meeting will be to 
elicit information, to clarify factual issues related to the application 
and to provide an opportunity for interested individuals to provide 
testimony. The Board has adopted the following guidelines to be used for 
convening public meetings, although specific provisions may be altered 
by the General Counsel if circumstances warrant.
    (1) Requesting a public meeting. A meeting may be requested by a 
person or an organization objecting to the application during the 
comment period, and by the applicant during the period within which it 
must respond to comments. Such a request must be timely and in writing.
    (i) A protest does not have to be filed in a legal brief or other 
format in order for a public meeting to be granted. The Community 
Affairs Officer at the Reserve Bank will be available to assist any 
member of the public regarding the types of information generally 
included in protests; the format generally used by protestants; and any 
other specific questions about the procedures of the Federal Reserve 
System regarding protested applications.
    (ii) In general, a protest should identify the protestant, state the 
basis for objection to approval of the application, and provide 
available written evidence to support the objection. Objections to 
approval of an application must relate to the factors that the Board is 
authorized to consider in acting on an application. Generally, these 
factors relate to the financial and managerial resources of the 
companies and banks involved, the effects of the proposal on 
competition, and the convenience and needs of the communities to be 
served by the companies and banks involved. If a public meeting is 
requested, the protest should indicate that there are members of the 
public who wish to speak on the issues in a public forum.
    (iii) The protest will be transmitted by the Reserve Bank to the 
applicant, and the applicant will generally be allowed eight business 
days to respond in writing to the protest.

[[Page 495]]

    (2) Arranging the public meeting. Public meetings will be arranged 
and presided over by a representative of the Federal Reserve System 
(``Presiding Officer''). In determining the time and place for the 
public meeting, such factors as convenience to the parties, the number 
of people expected to attend the meeting, access to public 
transportation and possible after-hour security problems will be taken 
into account.
    (3) Conducting the public meeting. Prior to the meeting, all 
necessary steps will be taken to ensure that the meeting is conducted 
appropriately, including scheduling of witnesses, submission of written 
materials and other arrangements. In conducting the public meeting the 
Presiding Officer will have the authority and discretion to ensure that 
the meeting proceeds in a fair and orderly manner. Generally, the public 
meeting will consist of opening and closing remarks by the Presiding 
Officer, a presentation by the protestant and a presentation by the 
applicant. An official transcript will be made of the proceedings and 
entered into the record. The conclusion of the public meeting normally 
marks the close of the public portion of the record on the application.
    (4) Notification of Board decision on the application. After a 
decision is made on the application, and the applicant is notified of 
the decision, staff will notify the protestant by telephone. This 
notification will be confirmed promptly in writing. As set forth in 
Sec. 262.3(k) of the Board's Rules of Procedure (12 CFR 262.3(k)) or 
Sec. 265.3 of the Board's Rules Regarding Delegation of Authority (12 
CFR 265.3), a party to the application may request reconsideration of 
the Board's order, or review of the Reserve Bank's decision.

[49 FR 5603, Feb. 14, 1984, as amended at 57 FR 41642, Sept. 11, 1992; 
76 FR 56602, Sept. 13, 2011]



PART 263_RULES OF PRACTICE FOR HEARINGS--Table of Contents



            Subpart A_Uniform Rules of Practice and Procedure

Sec.
263.1  Scope.
263.2  Rules of construction.
263.3  Definitions.
263.4  Authority of the Board.
263.5  Authority of the administrative law judge.
263.6  Appearance and practice in adjudicatory proceedings.
263.7  Good faith certification.
263.8  Conflicts of interest.
263.9  Ex parte communications.
263.10  Filing of papers.
263.11  Service of papers.
263.12  Construction of time limits.
263.13  Change of time limits.
263.14  Witness fees and expenses.
263.15  Opportunity for informal settlement.
263.16  The Board's right to conduct examination.
263.17  Collateral attacks on adjudicatory proceeding.
263.18  Commencement of proceeding and contents of notice.
263.19  Answer.
263.20  Amended pleadings.
263.21  Failure to appear.
263.22  Consolidation and severance of actions.
263.23  Motions.
263.24  Scope of document discovery.
263.25  Request for document discovery from parties.
263.26  Document subpoenas to nonparties.
263.27  Deposition of witness unavailable for hearing.
263.28  Interlocutory review.
263.29  Summary disposition.
263.30  Partial summary disposition.
263.31  Scheduling and prehearing conferences.
263.32  Prehearing submissions.
263.33  Public hearings.
263.34  Hearing subpoenas.
263.35  Conduct of hearings.
263.36  Evidence.
263.37  Post-hearing filings.
263.38  Recommended decision and filing of record.
263.39  Exceptions to recommended decision.
263.40  Review by the Board.
263.41  Stays pending judicial review.

       Subpart B_Board Local Rules Supplementing the Uniform Rules

263.50  Purpose and scope.
263.51  Definitions.
263.52  Address for filing.
263.53  Discovery depositions.
263.54  Delegation to the Office of Financial Institution Adjudication.
263.55  Board as Presiding Officer.
263.56  Initial licensing proceedings.

 Subpart C_Rules and Procedures for Assessment and Collection of Civil 
                             Money Penalties

263.60  Scope.

[[Page 496]]

263.61  Opportunity for informal proceeding.
263.62  Relevant considerations for assessment of civil penalty.
263.63  Assessment order.
263.64  Payment of civil penalty.
263.65  Civil monetary penalty inflation adjustments.

Subpart D_Rules and Procedures Applicable to Suspension or Removal of an 
    Institution-Affiliated Party Where a Felony is Charged or Proven

263.70  Purpose and scope.
263.71  Notice or order of suspension, removal, or prohibition.
263.72  Request for informal hearing.
263.73  Order for informal hearing.
263.74  Decision of the Board.

   Subpart E_Procedures for Issuance and Enforcement of Directives To 
                        Maintain Adequate Capital

263.80  Purpose and scope.
263.81  Definitions.
263.82  Establishment of minimum capital levels.
263.83  Issuance of capital directives.
263.84  Enforcement of directive.
263.85  Establishment of increased capital level for specific 
          institutions.

                   Subpart F_Practice Before the Board

263.90  Scope.
263.91  Censure, suspension or debarment.
263.92  Definitions.
263.93  Eligibility to practice.
263.94  Conduct warranting sanctions.
263.95  Initiation of disciplinary proceeding.
263.96  Conferences.
263.97  Proceedings under this subpart.
263.98  Effect of suspension, debarment or censure.
263.99  Petition for reinstatement.

 Subpart G_Rules Regarding Claims Under the Equal Access to Justice Act

263.100  Authority and scope.
263.101  Standards for awards.
263.102  Prevailing party.
263.103  Eligibility of applicants.
263.104  Application for awards.
263.105  Statement of net worth.
263.106  Measure of awards.
263.107  Statement of fees and expenses.
263.108  Responses to application.
263.109  Further proceedings.
263.110  Recommended decision.
263.111  Action by the Board.

 Subpart H_Issuance and Review of Orders Pursuant to Prompt Corrective 
         Action Provisions of the Federal Deposit Insurance Act

263.201  Scope.
263.202  Directives to take prompt regulatory action.
263.203  Procedures for reclassifying a state member bank based on 
          criteria other than capital.
263.204  Order to dismiss a director or senior executive officer.
263.205  Enforcement of directives.

Subpart I_Submission and Review of Safety and Soundness Compliance Plans 
   and Issuance of Orders To Correct Safety and Soundness Deficiencies

263.300  Scope.
263.301  Purpose.
263.302  Determination and notification of failure to meet safety and 
          soundness standard and request for compliance plan.
263.303  Filing of safety and soundness compliance plan.
263.304  Issuance of orders to correct deficiencies and to take or 
          refrain from taking other actions.
263.305  Enforcement of orders.

    Subpart J_Removal, Suspension, and Debarment of Accountants From 
                        Performing Audit Services

263.400  Scope.
263.401  Definitions.
263.402  Removal, suspension, or debarment.
263.403  Automatic removal, suspension, and debarment.
263.404  Notice of removal, suspension, or debarment.
263.405  Petition for reinstatement.

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 248, 324, 334, 347a, 
504, 505, 1464, 1467, 1467a, 1817(j), 1818, 1820(k), 1829, 1831o, 1831p-
1, 1832(c), 1847(b), 1847(d), 1884, 1972(2)(F), 3105, 3108, 3110, 3349, 
3907, 3909(d), 4717; 15 U.S.C. 21, 78l(i), 78o-4, 78o-5, 78u-2; 
1639e(k); 28 U.S.C. 2461 note; 31 U.S.C. 5321; and 42 U.S.C. 4012a.

    Source: 56 FR 38052, Aug. 9, 1991, unless otherwise noted.

[[Page 497]]



            Subpart A_Uniform Rules of Practice and Procedure



Sec. 263.1  Scope.

    This subpart prescribes Uniform Rules of practice and procedure 
applicable to adjudicatory proceedings required to be conducted on the 
record after opportunity for hearing under the following statutory 
provisions:
    (a) Cease-and-desist proceedings under section 8(b) of the Federal 
Deposit Insurance Act (``FDIA'') (12 U.S.C. 1818(b));
    (b) Removal and prohibition proceedings under section 8(e) of the 
FDIA (12 U.S.C. 1818(e));
    (c) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) to determine whether the Board of Governors of 
the Federal Reserve System (``Board'') should issue an order to approve 
or disapprove a person's proposed acquisition of a state member bank, 
bank holding company, or savings and loan holding company;
    (d) Proceedings under section 15C(c)(2) of the Securities Exchange 
Act of 1934 (``Exchange Act'') (15 U.S.C. 78o-5), to impose sanctions 
upon any government securities broker or dealer or upon any person 
associated or seeking to become associated with a government securities 
broker or dealer for which the Board is the appropriate agency;
    (e) Assessment of civil money penalties by the Board against 
institutions, institution-affiliated parties, and certain other persons 
for which the Board is the appropriate agency for any violation of:
    (1) Any provision of the Bank Holding Company Act of 1956, as 
amended (``BHC Act''), or any order or regulation issued thereunder, 
pursuant to 12 U.S.C. 1847(b) and (d);
    (2) Sections 19, 22, 23, 23A and 23B of the Federal Reserve Act 
(``FRA''), or any regulation or order issued thereunder and certain 
unsafe or unsound practices or breaches of fiduciary duty, pursuant to 
12 U.S.C. 504 and 505;
    (3) Section 9 of the FRA pursuant to 12 U.S.C. 324;
    (4) Section 106(b) of the Bank Holding Company Act Amendments of 
1970 and certain unsafe or unsound practices or breaches of fiduciary 
duty, pursuant to 12 U.S.C. 1972(2)(F);
    (5) Any provision of the Change in Bank Control Act of 1978, as 
amended, or any regulation or order issued thereunder and certain unsafe 
or unsound practices or breaches of fiduciary duty, pursuant to 12 
U.S.C. 1817(j)(16);
    (6) Any provision of the International Lending Supervision Act of 
1983 (``ILSA'') or any rule, regulation or order issued thereunder, 
pursuant to 12 U.S.C. 3909;
    (7) Any provision of the International Banking Act of 1978 (``IBA'') 
or any rule, regulation or order issued thereunder, pursuant to 12 
U.S.C. 3108;
    (8) Certain provisions of the Exchange Act, pursuant to section 21B 
of the Exchange Act (15 U.S.C. 78u-2);
    (9) Section 1120 of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (12 U.S.C. 3349), or any order or regulation 
issued thereunder;
    (10) The terms of any final or temporary order issued under section 
8 of the FDIA or of any written agreement executed by the Board, the 
terms of any condition imposed in writing by the Board in connection 
with the grant of an application or request, and certain unsafe or 
unsound practices or breaches of fiduciary duty or law or regulation 
pursuant to 12 U.S.C. 1818(i)(2);
    (11) Any provision of law referenced in section 102(f) of the Flood 
Disaster Protection Act of 1973 (42 U.S.C. 4012a(f)) or any order or 
regulation issued thereunder;
    (12) Any provision of law referenced in 31 U.S.C. 5321 or any order 
or regulation issued thereunder;
    (13) Section 5 of the Home Owners' Loan Act (``HOLA'') or any 
regulation or order issued thereunder, pursuant to 12 U.S.C. 1464 (d), 
(s) and (v);
    (14) Section 9 of the HOLA or any regulation or order issued 
thereunder, pursuant to 12 U.S.C. 1467(d); and
    (15) Section 10 of the HOLA, pursuant to 12 U.S.C. 1467a (i) and 
(r);
    (f) Remedial action under section 102(g) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(g));
    (g) Removal, prohibition, and civil monetary penalty proceedings 
under section 10(k) of the FDI Act (12 U.S.C.

[[Page 498]]

1820(k)) for violations of the special post-employment restrictions 
imposed by that section; and
    (h) This subpart also applies to all other adjudications required by 
statute to be determined on the record after opportunity for an agency 
hearing, unless otherwise specifically provided for in the Local Rules.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20341, May 6, 1996; 70 
FR 69638, Nov. 17, 2005; 76 FR 56603, Sept. 13, 2011]



Sec. 263.2  Rules of construction.

    For purposes of this subpart:
    (a) Any term in the singular includes the plural, and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate;
    (c) The term counsel includes a non-attorney representative; and
    (d) Unless the context requires otherwise, a party's counsel of 
record, if any, may, on behalf of that party, take any action required 
to be taken by the party.



Sec. 263.3  Definitions.

    For purposes of this subpart, unless explicitly stated to the 
contrary:
    (a) Administrative law judge means one who presides at an 
administrative hearing under authority set forth at 5 U.S.C. 556.
    (b) Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules and leading to the formulation of a final order other than a 
regulation.
    (c) Decisional employee means any member of the Board's or 
administrative law judge's staff who has not engaged in an investigative 
or prosecutorial role in a proceeding and who may assist the Agency or 
the administrative law judge, respectively, in preparing orders, 
recommended decisions, decisions, and other documents under the Uniform 
Rules.
    (d) Enforcement Counsel means any individual who files a notice of 
appearance as counsel on behalf of the Board in an adjudicatory 
proceeding.
    (e) Final order means an order issued by the Board with or without 
the consent of the affected institution or the institution-affiliated 
party, that has become final, without regard to the pendency of any 
petition for reconsideration or review.
    (f) Institution includes: (1) Any bank as that term is defined in 
section 3(a) of the FDIA (12 U.S.C. 1813(a));
    (2) Any bank holding company or any subsidiary (other than a bank) 
of a bank holding company as those terms are defined in the BHC Act (12 
U.S.C. 1841 et seq.);
    (3) Any organization operating under section 25 of the FRA (12 
U.S.C. 601 et seq.);
    (4) Any foreign bank or company to which section 8 of the IBA (12 
U.S.C. 3106), applies or any subsidiary (other than a bank) thereof;
    (5) Any Federal agency as that term is defined in section 1(b) of 
the IBA (12 U.S.C. 3101(5)); and
    (6) Any savings and loan holding company or any subsidiary (other 
than a savings association) of a savings and loan holding company as 
those terms are defined in the HOLA (12 U.S.C. 1461 et seq.).
    (g) Institution-affiliated party means any institution-affiliated 
party as that term is defined in section 3(u) of the FDIA (12 U.S.C. 
1813(u)).
    (h) Local Rules means those rules promulgated by the Board in this 
part other than subpart A.
    (i) OFIA means the Office of Financial Institution Adjudication, the 
executive body charged with overseeing the administration of 
administrative enforcement proceedings for the Board, the Office of 
Comptroller of the Currency (the OCC), the Federal Deposit Insurance 
Corporation (the FDIC), and the National Credit Union Administration 
(the NCUA).
    (j) Party means the Board and any person named as a party in any 
notice.
    (k) Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency or other entity or organization, including an 
institution as defined in paragraph (f) of this section.
    (l) Respondent means any party other than the Board.

[[Page 499]]

    (m) Uniform Rules means those rules in subpart A of this part that 
are common to the Board, the OCC, the FDIC, and the NCUA.
    (n) Violation includes any action (alone or with another or others) 
for or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56603, Sept. 13, 2011]



Sec. 263.4  Authority of the Board.

    The Board may, at any time during the pendency of a proceeding, 
perform, direct the performance of, or waive performance of, any act 
which could be done or ordered by the administrative law judge.



Sec. 263.5  Authority of the administrative law judge.

    (a) General rule. All proceedings governed by this part shall be 
conducted in accordance with the provisions of chapter 5 of title 5 of 
the United States Code. The administrative law judge shall have all 
powers necessary to conduct a proceeding in a fair and impartial manner 
and to avoid unnecessary delay.
    (b) Powers. The administrative law judge shall have all powers 
necessary to conduct the proceeding in accordance with paragraph (a) of 
this section, including the following powers:
    (1) To administer oaths and affirmations;
    (2) To issue subpoenas, subpoenas duces tecum, and protective 
orders, as authorized by this part, and to quash or modify any such 
subpoenas and orders;
    (3) To receive relevant evidence and to rule upon the admission of 
evidence and offers of proof;
    (4) To take or cause depositions to be taken as authorized by this 
subpart;
    (5) To regulate the course of the hearing and the conduct of the 
parties and their counsel;
    (6) To hold scheduling and/or pre-hearing conferences as set forth 
in Sec. 263.31;
    (7) To consider and rule upon all procedural and other motions 
appropriate in an adjudicatory proceeding, provided that only the Board 
shall have the power to grant any motion to dismiss the proceeding or to 
decide any other motion that results in a final determination of the 
merits of the proceeding;
    (8) To prepare and present to the Board a recommended decision as 
provided herein;
    (9) To recuse himself or herself by motion made by a party or on his 
or her own motion;
    (10) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (11) To do all other things necessary and appropriate to discharge 
the duties of a presiding officer.



Sec. 263.6  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before the Board or an administrative law judge--(1) 
By attorneys. Any member in good standing of the bar of the highest 
court of any state, commonwealth, possession, territory of the United 
States, or the District of Columbia may represent others before the 
Board if such attorney is not currently suspended or debarred from 
practice before the Board.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf; a member of a partnership may represent the partnership; a duly 
authorized officer, director, or employee of any government unit, 
agency, institution, corporation or authority may represent that unit, 
agency, institution, corporation or authority if such officer, director, 
or employee is not currently suspended or debarred from practice before 
the Board.
    (3) Notice of appearance. Any individual acting as counsel on behalf 
of a party, including the Board, shall file a notice of appearance with 
OFIA at or before the time that individual submits papers or otherwise 
appears on behalf of a party in the adjudicatory proceeding. The notice 
of appearance must include a written declaration that the individual is 
currently qualified as provided in paragraph (a)(1) or (a)(2) of this 
section and is authorized to represent the particular party. By filing a 
notice of appearance on behalf of a party in an adjudicatory proceeding, 
the counsel agrees and represents that

[[Page 500]]

he or she is authorized to accept service on behalf of the represented 
party and that, in the event of withdrawal from representation, he or 
she will, if required by the administrative law judge, continue to 
accept service until new counsel has filed a notice of appearance or 
until the represented party indicates that he or she will proceed on a 
pro se basis.
    (b) Sanctions. Dilatory, obstructionist, egregious, contemptuous or 
contumacious conduct at any phase of any adjudicatory proceeding may be 
grounds for exclusion or suspension of counsel from the proceeding.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20341, May 6, 1996]



Sec. 263.7  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice shall be signed by at least one 
counsel of record in his or her individual name and shall state that 
counsel's address and telephone number. A party who acts as his or her 
own counsel shall sign his or her individual name and state his or her 
address and telephone number on every filing or submission of record.
    (b) Effect of signature. (1) The signature of counsel or a party 
shall constitute a certification that: the counsel or party has read the 
filing or submission of record; to the best of his or her knowledge, 
information, and belief formed after reasonable inquiry, the filing or 
submission of record is well-grounded in fact and is warranted by 
existing law or a good faith argument for the extension, modification, 
or reversal of existing law; and the filing or submission of record is 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the 
administrative law judge shall strike the filing or submission of 
record, unless it is signed promptly after the omission is called to the 
attention of the pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any counsel or party constitutes a 
certification that to the best of his or her knowledge, information, and 
belief formed after reasonable inquiry, his or her statement is well-
grounded in fact and is warranted by existing law or a good faith 
argument for the extension, modification, or reversal of existing law, 
and is not made for any improper purpose, such as to harass or to cause 
unnecessary delay or needless increase in the cost of litigation.



Sec. 263.8  Conflicts of interest.

    (a) Conflict of interest in representation. No person shall appear 
as counsel for another person in an adjudicatory proceeding if it 
reasonably appears that such representation may be materially limited by 
that counsel's responsibilities to a third person or by the counsel's 
own interests. The administrative law judge may take corrective measures 
at any stage of a proceeding to cure a conflict of interest in 
representation, including the issuance of an order limiting the scope of 
representation or disqualifying an individual from appearing in a 
representative capacity for the duration of the proceeding.
    (b) Certification and waiver. If any person appearing as counsel 
represents two or more parties to an adjudicatory proceeding or also 
represents a non-party on a matter relevant to an issue in the 
proceeding, counsel must certify in writing at the time of filing the 
notice of appearance required by Sec. 263.6(a):
    (1) That the counsel has personally and fully discussed the 
possibility of conflicts of interest with each such party and non-party; 
and
    (2) That each such party and non-party waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20342, May 6, 1996]



Sec. 263.9  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding that was neither on the record nor on reasonable prior notice 
to all parties that takes place between:

[[Page 501]]

    (i) An interested person outside the Board (including such person's 
counsel); and
    (ii) The administrative law judge handling that proceeding, a member 
of the Board, or a decisional employee.
    (2) Exception. A request for status of the proceeding does not 
constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the notice 
is issued by the Board until the date that the Board issues its final 
decision pursuant to Sec. 263.40(c):
    (1) No interested person outside the Federal Reserve System shall 
make or knowingly cause to be made an ex parte communication to a member 
of the Board, the administrative law judge, or a decisional employee; 
and
    (2) A member of the Board, administrative law judge, or decisional 
employee shall not make or knowingly cause to be made to any interested 
person outside the Federal Reserve System any ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by the administrative law judge, a 
member of the Board or any other person identified in paragraph (a) of 
this section, that person shall cause all such written communications 
(or, if the communication is oral, a memorandum stating the substance of 
the communication) to be placed on the record of the proceeding and 
served on all parties. All other parties to the proceeding shall have an 
opportunity, within ten days of receipt of service of the ex parte 
communication, to file responses thereto and to recommend any sanctions, 
in accordance with paragraph (d) of this section, that they believe to 
be appropriate under the circumstances.
    (d) Sanctions. Any party or his or her counsel who makes a 
prohibited ex parte communication, or who encourages or solicits another 
to make any such communication, may be subject to any appropriate 
sanction or sanctions imposed by the Board or the administrative law 
judge including, but not limited to, exclusion from the proceedings and 
an adverse ruling on the issue which is the subject of the prohibited 
communication.
    (e) Separation of functions. Except to the extent required for the 
disposition of ex parte matters as authorized by law, the administrative 
law judge may not consult a person or party on any matter relevant to 
the merits of the adjudication, unless on notice and opportunity for all 
parties to participate. An employee or agent engaged in the performance 
of investigative or prosecuting functions for the Board in a case may 
not, in that or a factually related case, participate or advise in the 
decision, recommended decision, or agency review of the recommended 
decision under Sec. 263.40, except as witness or counsel in public 
proceedings.

[56 FR 38052, Aug. 9, 1991, as amended at 59 FR 65245, Dec. 19, 1994]



Sec. 263.10  Filing of papers.

    (a) Filing. Any papers required to be filed, excluding documents 
produced in response to a discovery request pursuant to Secs. 263.25 and 
263.26, shall be filed with OFIA, except as otherwise provided.
    (b) Manner of filing. Unless otherwise specified by the Board or the 
administrative law judge, filing may be accomplished by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if expressly authorized, 
and upon any conditions specified, by the Board or the administrative 
law judge. All papers filed by electronic media shall also concurrently 
be filed in accordance with paragraph (c) of this section.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
filed must set forth the name, address, and telephone number of the 
counsel or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\  x  11 inch paper, and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 263.7.

[[Page 502]]

    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the Board and of the filing party, the 
title and docket number of the proceeding, and the subject of the 
particular paper.
    (4) Number of copies. Unless otherwise specified by the Board, or 
the administrative law judge, an original and one copy of all documents 
and papers shall be filed, except that only one copy of transcripts of 
testimony and exhibits shall be filed.



Sec. 263.11  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers shall serve a copy upon the counsel of record for all other 
parties to the proceeding so represented, and upon any party not so 
represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery;
    (3) Mailing the papers by first class, registered, or certified 
mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 263.10(c).
    (c) By the Board or the administrative law judge. (1) All papers 
required to be served by the Board or the administrative law judge upon 
a party who has appeared in the proceeding in accordance with 
Sec. 263.6, shall be served by any means specified in paragraph (b) of 
this section.
    (2) If a party has not appeared in the proceeding in accordance with 
Sec. 263.6, the Board or the administrative law judge shall make service 
by any of the following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) By delivery to an agent, which, in the case of a corporation or 
other association, is delivery to an officer, managing or general agent, 
or to any other agent authorized by appointment or by law to receive 
service and, if the agent is one authorized by statute to receive 
service and the statute so requires, by also mailing a copy to the 
party;
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method as is reasonably calculated to give actual 
notice.
    (e) Area of service. Service in any state, territory, possession of 
the United States, or the District of Columbia, on any person or company 
doing business in any state, territory, possession of the United States, 
or the District of Columbia, or on any person as otherwise provided by 
law, is effective without regard to the place where the hearing is held, 
provided that if service is made on a foreign bank in connection with an 
action or proceeding involving one or more of its branches or agencies 
located in any state, territory, possession of the United States, or the 
District of Columbia, service shall be made on at least one branch or 
agency so involved.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20342, May 6, 1996]

[[Page 503]]



Sec. 263.12  Construction of time limits.

    (a) General rule. In computing any period of time prescribed by this 
subpart, the date of the act or event that commences the designated 
period of time is not included. The last day so computed is included 
unless it is a Saturday, Sunday, or Federal holiday. When the last day 
is a Saturday, Sunday, or Federal holiday, the period runs until the end 
of the next day that is not a Saturday, Sunday, or Federal holiday. 
Intermediate Saturdays, Sundays, and Federal holidays are included in 
the computation of time. However, when the time period within which an 
act is to be performed is ten days or less, not including any additional 
time allowed for in paragraph (c) of this section, intermediate 
Saturdays, Sundays, and Federal holidays are not included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective:
    (i) In the case of personal service or same-day commercial courier 
delivery, upon actual service;
    (ii) In the case of overnight commercial delivery service, U.S. 
Express Mail delivery, or first class, registered, or certified mail, 
upon deposit in or delivery to an appropriate point of collection;
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing, and as 
agreed among the parties, in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Board or administrative 
law judge in the case of filing or by agreement of the parties in the 
case of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits are 
calculated as follows:
    (1) If service is made by first class, registered, or certified 
mail, add three calendar days to the prescribed period;
    (2) If service is made by express mail or overnight delivery 
service, add one calendar day to the prescribed period; or
    (3) If service is made by electronic media transmission, add one 
calendar day to the prescribed period, unless otherwise determined by 
the Board or the administrative law judge in the case of filing, or by 
agreement among the parties in the case of service.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20342, May 6, 1996]



Sec. 263.13  Change of time limits.

    Except as otherwise provided by law, the administrative law judge 
may, for good cause shown, extend the time limits prescribed by the 
Uniform Rules or by any notice or order issued in the proceedings. After 
the referral of the case to the Board pursuant to Sec. 263.38, the Board 
may grant extensions of the time limits for good cause shown. Extensions 
may be granted at the motion of a party after notice and opportunity to 
respond is afforded all non-moving parties or sua sponte by the Board or 
the administrative law judge.



Sec. 263.14  Witness fees and expenses.

    Witnesses subpoenaed for testimony or depositions shall be paid the 
same fees for attendance and mileage as are paid in the United States 
district courts in proceedings in which the United States is a party, 
provided that, in the case of a discovery subpoena addressed to a party, 
no witness fees or mileage need be paid. Fees for witnesses shall be 
tendered in advance by the party requesting the subpoena, except that 
fees and mileage need not be tendered in advance where the Board is the 
party requesting the subpoena. The Board shall not be required to pay 
any fees to, or expenses of, any witness not subpoenaed by the Board.



Sec. 263.15  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to Enforcement Counsel written offers or proposals for settlement 
of a proceeding, without prejudice to the rights of any of the parties. 
No such offer or proposal shall be made to any Board representative 
other than Enforcement Counsel. Submission of a written settlement offer 
does not provide a basis for adjourning or otherwise delaying all or any 
portion of a proceeding under this part. No settlement

[[Page 504]]

offer or proposal, or any subsequent negotiation or resolution, is 
admissible as evidence in any proceeding.



Sec. 263.16  The Board's right to conduct examination.

    Nothing contained in this subpart limits in any manner the right of 
the Board or any Federal Reserve Bank to conduct any examination, 
inspection, or visitation of any institution or institution-affiliated 
party, or the right of the Board or any Federal Reserve Bank to conduct 
or continue any form of investigation authorized by law.

[56 FR 38052, Aug. 9, 1991; 56 FR 60056, Nov. 27, 1991]



Sec. 263.17  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court concerning all or any part of an adjudicatory proceeding, the 
challenged adjudicatory proceeding shall continue without regard to the 
pendency of that court proceeding. No default or other failure to act as 
directed in the adjudicatory proceeding within the times prescribed in 
this subpart shall be excused based on the pendency before any court of 
any interlocutory appeal or collateral attack.



Sec. 263.18  Commencement of proceeding and contents of notice.

    (a) Commencement of proceeding. (1)(i) Except for change-in-control 
proceedings under section 7(j)(4) of the FDIA (12 U.S.C. 1817(j)(4)), a 
proceeding governed by this subpart is commenced by issuance of a notice 
by the Board.
    (ii) The notice must be served by the Board upon the respondent and 
given to any other appropriate financial institution supervisory 
authority where required by law.
    (iii) The notice must be filed with OFIA.
    (2) Change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)) commence with the issuance of an order by the 
Board.
    (b) Contents of notice. The notice must set forth:
    (1) The legal authority for the proceeding and for the Board's 
jurisdiction over the proceeding;
    (2) A statement of the matters of fact or law showing that the Board 
is entitled to relief;
    (3) A proposed order or prayer for an order granting the requested 
relief;
    (4) The time, place, and nature of the hearing as required by law or 
regulation;
    (5) The time within which to file an answer as required by law or 
regulation;
    (6) The time within which to request a hearing as required by law or 
regulation; and
    (7) That the answer and/or request for a hearing shall be filed with 
OFIA.



Sec. 263.19  Answer.

    (a) When. Within 20 days of service of the notice, respondent shall 
file an answer as designated in the notice. In a civil money penalty 
proceeding, respondent shall also file a request for a hearing within 20 
days of service of the notice.
    (b) Content of answer. An answer must specifically respond to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has the 
effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice which is not denied in the answer must be deemed admitted for 
purposes of the proceeding. A respondent is not required to respond to 
the portion of a notice that constitutes the prayer for relief or 
proposed order. The answer must set forth affirmative defenses, if any, 
asserted by the respondent.
    (c) Default--(1) Effect of failure to answer. Failure of a 
respondent to file an answer required by this section within the time 
provided constitutes a waiver of his or her right to appear and contest 
the allegations in the notice. If no timely answer is filed, Enforcement 
Counsel may file a motion for entry of an order of default. Upon a 
finding that no good cause has been shown for the

[[Page 505]]

failure to file a timely answer, the administrative law judge shall file 
with the Board a recommended decision containing the findings and the 
relief sought in the notice. Any final order issued by the Board based 
upon a respondent's failure to answer is deemed to be an order issued 
upon consent.
    (2) Effect of failure to request a hearing in civil money penalty 
proceedings. If respondent fails to request a hearing as required by law 
within the time provided, the notice of assessment constitutes a final 
and unappealable order.



Sec. 263.20  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended notice, 
whichever period is longer, unless the Board or administrative law judge 
orders otherwise for good cause.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
administrative law judge may admit the evidence when admission is likely 
to assist in adjudicating the merits of the action and the objecting 
party fails to satisfy the administrative law judge that the admission 
of such evidence would unfairly prejudice that party's action or defense 
upon the merits. The administrative law judge may grant a continuance to 
enable the objecting party to meet such evidence.

[61 FR 20342, May 6, 1996]



Sec. 263.21  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized counsel constitutes a waiver of respondent's right to a 
hearing and is deemed an admission of the facts as alleged and consent 
to the relief sought in the notice. Without further proceedings or 
notice to the respondent, the administrative law judge shall file with 
the Board a recommended decision containing the findings and the relief 
sought in the notice.



Sec. 263.22  Consolidation and severance of actions.

    (a) Consolidation. (1) On the motion of any party, or on the 
administrative law judge's own motion, the administrative law judge may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice.
    (2) In the event of consolidation under paragraph (a)(1) of this 
section, appropriate adjustment to the prehearing schedule shall be made 
to avoid unnecessary expense, inconvenience, or delay.
    (b) Severance. The administrative law judge may, upon the motion of 
any party, sever the proceeding for separate resolution of the matter as 
to any respondent only if the administrative law judge finds that:
    (1) Undue prejudice or injustice to the moving party would result 
from not severing the proceeding; and
    (2) Such undue prejudice or injustice would outweigh the interests 
of judicial economy and expedition in the complete and final resolution 
of the proceeding.



Sec. 263.23  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the administrative law judge. Written memoranda, 
briefs, affidavits or other relevant material or documents may be filed 
in support of or in opposition to a motion.

[[Page 506]]

    (b) Oral motions. A motion may be made orally on the record unless 
the administrative law judge directs that such motion be reduced to 
writing.
    (c) Filing of motions. Motions must be filed with the administrative 
law judge, except that following the filing of the recommended decision, 
motions must be filed with the Board.
    (d) Responses. (1) Except as otherwise provided herein, within ten 
days after service of any written motion, or within such other period of 
time as may be established by the administrative law judge or the Board, 
any party may file a written response to a motion. The administrative 
law judge shall not rule on any oral or written motion before each party 
has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.
    (e) Dilatory motions. Frivolous, dilatory or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Secs. 263.29 and 263.30.



Sec. 263.24  Scope of document discovery.

    (a) Limits on discovery. (1) Subject to the limitations set out in 
paragraphs (b), (c), and (d) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained, or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (2) Discovery by use of deposition is governed by Sec. 263.53 of 
subpart B of this part.
    (3) Discovery by use of interrogatories is not permitted.
    (b) Relevance. A party may obtain document discovery regarding any 
matter, not privileged, that has material relevance to the merits of the 
pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec. 263.25.
    (c) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative-process 
privilege, and any other privileges the Constitution, any applicable act 
of Congress, or the principles of common law provide.
    (d) Time limits. All discovery, including all responses to discovery 
requests, shall be completed at least 20 days prior to the date 
scheduled for the commencement of the hearing. No exceptions to this 
time limit shall be permitted, unless the administrative law judge finds 
on the record that good cause exists for waiving the requirements of 
this paragraph.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20342, May 6, 1996]



Sec. 263.25  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. The request must identify the documents to be produced either by 
individual item or by category, and must describe each item and category 
with reasonable particularity. Documents must be produced as they are 
kept in the usual course of business or must be organized

[[Page 507]]

to correspond with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place, and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests 250 pages or 
more of copying, the requesting party shall pay for the copying and 
shipping charges. Copying charges are the current per-page copying rate 
imposed by 12 CFR Part 261 implementing the Freedom of Information Act 
(5 U.S.C. 552). The party to whom the request is addressed may require 
payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request with a response that was complete when made is not 
required to supplement the response to include documents thereafter 
acquired, unless the responding party learns that:
    (1) The response was materially incorrect when made; or
    (2) The response, though correct when made, is no longer true and a 
failure to amend the response is, in substance, a knowing concealment.
    (d) Motions to limit discovery. (1) Any party that objects to a 
discovery request may, within ten days of being served with such 
request, file a motion in accordance with the provisions of Sec. 263.23 
to strike or otherwise limit the request. If an objection is made to 
only a portion of an item or category in a request, the portion objected 
to shall be specified. Any objections not made in accordance with this 
paragraph and Sec. 263.23 are waived.
    (2) The party who served the request that is the subject of a motion 
to strike or limit may file a written response within five days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, the 
producing party must reasonably identify all documents withheld on the 
grounds of privilege and must produce a statement of the basis for the 
assertion of privilege. When similar documents that are protected by 
deliberative process, attorney-work-product, or attorney-client 
privilege are voluminous, these documents may be identified by category 
instead of by individual document. The administrative law judge retains 
discretion to determine when the identification by category is 
insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 263.23 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may file a written response to a motion to compel within 
five days of service of the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses pursuant 
to this section has expired, the administrative law judge shall rule 
promptly on all motions filed pursuant to this section. If the 
administrative law judge determines that a discovery request, or any of 
its terms, calls for irrelevant material, is unreasonable, oppressive, 
excessive in scope, unduly burdensome, or repetitive of previous 
requests, or seeks to obtain privileged documents, he or she may deny or 
modify the request, and may issue appropriate protective orders, upon 
such conditions as justice may require. The pendency of a motion to 
strike or limit discovery or to compel production is not a basis for 
staying or continuing the proceeding, unless otherwise ordered by the 
administrative law judge. Notwithstanding any other provision in this 
part, the administrative law judge may not release, or order a party to 
produce, documents withheld on grounds of privilege if the party has 
stated to the administrative law judge its intention to file a timely 
motion for interlocutory review of the administrative law

[[Page 508]]

judge's order to produce the documents, and until the motion for 
interlocutory review has been decided.
    (h) Enforcing discovery subpoenas. If the administrative law judge 
issues a subpoena compelling production of documents by a party, the 
subpoenaing party may, in the event of noncompliance and to the extent 
authorized by applicable law, apply to any appropriate United States 
district court for an order requiring compliance with the subpoena. A 
party's right to seek court enforcement of a subpoena shall not in any 
manner limit the sanctions that may be imposed by the administrative law 
judge against a party who fails to produce subpoenaed documents.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20343, May 6, 1996]



Sec. 263.26  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the administrative law 
judge for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for making production in response to the document subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 263.24(d). The party obtaining the document 
subpoena is responsible for serving it on the subpoenaed person and for 
serving copies on all parties. Document subpoenas may be served in any 
state, territory, or possession of the United States, the District of 
Columbia, or as otherwise provided by law.
    (3) The administrative law judge shall promptly issue any document 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon such conditions as may be consistent with the Uniform Rules.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties, and any 
party may respond to such motion within ten days of service of the 
motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 263.25(d), and 
during the same time limits during which such an objection could be 
filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may, to the extent authorized by applicable law, apply 
to an appropriate United States district court for an order requiring 
compliance with so much of the document subpoena as the administrative 
law judge has not quashed or modified. A party's right to seek court 
enforcement of a document subpoena shall in no way limit the sanctions 
that may be imposed by the administrative law judge on a party who 
induces a failure to comply with subpoenas issued under this section.



Sec. 263.27  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party desiring to preserve that witness's testimony for the 
record may apply in accordance with the procedures set forth in 
paragraph (a)(2) of this section, to the administrative law judge for 
the issuance of a subpoena, including a subpoena duces tecum, requiring 
the attendance of the witness at a deposition. The administrative law 
judge may issue a deposition subpoena under this section upon a showing 
that:

[[Page 509]]

    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness or infirmity, or will 
otherwise be unavailable;
    (ii) The witness's unavailability was not procured or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed at any place within the 
country in which that witness resides or has a regular place of 
employment or such other convenient place as the administrative law 
judge shall fix.
    (3) Any requested subpoena that sets forth a valid basis for its 
issuance must be promptly issued, unless the administrative law judge on 
his or her own motion, requires a written response or requires 
attendance at a conference concerning whether the requested subpoena 
should be issued.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the administrative law judge orders otherwise, no deposition under this 
section shall be taken on fewer than ten days' notice to the witness and 
all parties. Deposition subpoenas may be served in any state, territory, 
possession of the United States, or the District of Columbia, on any 
person or company doing business in any state, territory, possession of 
the United States, or the District of Columbia, or as otherwise 
permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion with the administrative law 
judge to quash or modify the subpoena prior to the time for compliance 
specified in the subpoena, but not more than ten days after service of 
the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The motion 
must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn, and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for the objection might have been avoided if the objection had 
been timely presented. All questions, answers, and objections must be 
recorded.
    (2) Any party may move before the administrative law judge for an 
order compelling the witness to answer any questions the witness has 
refused to answer or submit any evidence the witness has refused to 
submit during the deposition.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any order of the administrative law judge which directs compliance with 
all or any portion of a deposition subpoena under paragraph (b) or 
(c)(3) of this section, the subpoenaing party or other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with the 
portions of the subpoena that the administrative law judge has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
administrative law judge on a party who fails to comply with, or 
procures a failure to

[[Page 510]]

comply with, a subpoena issued under this section.



Sec. 263.28  Interlocutory review.

    (a) General rule. The Board may review a ruling of the 
administrative law judge prior to the certification of the record to the 
Board only in accordance with the procedures set forth in this section 
and Sec. 263.23.
    (b) Scope of review. The Board may exercise interlocutory review of 
a ruling of the administrative law judge if the Board finds that:
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any request for interlocutory review shall be filed 
by a party with the administrative law judge within ten days of his or 
her ruling and shall otherwise comply with Sec. 263.23. Any party may 
file a response to a request for interlocutory review in accordance with 
Sec. 263.23(d). Upon the expiration of the time for filing all 
responses, the administrative law judge shall refer the matter to the 
Board for final disposition.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Board under this 
section suspends or stays the proceeding unless otherwise ordered by the 
administrative law judge or the Board.



Sec. 263.29  Summary disposition.

    (a) In general. The administrative law judge shall recommend that 
the Board issue a final order granting a motion for summary disposition 
if the undisputed pleaded facts, admissions, affidavits, stipulations, 
documentary evidence, matters as to which official notice may be taken, 
and any other evidentiary materials properly submitted in connection 
with a motion for summary disposition show that:
    (1) There is no genuine issue as to any material fact; and
    (2) The moving party is entitled to a decision in its favor as a 
matter of law.
    (b) Filing of motions and responses. (1) Any party who believes that 
there is no genuine issue of material fact to be determined and that he 
or she is entitled to a decision as a matter of law may move at any time 
for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such a motion, or 
within such time period as allowed by the administrative law judge, may 
file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by documentary 
evidence, which may take the form of admissions in pleadings, 
stipulations, depositions, investigatory depositions, transcripts, 
affidavits and any other evidentiary materials that the moving party 
contends support his or her position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the moving party. Any party opposing a motion for 
summary disposition must file a statement setting forth those material 
facts as to which he or she contends a genuine dispute exists. Such 
opposition must be supported by evidence of the same type as that 
submitted with the motion for summary disposition and a brief containing 
the points and authorities in support of the contention that summary 
disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his or her 
own motion, the administrative law judge may hear oral argument on the 
motion for summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the administrative law judge 
shall determine whether the moving party is entitled to summary 
disposition. If the administrative law judge determines that summary 
disposition is warranted, the administrative law judge shall submit

[[Page 511]]

a recommended decision to that effect to the Board. If the 
administrative law judge finds that no party is entitled to summary 
disposition, he or she shall make a ruling denying the motion.



Sec. 263.30  Partial summary disposition.

    If the administrative law judge determines that a party is entitled 
to summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision as to those claims. A hearing on the 
remaining issues must be ordered. Those claims for which the 
administrative law judge has determined that summary disposition is 
warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.



Sec. 263.31  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order commencing a proceeding or such other time as parties may 
agree, the administrative law judge shall direct counsel for all parties 
to meet with him or her in person at a specified time and place prior to 
the hearing or to confer by telephone for the purpose of scheduling the 
course and conduct of the proceeding. This meeting or telephone 
conference is called a ``scheduling conference.'' The identification of 
potential witnesses, the time for and manner of discovery, and the 
exchange of any prehearing materials including witness lists, statements 
of issues, stipulations, exhibits and any other materials may also be 
determined at the scheduling conference.
    (b) Prehearing conferences. The administrative law judge may, in 
addition to the scheduling conference, on his or her own motion or at 
the request of any party, direct counsel for the parties to meet with 
him or her (in person or by telephone) at a prehearing conference to 
address any or all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact, and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The administrative law judge, in his or her 
discretion, may require that a scheduling or prehearing conference be 
recorded by a court reporter. A transcript of the conference and any 
materials filed, including orders, becomes part of the record of the 
proceeding. A party may obtain a copy of the transcript at his or her 
expense.
    (d) Scheduling or prehearing orders. At or within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the administrative law judge shall serve on each party an 
order setting forth any agreements reached and any procedural 
determinations made.



Sec. 263.32  Prehearing submissions.

    (a) Within the time set by the administrative law judge, but in no 
case later than 14 days before the start of the hearing, each party 
shall serve on every other party, his or her:
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 263.33  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Board, in the Board's discretion, determines that holding an open 
hearing would be contrary to the public interest. Within 20 days of 
service of the notice or, in the

[[Page 512]]

case of change-in-control proceedings under section 7(j)(4) of the FDIA 
(12 U.S.C. 1817(j)(4)), within 20 days from service of the hearing 
order, any respondent may file with the Board a request for a private 
hearing, and any party may file a reply to such a request. A party must 
serve on the administrative law judge a copy of any request or reply the 
party files with the Board. The form of, and procedure for, these 
requests and replies are governed by Sec. 263.23. A party's failure to 
file a request or a reply constitutes a waiver of any objections 
regarding whether the hearing will be public or private.
    (b) Filing document under seal. Enforcement Counsel, in his or her 
discretion, may file any document or part of a document under seal if 
disclosure of the document would be contrary to the public interest. The 
administrative law judge shall take all appropriate steps to preserve 
the confidentiality of such documents or parts thereof, including 
closing portions of the hearing to the public.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20343, May 6, 1996]



Sec. 263.34  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other evidence 
sought, the administrative law judge may issue a subpoena or a subpoena 
duces tecum requiring the attendance of a witness at the hearing or the 
production of documentary or physical evidence at the hearing. The 
application for a hearing subpoena must also contain a proposed subpoena 
specifying the attendance of a witness or the production of evidence 
from any state, territory, or possession of the United States, the 
District of Columbia, or as otherwise provided by law at any designated 
place where the hearing is being conducted. The party making the 
application shall serve a copy of the application and the proposed 
subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of a hearing. During a hearing, a party may make an 
application for a subpoena orally on the record before the 
administrative law judge.
    (3) The administrative law judge shall promptly issue any hearing 
subpoena requested pursuant to this section. If the administrative law 
judge determines that the application does not set forth a valid basis 
for the issuance of the subpoena, or that any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
or she may refuse to issue the subpoena or may issue it in a modified 
form upon any conditions consistent with this subpart. Upon issuance by 
the administrative law judge, the party making the application shall 
serve the subpoena on the person named in the subpoena and on each 
party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
the subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but not more 
than ten days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
administrative law judge which directs compliance with all or any 
portion of a document subpoena, the subpoenaing party or any other 
aggrieved party may seek enforcement of the subpoena pursuant to 
Sec. 263.26(c).

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20343, May 6, 1996]



Sec. 263.35  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted so as to provide 
a fair and expeditious presentation of the relevant disputed issues. 
Each party has the right to present its case or defense by oral and 
documentary evidence and to conduct such cross examination as

[[Page 513]]

may be required for full disclosure of the facts.
    (2) Order of hearing. Enforcement Counsel shall present its case-in-
chief first, unless otherwise ordered by the administrative law judge, 
or unless otherwise expressly specified by law or regulation. 
Enforcement Counsel shall be the first party to present an opening 
statement and a closing statement, and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order of 
presentation of their cases, but if they do not agree the administrative 
law judge shall fix the order.
    (3) Examination of witnesses. Only one counsel for each party may 
conduct an examination of a witness, except that in the case of 
extensive direct examination, the administrative law judge may permit 
more than one counsel for the party presenting the witness to conduct 
the examination. A party may have one counsel conduct the direct 
examination and another counsel conduct re-direct examination of a 
witness, or may have one counsel conduct the cross examination of a 
witness and another counsel conduct the re-cross examination of a 
witness.
    (4) Stipulations. Unless the administrative law judge directs 
otherwise, all stipulations of fact and law previously agreed upon by 
the parties, and all documents, the admissibility of which have been 
previously stipulated, will be admitted into evidence upon commencement 
of the hearing.
    (b) Transcript. The hearing must be recorded and transcribed. The 
reporter will make the transcript available to any party upon payment by 
that party to the reporter of the cost of the transcript. The 
administrative law judge may order the record corrected, either upon 
motion to correct, upon stipulation of the parties, or following notice 
to the parties upon the administrative law judge's own motion.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20343, May 6, 1996]



Sec. 263.36  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material, and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not be deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact which may be judicially noticed by a United States 
district court and any material information in the official public 
records of any Federal or state government agency.
    (2) All matters officially noticed by the administrative law judge 
or Board shall appear on the record.
    (3) If official notice is requested or taken of any material fact, 
the parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a) of this section, 
any document, including a report of examination, supervisory activity, 
inspection or visitation, prepared by an appropriate Federal financial 
institution regulatory agency or state regulatory agency, is admissible 
either with or without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the administrative law judge's discretion, be 
used with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear on the record.
    (2) When an objection to a question or line of questioning 
propounded to a

[[Page 514]]

witness is sustained, the examining counsel may make a specific proffer 
on the record of what he or she expected to prove by the expected 
testimony of the witness, either by representation of counsel or by 
direct interrogation of the witness.
    (3) The administrative law judge shall retain rejected exhibits, 
adequately marked for identification, for the record, and transmit such 
exhibits to the Board.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing, and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing, and that witness has testified in a 
deposition to which all parties in a proceeding had notice and an 
opportunity to participate, a party may offer as evidence all or any 
part of the transcript of the deposition, including deposition exhibits, 
if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the administrative law judge may, on that basis, 
limit the admissibility of the deposition in any manner that justice 
requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.



Sec. 263.37  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the administrative law 
judge shall serve notice upon each party, that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the administrative law judge proposed findings of fact, 
proposed conclusions of law, and a proposed order within 30 days 
following service of this notice by the administrative law judge or 
within such longer period as may be ordered by the administrative law 
judge.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document. Any party who fails to file timely with the 
administrative law judge any proposed finding or conclusion is deemed to 
have waived the right to raise in any subsequent filing or submission 
any issue not addressed in such party's proposed finding or conclusion.
    (b) Reply briefs. Reply briefs may be filed within 15 days after the 
date on which the parties' proposed findings, conclusions, and order are 
due. Reply briefs must be strictly limited to responding to new matters, 
issues, or arguments raised in another party's papers. A party who has 
not filed proposed findings of fact and conclusions of law or a post-
hearing brief may not file a reply brief.
    (c) Simultaneous filing required. The administrative law judge shall 
not order the filing by any party of any brief or reply brief in advance 
of the other party's filing of its brief.

[56 FR 38052, Aug. 9, 1991, as amended at 61 FR 20344, May 6, 1996]



Sec. 263.38  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under 
Sec. 263.37(b), the administrative law judge shall file with and certify 
to the Board, for decision, the record of the proceeding. The record 
must include the administrative law judge's recommended decision, 
recommended findings of fact, recommended conclusions of law, and 
proposed order; all prehearing and hearing transcripts, exhibits, and 
rulings; and the motions, briefs, memoranda, and other supporting papers 
filed in connection with the hearing. The administrative law judge shall 
serve upon each party the recommended decision, findings, conclusions, 
and proposed order.

[[Page 515]]

    (b) Filing of index. At the same time the administrative law judge 
files with and certifies to the Board for final determination the record 
of the proceeding, the administrative law judge shall furnish to the 
Board a certified index of the entire record of the proceeding. The 
certified index shall include, at a minimum, an entry for each paper, 
document or motion filed with the administrative law judge in the 
proceeding, the date of the filing, and the identity of the filer. The 
certified index shall also include an exhibit index containing, at a 
minimum, an entry consisting of exhibit number and title or description 
for: Each exhibit introduced and admitted into evidence at the hearing; 
each exhibit introduced but not admitted into evidence at the hearing; 
each exhibit introduced and admitted into evidence after the completion 
of the hearing; and each exhibit introduced but not admitted into 
evidence after the completion of the hearing.

[61 FR 20344, May 6, 1996]



Sec. 263.39  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, findings, conclusions, and proposed order under 
Sec. 263.38, a party may file with the Board written exceptions to the 
administrative law judge's recommended decision, findings, conclusions 
or proposed order, to the admission or exclusion of evidence, or to the 
failure of the administrative law judge to make a ruling proposed by a 
party. A supporting brief may be filed at the time the exceptions are 
filed, either as part of the same document or in a separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Board if the party taking 
exception had an opportunity to raise the same objection, issue, or 
argument before the administrative law judge and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in, or omissions 
from, the administrative law judge's recommendations to which that party 
takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
administrative law judge's recommendations to which exception is taken, 
the page or paragraph references to those portions of the record relied 
upon to support each exception, and the legal authority relied upon to 
support each exception.



Sec. 263.40  Review by the Board.

    (a) Notice of submission to the Board. When the Board determines 
that the record in the proceeding is complete, the Board shall serve 
notice upon the parties that the proceeding has been submitted to the 
Board for final decision.
    (b) Oral argument before the Board. Upon the initiative of the Board 
or on the written request of any party filed with the Board within the 
time for filing exceptions, the Board may order and hear oral argument 
on the recommended findings, conclusions, decision, and order of the 
administrative law judge. A written request by a party must show good 
cause for oral argument and state reasons why arguments cannot be 
presented adequately in writing. A denial of a request for oral argument 
may be set forth in the Board's final decision. Oral argument before the 
Board must be on the record.
    (c) Agency final decision. (1) Decisional employees may advise and 
assist the Board in the consideration and disposition of the case. The 
final decision of the Board will be based upon review of the entire 
record of the proceeding, except that the Board may limit the issues to 
be reviewed to those findings and conclusions to which opposing 
arguments or exceptions have been filed by the parties.
    (2) The Board shall render a final decision within 90 days after 
notification of the parties that the case has been submitted for final 
decision, or 90 days after oral argument, whichever is later, unless the 
Board orders that the action or any aspect thereof be remanded to

[[Page 516]]

the administrative law judge for further proceedings. Copies of the 
final decision and order of the Board shall be served upon each party to 
the proceeding, upon other persons required by statute, and, if directed 
by the Board or required by statute, upon any appropriate state or 
Federal supervisory authority.



Sec. 263.41  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the Board may not, unless specifically ordered by 
the Board or a reviewing court, operate as a stay of any order issued by 
the Board. The Board may, in its discretion, and on such terms as it 
finds just, stay the effectiveness of all or any part of its order 
pending a final decision on a petition for review of that order.



       Subpart B_Board Local Rules Supplementing the Uniform Rules



Sec. 263.50  Purpose and scope.

    (a) This subpart prescribes the rules of practice and procedure 
governing formal adjudications set forth in Sec. 263.50(b) of this 
subpart, and supplements the rules of practice and procedure contained 
in subpart A of this part.
    (b) The rules and procedures of this subpart and subpart A of this 
part shall apply to the formal adjudications set forth in Sec. 263.1 of 
subpart A and to the following adjudications:
    (1) Suspension of a member bank from use of credit facilities of the 
Federal Reserve System under section 4 of the FRA (12 U.S.C. 301);
    (2) Termination of a bank's membership in the Federal Reserve System 
under section 9 of the FRA (12 U.S.C. 327);
    (3) Issuance of a cease-and-desist order under section 11 of the 
Clayton Act (15 U.S.C. 21);
    (4) Adjudications under sections 2, 3, or 4 of the BHC Act (12 
U.S.C. 1841, 1842, or 1843);
    (5) Formal adjudications on bank merger applications under section 
18(c) of the FDIA (12 U.S.C. 1828(c));
    (6) Issuance of a divestiture order under section 5(e) of the BHC 
Act (12 U.S.C. 1844(e));
    (7) Imposition of sanctions upon any municipal securities dealer for 
which the Board is the appropriate regulatory agency, or upon any person 
associated or seeking to become associated with such a municipal 
securities dealer, under section 15B(c)(5) of the Exchange Act (15 
U.S.C. 78o-4);
    (8) Proceedings where the Board otherwise orders that a formal 
hearing be held;
    (9) Termination of the activities of a state branch, state agency, 
or commercial lending company subsidiary of a foreign bank in the United 
States, pursuant to section 7(e) of the IBA (12 U.S.C. 3105(d));
    (10) Termination of the activities of a representative office of a 
foreign bank in the United States, pursuant to section 10(b) of the IBA 
(12 U.S.C. 3107(b));
    (11) Issuance of a prompt corrective action directive to a member 
bank under section 38 of the FDI Act (12 U.S.C. 1831o);
    (12) Reclassification of a member bank on grounds of unsafe or 
unsound condition under section 38(g)(1) of the FDI Act (12 U.S.C. 
1831o(g)(1));
    (13) Reclassification of a member bank on grounds of unsafe and 
unsound practice under section 38(g)(1) of the FDI Act (12 U.S.C. 
1831o(g)(1));
    (14) Issuance of an order requiring a member bank to dismiss a 
director or senior executive officer under section 38 (e)(5) and 
38(f)(2) (F)(ii) of the FDI Act (12 U.S.C. 1831o(e)(5) and 1831o(f)(2) 
(F)(ii));
    (15) Adjudications under section 10 of the HOLA (12 U.S.C. 1467a).

[56 FR 38052, Aug. 9, 1991, as amended at 57 FR 13001, Apr. 15, 1992; 57 
FR 44888, Sept. 29, 1992; 76 FR 56603, Sept. 13, 2011]



Sec. 263.51  Definitions.

    As used in subparts B through G of this part:
    (a) Secretary means the Secretary of the Board of Governors of the 
Federal Reserve System;
    (b) Member bank means any bank that is a member of the Federal 
Reserve System.
    (c) Institution has the same meaning as that assigned to it in 
Sec. 263.3(f) of subpart A, and includes any foreign bank

[[Page 517]]

with a representative office in the United States.

[56 FR 38052, Aug. 9, 1991, as amended at 57 FR 13001, Apr. 15, 1992; 58 
FR 6363, Jan. 28, 1993]



Sec. 263.52  Address for filing.

    All papers to be filed with the Board shall be filed with the 
Secretary of the Board of Governors of the Federal Reserve System, 
Washington, DC 20551.



Sec. 263.53  Discovery depositions.

    (a) In general. In addition to the discovery permitted in subpart A 
of this part, limited discovery by means of depositions shall be allowed 
for individuals with knowledge of facts material to the proceeding that 
are not protected from discovery by any applicable privilege, and of 
identified expert witnesses. Except in unusual cases, accordingly, 
depositions will be permitted only of individuals identified as hearing 
witnesses, including experts. All discovery depositions must be 
completed within the time set forth in Sec. 263.24(d).
    (b) Application. A party who desires to take a deposition of any 
other party's proposed witnesses, shall apply to the administrative law 
judge for the issuance of a deposition subpoena or subpoena duces tecum. 
The application shall state the name and address of the proposed 
deponent, the subject matter of the testimony expected from the deponent 
and its relevancy to the proceeding, and the address of the place and 
the time, no sooner than ten days after the service of the subpoena, for 
the taking of the deposition. Any such application shall be treated as a 
motion subject to the rules governing motions practice set forth in 
Sec. 263.23.
    (c) Issuance of subpoena. The administrative law judge shall issue 
the requested deposition subpoena or subpoena duces tecum upon a finding 
that the application satisfies the requirements of this section and of 
Sec. 263.24. If the administrative law judge determines that the taking 
of the deposition or its proposed location is, in whole or in part, 
unnecessary, unreasonable, oppressive, excessive in scope or unduly 
burdensome, he or she may deny the application or may grant it upon such 
conditions as justice may require. The party obtaining the deposition 
subpoena or subpoena duces tecum shall be responsible for serving it on 
the deponent and all parties to the proceeding in accordance with 
Sec. 263.11.
    (d) Motion to quash or modify. A person named in a deposition 
subpoena or subpoena duces tecum may file a motion to quash or modify 
the subpoena or for the issuance of a protective order. Such motions 
must be filed within ten days following service of the subpoena, but in 
all cases at least five days prior to the commencement of the scheduled 
deposition. The motion must be accompanied by a statement of the reasons 
for granting the motion and a copy of the motion and the statement must 
be served on the party which requested the subpoena. Only the party 
requesting the subpoena may file a response to a motion to quash or 
modify, and any such response shall be filed within five days following 
service of the motion.
    (e) Enforcement of a deposition subpoena. Enforcement of a 
deposition subpoena shall be in accordance with the procedures set forth 
in Sec. 263.27(d).
    (f) Conduct of the deposition. The deponent shall be duly sworn, and 
each party shall have the right to examine the deponent with respect to 
all non-privileged, relevant and material matters. Objections to 
questions or evidence shall be in the short form, stating the ground for 
the objection. Failure to object to questions or evidence shall not be 
deemed a waiver except where the grounds for the objection might have 
been avoided if the objection had been timely presented. The discovery 
deposition shall be transcribed or otherwise recorded as agreed among 
the parties.
    (g) Protective orders. At any time during the taking of a discovery 
deposition, on the motion of any party or of the deponent, the 
administrative law judge may terminate or limit the scope and manner of 
the deposition upon a finding that grounds exist for such relief. 
Grounds for terminating or limiting the taking of a discovery deposition 
include a finding that the discovery deposition is being conducted in 
bad faith or in such a manner as to:
    (1) Unreasonably annoy, embarrass, or oppress the deponent;

[[Page 518]]

    (2) Unreasonably probe into privilege, irrelevant or immaterial 
matters; or
    (3) Unreasonably attempt to pry into a party's preparation for 
trial.



Sec. 263.54  Delegation to the Office of Financial Institution Adjudication.

    Unless otherwise ordered by the Board, administrative adjudications 
subject to subpart A of this part shall be conducted by an 
administrative law judge of OFIA.



Sec. 263.55  Board as Presiding Officer.

    The Board may, in its discretion, designate itself, one or more of 
its members, or an authorized officer, to act as presiding officer in a 
formal hearing. In such a proceeding, proposed findings and conclusions, 
briefs, and other submissions by the parties permitted in subpart A 
shall be filed with the Secretary for consideration by the Board. 
Sections 263.38 and 263.39 of subpart A will not apply to proceedings 
conducted under this section.



Sec. 263.56  Initial licensing proceedings.

    Proceedings with respect to applications for initial licenses shall 
include, but not be limited to, applications for Board approval under 
section 3 of the BHC Act and section 10 of HOLA and such proceedings as 
may be ordered by the Board with respect to applications under section 
18(c) of the FDIA. In such initial licensing proceedings, the procedures 
set forth in subpart A of this part shall apply, except that the Board 
may designate a Board Counsel to represent the Board in a nonadversary 
capacity for the purpose of developing for the record information 
relevant to the issues to be determined by the Presiding Officer and the 
Board. In such proceedings, Board Counsel shall be considered to be a 
decisional employee for purposes of Secs. 263.9 and 263.40 of subpart A.

[76 FR 56603, Sept. 13, 2011]



 Subpart C_Rules and Procedures for Assessment and Collection of Civil 
                             Money Penalties



Sec. 263.60  Scope.

    The Uniform Rules set forth in subpart A of this part shall govern 
the procedures for assessment of civil money penalties, except as 
otherwise provided in this subpart.



Sec. 263.61  Opportunity for informal proceeding.

    In the sole discretion of the Board's General Counsel, the General 
Counsel may, prior to the issuance by the Board of a notice of 
assessment of civil penalty, advise the affected person that the 
issuance of a notice of assessment of civil penalty is being considered 
and the reasons and authority for the proposed assessment. The General 
Counsel may provide the person an opportunity to present written 
materials or request a conference with members of the Board's staff to 
show that the penalty should not be assessed or, if assessed, should be 
reduced in amount.



Sec. 263.62  Relevant considerations for assessment of civil penalty.

    In determining the amount of the penalty to be assessed, the Board 
shall take into account the appropriateness of the penalty with respect 
to the financial resources and good faith of the person charged, the 
gravity of the misconduct, the history of previous misconduct, the 
economic benefit derived by the person from the misconduct, and such 
other matters as justice may require.



Sec. 263.63  Assessment order.

    (a) In the event of consent to an assessment by the person 
concerned, or if, upon the record made at an administrative hearing, the 
Board finds that the grounds for having assessed the penalty have been 
established, the Board may issue a final order of assessment of civil 
penalty. In its final order, the Board may modify the amount of the 
penalty specified in the notice of assessment.
    (b) An assessment order is effective immediately upon issuance, or 
upon such other date as may be specified therein, and shall remain 
effective and enforceable until it is stayed, modified, terminated, or 
set aside by action of the Board or a reviewing court.



Sec. 263.64  Payment of civil penalty.

    (a) The date designated in the notice of assessment for payment of 
the civil

[[Page 519]]

penalty will normally be 60 days from the issuance of the notice. If, 
however, the Board finds in a specific case that the purposes of the 
authorizing statute would be better served if the 60-day period is 
changed, the Board may shorten or lengthen the period or make the civil 
penalty payable immediately upon receipt of the notice of assessment. If 
a timely request for a formal hearing to challenge an assessment of 
civil penalty is filed, payment of the penalty shall not be required 
unless and until the Board issues a final order of assessment following 
the hearing. If an assessment order is issued, it will specify the date 
by which the civil penalty should be paid or collected.
    (b) Checks in payment of civil penalties should be made payable to 
the ``Board of Governors of the Federal Reserve System.'' Upon 
collection, the Board shall forward the amount of the penalty to the 
Treasury of the United States.



Sec. 263.65  Civil monetary penalty inflation adjustments.

    (a) Inflation adjustments. In accordance with the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015, which 
further amended the Federal Civil Penalties Inflation Adjustment Act of 
1990, the Board has set forth in paragraph (b) of this section the 
adjusted maximum amounts for each civil monetary penalty provided by law 
within the Board's jurisdiction. The authorizing statutes contain the 
complete provisions under which the Board may seek a civil monetary 
penalty. The adjusted civil monetary penalties apply only to penalties 
assessed on or after August 1, 2016.
    (b) Maximum civil monetary penalties. The maximum civil monetary 
penalties as set forth in the referenced statutory sections are set 
forth in the table in this paragraph (b).

------------------------------------------------------------------------
                                                          Adjusted civil
                         Statute                             monetary
                                                              penalty
------------------------------------------------------------------------
12 U.S.C. 324:
  Inadvertently late or misleading reports, inter alia..          $3,787
  Other late or misleading reports, inter alia..........          37,872
  Knowingly or reckless false or misleading reports,           1,893,610
   inter alia...........................................
12 U.S.C. 334...........................................             275
12 U.S.C. 374a..........................................             275
12 U.S.C. 504:
  First Tier............................................           9,468
  Second Tier...........................................          47,340
  Third Tier............................................       1,893,610
12 U.S.C. 505:
  First Tier............................................           9,468
  Second Tier...........................................          47,340
  Third Tier............................................       1,893,610
12 U.S.C. 1464(v)(4)....................................           3,787
12 U.S.C. 1464(v)(5)....................................          37,872
12 U.S.C. 1464(v)(6)....................................       1,893,610
12 U.S.C. 1467a(i)(2)...................................          47,340
12 U.S.C. 1467a(i)(3)...................................          47,340
12 U.S.C. 1467a(r):
  First Tier............................................           3,787
  Second Tier...........................................          37,872
  Third Tier............................................       1,893,610
12 U.S.C. 1817(j)(16):
  First Tier............................................           9,468
  Second Tier...........................................          47,340
  Third Tier............................................       1,893,610
12 U.S.C. 1818(i)(2):
  First Tier............................................           9,468
  Second Tier...........................................          47,340
  Third Tier............................................       1,893,610
12 U.S.C. 1820(k)(6)(A)(ii).............................         311,470
12 U.S.C. 1832(c).......................................           2,750
12 U.S.C. 1847(b).......................................          47,340
12 U.S.C. 1847(d):
  First Tier............................................           3,787
  Second Tier...........................................          37,872
  Third Tier............................................       1,893,610
12 U.S.C. 1884..........................................             275
12 U.S.C. 1972(2)(F):
  First Tier............................................           9,468
  Second Tier...........................................          47,340
  Third Tier............................................       1,893,610
12 U.S.C. 3909(d).......................................            2355
12 U.S.C. 3110(a).......................................          43,275
12 U.S.C. 3110(c):
  First Tier............................................           3,462
  Second Tier...........................................          34,620
  Third Tier............................................       1,730,990
15 U.S.C. 78u-2(b)(1):
  For a natural person..................................           8,908
  For any other person..................................          89,078
15 U.S.C. 78u-2(b)(2):
  For a natural person..................................          89,078
  For any other person..................................         445,390
15 U.S.C. 78u-2(b)(3):
  For a natural person..................................         178,156
  For any other person..................................         890,780
15 U.S.C. 1639e(k)(1)...................................          10,875
15 U.S.C. 1639e(k)(2)...................................          21,749
42 U.S.C. 4012a(f)(5)...................................            2056
------------------------------------------------------------------------


[81 FR 47007, July 20, 2016]



Subpart D_Rules and Procedures Applicable to Suspension or Removal of an 
    Institution-Affiliated Party Where a Felony is Charged or Proven



Sec. 263.70  Purpose and scope.

    The rules and procedures set forth in this subpart apply to informal 
hearings afforded to any institution-affiliated

[[Page 520]]

party for whom the Board is the appropriate regulatory agency, who has 
been suspended or removed from office or prohibited from further 
participation in any manner in the conduct of the institution's affairs 
by a notice or order issued by the Board upon the grounds set forth in 
section 8(g) of the FDIA (12 U.S.C. 1818(g)).



Sec. 263.71  Notice or order of suspension, removal, or prohibition.

    (a) Grounds. The Board may suspend an institution-affiliated party 
from office or prohibit an institution-affiliated party from further 
participation in any manner in the conduct of an institution's affairs 
when the person is charged in any information, indictment, or complaint 
authorized by a United States attorney with the commission of, or 
participation in, a crime involving dishonesty or breach of trust that 
is punishable by imprisonment for a term exceeding one year under State 
or Federal law. The Board may remove an institution-affiliated party 
from office or prohibit an institution-affiliated party from further 
participation in any manner in the conduct of an institution's affairs 
when the person is convicted of such an offense and the conviction is 
not subject to further direct appellate review. The Board may suspend or 
remove an institution-affiliated party or prohibit an institution-
affiliated party from participation in an institution's affairs in these 
circumstances if the Board finds that continued service to the financial 
institution or participation in its affairs by the institution-
affiliated party may pose a threat to the interests of the institution's 
depositors or may threaten to impair public confidence in the financial 
institution.
    (b) Contents. The Board commences a suspension, removal, or 
prohibition action under this subpart with the issuance, and service 
upon an institution-affiliated party, of a notice of suspension from 
office, or order of removal from office, or notice or order of 
prohibition from participation in the financial institution's affairs. 
Such a notice or order shall indicate the basis for the suspension, 
removal, or prohibition and shall inform the institution-affiliated 
party of the right to request in writing, within 30 days of service of 
the notice or order, an opportunity to show at an informal hearing that 
continued service to, or participation in the conduct of the affairs of, 
the financial institution does not and is not likely to pose a threat to 
the interests of the financial institution's depositors or threaten to 
impair public confidence in the financial institution. Failure to file a 
timely request for an informal hearing shall be deemed to be a waiver of 
the right to request such a hearing. A notice of suspension or 
prohibition shall remain in effect until the criminal charge upon which 
the notice is based is finally disposed of or until the notice is 
terminated by the Board.
    (c) Service. The notice or order shall be served upon the affiliated 
financial institution concerned, whereupon the institution-affiliated 
party shall immediately cease service to the financial institution or 
further participation in any manner in the conduct of the affairs of the 
financial institution. A notice or order of suspension, removal, or 
prohibition may be served by any of the means authorized for service 
under Sec. 263.11(c)(2) of subpart A.



Sec. 263.72  Request for informal hearing.

    An institution-affiliated party who is suspended or removed from 
office or prohibited from participation in the institution's affairs may 
request an informal hearing within 30 days of service of the notice or 
order. The request shall be filed in writing with the Secretary, Board 
of Governors of the Federal Reserve System, Washington, DC 20551. The 
request shall state with particularity the relief desired and the 
grounds therefor and shall include, when available, supporting evidence 
in the form of affidavits. If the institution-affiliated party desires 
to present oral testimony or witnesses at the hearing, the institution-
affiliated party must include a request to do so with the request for 
informal hearing. The request to present oral testimony or witnesses 
shall specify the names of the witnesses and the general nature of their 
expected testimony.

[[Page 521]]



Sec. 263.73  Order for informal hearing.

    (a) Issuance of hearing order. Upon receipt of a timely request for 
an informal hearing, the Secretary shall promptly issue an order 
directing an informal hearing to commence within 30 days of the receipt 
of the request. At the request of the institution-affiliated party, the 
Secretary may order the hearing to commence at a time more than 30 days 
after the receipt of the request for hearing. The hearing shall be held 
in Washington, DC, or at such other place as may be designated by the 
Secretary, before presiding officers designated by the Secretary to 
conduct the hearing. The presiding officers normally will include 
representatives from the Board's Legal Division and the Division of 
Banking Supervision and Regulation and from the appropriate Federal 
Reserve Bank.
    (b) Waiver of oral hearing. A institution-affiliated party may waive 
in writing his or her right to an oral hearing and instead elect to have 
the matter determined by the Board solely on the basis of written 
submissions.
    (c) Hearing procedures. (1) The institution-affiliated party may 
appear at the hearing personally, through counsel, or personally with 
counsel. The institution-affiliated party shall have the right to 
introduce relevant written materials and to present an oral argument. 
The institution-affiliated party may introduce oral testimony and 
present witnesses only if expressly authorized by the Board or the 
Secretary. Except as provided in Sec. 263.11, the adjudicative 
procedures of the Administrative Procedure Act (5 U.S.C. 554-557) and of 
subpart A of this part shall not apply to the informal hearing ordered 
under this subpart unless the Board orders that subpart A of this part 
applies.
    (2) The informal hearing shall be recorded and a transcript shall be 
furnished to the institution-affiliated party upon request and after the 
payment of the cost thereof. Witnesses need not be sworn, unless 
specifically requested by a party or the presiding officers. The 
presiding officers may ask questions of any witness.
    (3) The presiding officers may order the record to be kept open for 
a reasonable period following the hearing (normally five business days), 
during which time additional submissions to the record may be made. 
Thereafter, the record shall be closed.
    (d) Authority of presiding officers. In the course of or in 
connection with any proceeding under this subpart, the Board or the 
presiding officers are authorized to administer oaths and affirmations, 
to take or cause to be taken depositions, to issue, quash or modify 
subpoenas and subpoenas duces tecum, and, for the enforcement thereof, 
to apply to an appropriate United States district court. All action 
relating to depositions and subpoenas shall be in accordance with the 
rules provided in Secs. 263.34 and 263.53.
    (e) Recommendation of presiding officers. The presiding officers 
shall make a recommendation to the Board concerning the notice or order 
of suspension, removal, or prohibition within 20 calendar days following 
the close of the record on the hearing.



Sec. 263.74  Decision of the Board.

    (a) Within 60 days following the close of the record on the hearing, 
or receipt of written submissions where a hearing has been waived, the 
Board shall notify the institution-affiliated party whether the notice 
of suspension or prohibition will be continued, terminated, or otherwise 
modified, or whether the order of removal or prohibition will be 
rescinded or otherwise modified. The notification shall contain a 
statement of the basis for any adverse decision by the Board. In the 
case of a decision favorable to the institution-affiliated party, the 
Board shall take prompt action to rescind or otherwise modify the order 
of suspension, removal or prohibition.
    (b) In deciding the question of suspension, removal, or prohibition 
under this subpart, the Board shall not rule on the question of the 
guilt or innocence of the individual with respect to the crime with 
which the individual has been charged.

[[Page 522]]



   Subpart E_Procedures for Issuance and Enforcement of Directives To 
                        Maintain Adequate Capital



Sec. 263.80  Purpose and scope.

    This subpart establishes procedures under which the Board may issue 
a directive or take other action to require a state member bank, bank 
holding company, or a savings and loan holding company to achieve and 
maintain adequate capital.

[76 FR 56604, Sept. 13, 2011]



Sec. 263.81  Definitions.

    (a) Bank holding company means any company that controls a bank as 
defined in section 2 of the BHC Act, 12 U.S.C. 1841, and in the Board's 
Regulation Y (12 CFR 225.2(b)) or any direct or indirect subsidiary 
thereof other than a bank subsidiary as defined in section 2(c) of the 
BHC Act, 12 U.S.C. 1841(c), and in the Board's Regulation Y (12 CFR 
225.2(a)).
    (b) Capital Adequacy Guidelines means those guidelines for bank 
holding companies and state member banks contained in appendices A and D 
to the Board's Regulation Y (12 CFR part 225), and in appendix A to the 
Board's Regulation H (12 CFR part 208), or any succeeding capital 
guidelines promulgated by the Board.
    (c) Directive means a final order issued by the Board:
    (1) Pursuant to ILSA (12 U.S.C. 3907(b)(2)) requiring a state member 
bank or bank holding company to increase capital to or maintain capital 
at the minimum level set forth in the Board's Capital Adequacy 
Guidelines or as otherwise established under procedures described in 
Sec. 263.85; or
    (2) Pursuant to HOLA (12 U.S.C. 1467a(g)(1)) requiring a savings and 
loan holding company to increase capital to or maintain capital at a 
certain level.
    (d) State member bank means any state-chartered bank that is a 
member of the Federal Reserve System.
    (e) Savings and loan holding company means any company that controls 
a savings association as defined in section 10 of the HOLA, 12 U.S.C. 
1467a, and in the Board's Regulation LL (12 CFR 238.2) or any direct or 
indirect subsidiary thereof other than a savings association subsidiary 
as defined in section 10 of the HOLA, 12 U.S.C. 1467a, and in the 
Board's Regulation LL (12 CFR 238.2).

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56604, Sept. 13, 2011]



Sec. 263.82  Establishment of minimum capital levels.

    The Board has established minimum capital levels for state member 
banks and bank holding companies in its Capital Adequacy Guidelines. The 
Board may set higher capital levels as necessary and appropriate for a 
particular state member bank or bank holding company based upon its 
financial condition, managerial resources, prospects, or similar 
factors, pursuant to the procedures set forth in Sec. 263.85 of this 
subpart.



Sec. 263.83  Issuance of capital directives.

    (a) Notice of intent to issue directive. If a state member bank or 
bank holding company is operating with less than the minimum level of 
capital established in the Board's Capital Adequacy Guidelines, or as 
otherwise established under the procedures described in Sec. 263.85, or 
if the Board has determined that the current capital level of a savings 
and loan holding company is not adequate, the Board may issue and serve 
upon such state member bank, bank holding company, or savings and loan 
holding company written notice of the Board's intent to issue a 
directive to require the bank, bank holding company, or savings and loan 
holding company to achieve and maintain adequate capital within a 
specified time period.
    (b) Contents of notice. The notice of intent to issue a directive 
shall include:
    (1) The required minimum level of capital to be achieved or 
maintained by the institution;
    (2) Its current level of capital;
    (3) The proposed increase in capital needed to meet the minimum 
requirements;
    (4) The proposed date or schedule for meeting these minimum 
requirements;
    (5) When deemed appropriate, specific details of a proposed plan for 
meeting the minimum capital requirements; and

[[Page 523]]

    (6) The date for a written response by the bank or bank holding 
company to the proposed directive, which shall be at least 14 days from 
the date of issuance of the notice unless the Board determines a shorter 
period is necessary because of the financial condition of the bank or 
bank holding company.
    (c) Response to notice. The bank or bank holding company may file a 
written response to the notice within the time period set by the Board. 
The response may include:
    (1) An explanation why a directive should not be issued;
    (2) Any proposed modification of the terms of the directive;
    (3) Any relevant information, mitigating circumstances, 
documentation or other evidence in support of the institution's position 
regarding the proposed directive; and
    (4) The institution's plan for attaining the required level of 
capital.
    (d) Failure to file response. Failure by the bank or bank holding 
company to file a written response to the notice of intent to issue a 
directive within the specified time period shall constitute a waiver of 
the opportunity to respond and shall constitute consent to the issuance 
of such directive.
    (e) Board consideration of response. After considering the response 
of the bank or bank holding company, the Board may:
    (1) Issue the directive as originally proposed or in modified form;
    (2) Determine not to issue a directive and so notify the bank or 
bank holding company; or
    (3) Seek additional information or clarification of the response by 
the bank or bank holding company.
    (f) Contents of directive. Any directive issued by the Board may 
order the bank or bank holding company to:
    (1) Achieve or maintain the minimum capital requirement established 
pursuant to the Board's Capital Adequacy Guidelines or the procedures in 
Sec. 263.85 of this subpart by a certain date;
    (2) Adhere to a previously submitted plan or submit for approval and 
adhere to a plan for achieving the minimum capital requirement by a 
certain date;
    (3) Take other specific action as the Board directs to achieve the 
minimum capital levels, including requiring a reduction of assets or 
asset growth or restriction on the payment of dividends; or
    (4) Take any combination of the above actions.
    (g) Request for reconsideration of directive. Any state member bank 
or bank holding company, upon a change in circumstances, may request the 
Board to reconsider the terms of a directive and may propose changes in 
the plan under which it is operating to meet the required minimum 
capital level. The directive and plan continue in effect while such 
request is pending before the Board.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56604, Sept. 13, 2011]



Sec. 263.84  Enforcement of directive.

    (a) Judicial and administrative remedies. (1) Whenever a bank or 
bank holding company fails to follow a directive issued under this 
subpart, or to submit or adhere to a capital adequacy plan as required 
by such directive, the Board may seek enforcement of the directive, 
including the capital adequacy plan, in the appropriate United States 
district court, pursuant to section 908 (b)(2)(B)(ii) of ILSA (12 U.S.C. 
3907(b)(2)(B)(ii)) and to section 8(i) of the FDIA (12 U.S.C. 1818(i)), 
in the same manner and to the same extent as if the directive were a 
final cease-and-desist order. Whenever a savings and loan holding 
company fails to follow a directive issued under this subpart, or to 
submit or adhere to a capital adequacy plan as required by such 
directive, the Board may seek enforcement of the directive, including 
the capital adequacy plan, in the proper United States district court, 
or the United States court of any territory or other place subject to 
the jurisdiction of the United States, pursuant to section 10(g)(4) of 
HOLA (12 U.S.C. 1567a(g)(4)).
    (2) The Board, pursuant to section 910(d) of ILSA (12 U.S.C. 
3909(d)), may also assess civil money penalties for violation of the 
directive against any bank or bank holding company and any institution-
affiliated party of the bank or bank holding company, in the same manner 
and to the same extent as if

[[Page 524]]

the directive were a final cease-and-desist order. The Board, pursuant 
to section 10(i) (12 U.S.C. 1467a(i)), may also assess civil money 
penalties for violation of the directive against any savings and loan 
holding company and any institution-affiliated party of the savings and 
loan holding company, in the same manner and to the same extent as if 
the directive were a final cease-and-desist order.
    (b) Other enforcement actions. A directive may be issued separately, 
in conjunction with, or in addition to any other enforcement actions 
available to the Board, including issuance of cease-and-desist orders, 
the approval or denial of applications or notices, or any other actions 
authorized by law.
    (c) Consideration in application proceedings. In acting upon any 
application or notice submitted to the Board pursuant to any statute 
administered by the Board, the Board may consider the progress of a 
state member bank, bank holding company, or savings and loan holding 
company or any subsidiary thereof in adhering to any directive or 
capital adequacy plan required by the Board pursuant to this subpart, or 
by any other appropriate banking supervisory agency pursuant to ILSA. 
The Board shall consider whether approval or a notice of intent not to 
disapprove would divert earnings, diminish capital, or otherwise impede 
the bank, bank holding company, or savings and loan holding company in 
achieving its required minimum capital level or complying with its 
capital adequacy plan.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56604, Sept. 13, 2011]



Sec. 263.85  Establishment of increased capital level for specific 
institutions.

    (a) Establishment of capital levels for specific institutions. The 
Board may establish a capital level higher than the minimum specified in 
the Board's Capital Adequacy Guidelines for a specific bank or bank 
holding company pursuant to:
    (1) A written agreement or memorandum of understanding between the 
Board or the appropriate Federal Reserve Bank and the bank or bank 
holding company;
    (2) A temporary or final cease-and-desist order issued pursuant to 
section 8(b) or (c) of the FDIA (12 U.S.C. 1818(b) or (c));
    (3) A condition for approval of an application or issuance of a 
notice of intent not to disapprove a proposal;
    (4) Or other similar means; or
    (5) The procedures set forth in paragraph (b) of this section.
    (b) Procedure to establish higher capital requirement--(1) Notice. 
When the Board determines that capital levels above those in the Board's 
Capital Adequacy Guidelines may be necessary and appropriate for a 
particular bank or bank holding company under the circumstances, or when 
the Board determines that the current capital level of a savings and 
loan holding company is not adequate, the Board shall give the bank or 
bank holding company notice of the proposed higher capital requirement 
and shall permit the bank, bank holding company, or savings and loan 
holding company an opportunity to comment upon the proposed capital 
level, whether it should be required and, if so, under what time 
schedule. The notice shall contain the Board's reasons for proposing a 
higher level of capital.
    (2) Response. The bank, bank holding company, or savings and loan 
holding company shall be allowed at least 14 days to respond, unless the 
Board determines that a shorter period is necessary because of the 
financial condition of the bank, bank holding company, or savings and 
loan holding company. Failure by the bank, bank holding company, or 
savings and loan holding company to file a written response to the 
notice within the time set by the Board shall constitute a waiver of the 
opportunity to respond and shall constitute consent to issuance of a 
directive containing the required minimum capital level.
    (3) Board decision. After considering the response of the 
institution, the Board may issue a written directive to the bank, bank 
holding company, or savings and loan holding company setting an 
appropriate capital level and the date on which this capital level will 
become effective. The Board may

[[Page 525]]

require the bank, bank holding company, or savings and loan holding 
company to submit and adhere to a plan for achieving such higher capital 
level as the Board may set.
    (4) Enforcement of higher capital level. The Board may enforce the 
capital level established pursuant to the procedures described in this 
section and any plan submitted to achieve that capital level through the 
procedures set forth in Sec. 263.84 of this subpart.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56604, Sept. 13, 2011]



                   Subpart F_Practice Before the Board



Sec. 263.90  Scope.

    This subpart prescribes rules relating to general practice before 
the Board on one's own behalf or in a representational capacity, 
including the circumstances under which disciplinary sanctions--censure, 
suspension, or debarment--may be imposed upon persons appearing in a 
representational capacity, including attorneys and accountants, but not 
including employees of the Board. These disciplinary sanctions, which 
continue in effect beyond the duration of a specific proceeding, 
supplement the provisions of Sec. 263.6(b) of subpart A, which address 
control of a specific proceeding.



Sec. 263.91  Censure, suspension or debarment.

    The Board may censure an individual or suspend or debar such 
individual from practice before the Board if he or she engages, or has 
engaged, in conduct warranting sanctions as set forth in Sec. 263.94; 
refuses to comply with the rules and regulations in this part; or with 
intent to defraud in any manner, willfully and knowingly deceives, 
misleads, or threatens any client or prospective client. The suspension 
or debarment of an individual shall be initiated only upon a finding by 
the Board that the conduct that forms the basis for the disciplinary 
action is egregious.



Sec. 263.92  Definitions.

    (a) As used in this subpart, the following terms shall have the 
meaning given in this section unless the context otherwise requires.
    (b)(1) Practice before the Board includes any matters connected with 
presentations to the Board or to any of its officers or employees 
relating to a client's rights, privileges or liabilities under laws or 
regulations administered by the Board. Such matters include, but are not 
limited to, the preparation of any statement, opinion or other paper or 
document by an attorney, accountant, or other licensed professional 
which is filed with, or submitted to, the Board, on behalf of another 
person in, or in connection with, any application, notification, report 
or document; the representation of a person at conferences, hearings and 
meetings; and the transaction of other business before the Board on 
behalf of another person.
    (2) Practice before the Board does not include work prepared for an 
institution solely at its request for use in the ordinary course of its 
business.
    (c) Attorney means any individual who is a member in good standing 
of the bar of the highest court of any state, possession, territory, 
commonwealth, or the District of Columbia.
    (d) Accountant means any individual who is duly qualified to 
practice as a certified public accountant or a public accountant in any 
state, possession, territory, commonwealth, or the District of Columbia.



Sec. 263.93  Eligibility to practice.

    (a) Attorneys. Any attorney who is qualified to practice as an 
attorney and is not currently under suspension or debarment pursuant to 
this subpart may practice before the Board.
    (b) Accountants. Any accountant who is qualified to practice as a 
certified public accountant or public accountant and is not currently 
under suspension or debarment by the Board may practice before the 
Board.



Sec. 263.94  Conduct warranting sanctions.

    Conduct for which an individual may be censured, debarred or 
suspended from practice before the Board includes, but is not limited 
to:
    (a) Willfully or recklessly violating or willfully or recklessly 
aiding and

[[Page 526]]

abetting the violation of any provision of the Federal banking or 
applicable securities laws or the rules and regulations thereunder or 
conviction of any offense involving dishonesty or breach of trust;
    (b) Knowingly or recklessly giving false or misleading information, 
or participating in any way in the giving of false information to the 
Board or to any Board officer or employee, or to any tribunal authorized 
to pass upon matters administered by the Board in connection with any 
matter pending or likely to be pending before it. The term 
``information'' includes facts or other statements contained in 
testimony, financial statements, applications, affidavits, declarations, 
or any other document or written or oral statement;
    (c) Directly or indirectly attempting to influence, or offering or 
agreeing to attempt to influence, the official action of any officer or 
employee of the Board by the use of threats, false accusations, duress 
or coercion, by the offer of any special inducement or promise of 
advantage or by the bestowing of any gift, favor, or thing of value;
    (d) Disbarment or suspension from practice as an attorney, or 
debarment or suspension from practice as a certified public accountant 
or public accountant, by any duly constituted authority of any state, 
possession, commonwealth, or the District of Columbia for the conviction 
of a felony or misdemeanor involving personal dishonesty or breach of 
trust in matters relating to the supervisory responsibilities of the 
Board, where the conviction has not been reversed on appeal;
    (e) Knowingly aiding or abetting another individual to practice 
before the Board during that individual's period of suspension, 
debarment, or ineligibility;
    (f) Contemptuous conduct in connection with practice before the 
Board, and knowingly making false accusations and statements, or 
circulating or publishing malicious or libelous matter;
    (g) Suspension or debarment from practice before the OCC, the FDIC, 
the Office of Thrift Supervision, the Securities and Exchange 
Commission, the NCUA, or any other Federal agency based on matters 
relating to the supervisory responsibilities of the Board;
    (h) Willful or knowing violation of any of the regulations contained 
in this part.

[56 FR 38052, Aug. 9, 1991, as amended at 68 FR 48267, Aug. 13, 2003; 76 
FR 56605, Sept. 13, 2011]



Sec. 263.95  Initiation of disciplinary proceeding.

    (a) Receipt of information. An individual, including any employee of 
the Board, who has reason to believe that an individual practicing 
before the Board in a representative capacity has engaged in any conduct 
that would serve as a basis for censure, suspension or debarment under 
Sec. 263.94, may make a report thereof and forward it to the Board.
    (b) Censure without formal proceeding. Upon receipt of information 
regarding an individual's qualification to practice before the Board, 
the Board may, after giving the individual notice and opportunity to 
respond, censure such individual.
    (c) Institution of formal disciplinary proceeding. When the Board 
has reason to believe that any individual who practices before the Board 
in a representative capacity has engaged in conduct that would serve as 
a basis for censure, suspension or debarment under Sec. 263.94 the Board 
may, after giving the individual notice and opportunity to respond, 
institute a formal disciplinary proceeding against such individual. The 
proceeding shall be conducted pursuant to Sec. 263.97 and shall be 
initiated by a complaint issued by the Board that names the individual 
as a respondent. Except in cases when time, the nature of the 
proceeding, or the public interest do not permit, a proceeding under 
this section shall not be instituted until the respondent has been 
informed, in writing, of the facts or conduct which warrant institution 
of a proceeding and the respondent has been accorded the opportunity to 
comply with all lawful requirements or take whatever action may be 
necessary to remedy the conduct that is the basis for the initiation of 
the proceeding.

[[Page 527]]



Sec. 263.96  Conferences.

    (a) General. The Board's staff may confer with a proposed respondent 
concerning allegations of misconduct or other grounds for censure, 
debarment or suspension, regardless of whether a proceeding for 
debarment or suspension has been instituted. If a conference results in 
a stipulation in connection with a proceeding in which the individual is 
the respondent, the stipulation may be entered in the record at the 
request of either party to the proceeding.
    (b) Resignation or voluntary suspension. In order to avoid the 
institution of, or a decision in, a debarment or suspension proceeding, 
a person who practices before the Board may consent to suspension from 
practice. At the discretion of the Board, the individual may be 
suspended or debarred in accordance with the consent offered.



Sec. 263.97  Proceedings under this subpart.

    Except as otherwise provided in this subpart, any hearing held under 
this subpart shall be held before an administrative law judge of the 
OFIA pursuant to procedures set forth in subparts A and B of this part. 
The Board shall appoint a person to represent the Board in the hearing. 
Any person having prior involvement in the matter which is the basis for 
the suspension or debarment proceeding shall be disqualified from 
representing the Board in the hearing. The hearing shall be closed to 
the public unless the Board, sua sponte or on the request of a party, 
otherwise directs. The administrative law judge shall refer a 
recommended decision to the Board, which shall issue the final decision 
and order. In its final decision and order, the Board may censure, debar 
or suspend an individual, or take such other disciplinary action as the 
Board deems appropriate.



Sec. 263.98  Effect of suspension, debarment or censure.

    (a) Debarment. If the final order against the respondent is for 
debarment, the individual will not thereafter be permitted to practice 
before the Board unless otherwise permitted to do so by the Board 
pursuant to Sec. 263.99 of this subpart.
    (b) Suspension. If the final order against the respondent is for 
suspension, the individual will not thereafter be permitted to practice 
before the Board during the period of suspension.
    (c) Censure. If the final order against the respondent is for 
censure, the individual may be permitted to practice before the Board, 
but such individual's future representations may be subject to 
conditions designed to promote high standards of conduct. If a written 
letter of censure is issued, a copy will be maintained in the Board's 
files.
    (d) Notice of debarment or suspension. Upon the issuance of a final 
order for suspension or debarment, the Board shall give notice of the 
order to appropriate officers and employees of the Board, to interested 
departments and agencies of the Federal Government, and to the 
appropriate authorities of the State in which any debarred or suspended 
individual is or was licensed to practice.



Sec. 263.99  Petition for reinstatement.

    The Board may entertain a petition for reinstatement from any person 
debarred from practice before the Board. The Board shall grant 
reinstatement only if the Board finds that the petitioner is likely to 
act in accordance with the regulations in this part, and that granting 
reinstatement would not be contrary to the public interest. Any request 
for reinstatement shall be limited to written submissions unless the 
Board, in its discretion, affords the petitioner an informal hearing.



 Subpart G_Rules Regarding Claims Under the Equal Access to Justice Act



Sec. 263.100  Authority and scope.

    This subpart implements the provisions of the Equal Access to 
Justice Act (5 U.S.C. 504) as they apply to formal adversary 
adjudications before the Board. The types of proceedings covered by this 
subpart are listed in Secs. 263.1 and 263.50.



Sec. 263.101  Standards for awards.

    A respondent in a covered proceeding that prevails on the merits of 
that proceeding against the Board, and that is

[[Page 528]]

eligible under this subpart as defined in Sec. 263.103, may receive an 
award for fees and expenses incurred in the proceeding unless the 
position of the Board during the proceeding was substantially justified 
or special circumstances make an award unjust. The position of the Board 
includes, in addition to the position taken by the Board in the 
adversary proceeding, the action or failure to act by the Board upon 
which the adversary proceeding was based. An award will be reduced or 
denied if the applicant has unduly or unreasonably protracted the 
proceedings.



Sec. 263.102  Prevailing party.

    Only an eligible applicant that prevailed on the merits of an 
adversary proceeding may qualify for an award under this subpart.



Sec. 263.103  Eligibility of applicants.

    (a) General rule. To be eligible for an award under this subpart, an 
applicant must have been named as a party to the adjudicatory proceeding 
and show that it meets all other conditions of eligibility set forth in 
paragraphs (b) and (c) of this section.
    (b) Types of eligible applicant. An applicant is eligible for an 
award only if it meets at least one of the following descriptions:
    (1) An individual with a net worth of not more than $2 million at 
the time the adversary adjudication was initiated;
    (2) Any sole owner of an unincorporated business, or any 
partnership, corporation, associations, unit of local government or 
organization, the net worth of which did not exceed $7,000,000 and which 
did not have more than 500 employees at the time the adversary 
adjudication was initiated;
    (3) A charitable or other tax-exempt organization described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) 
with not more than 500 employees at the time the adversary proceeding 
was initiated; or
    (4) A cooperative association as defined in section 15(a) of the 
Agricultural Marketing Act (12 U.S.C. 1141j(a)) with not more than 500 
employees at the time the adversary proceeding was initiated.
    (c) Factors to be considered. In determining the eligibility of an 
applicant:
    (1) An applicant who owns an unincorporated business shall be 
considered as an individual rather than a sole owner of an 
unincorporated business if the issues on which he or she prevailed are 
related to personal interests rather than to business interests.
    (2) An applicant's net worth includes the value of any assets 
disposed of for the purpose of meeting an eligibility standard and 
excludes the value of any obligations incurred for this purpose. 
Transfers of assets or obligations incurred for less than reasonably 
equivalent value will be presumed to have been made for this purpose.
    (3) The net worth of a financial institution shall be established by 
the net worth information reported in conformity with applicable 
instructions and guidelines on the financial institution's financial 
report to its supervisory agency for the last reporting date before the 
initiation of the adversary proceeding. A bank holding company's and a 
savings and loan holding company's net worth will be considered on a 
consolidated basis even if the bank holding company or the savings and 
loan holding company is not required to file its regulatory reports to 
the Board on a consolidated basis.
    (4) The employees of an applicant include all those persons who were 
regularly providing services for remuneration for the applicant, under 
its direction and control, on the date the adversary proceeding was 
initiated. Part-time employees are counted on a proportional basis.
    (5) The net worth and number of employees of the applicant and all 
of its affiliates shall be aggregated to determine eligibility. As used 
in this subpart, affiliates are: Individuals, corporations, and entities 
that directly or indirectly or acting through one or more entities 
control at least 25% of the voting shares of the applicant, and 
corporations and entities of which the applicant directly or indirectly 
owns or controls at least 25% of the voting shares. The Board may 
determine, in light of the actual relationship among the affiliated 
entities, that aggregation with regard to one or more of the applicant's 
affiliates would be unjust and

[[Page 529]]

contrary to the purposes of this subpart and decline to aggregate the 
net worth and employees of such affiliate; alternatively, the Board may 
determine that financial relationships of the applicant other than those 
described in this paragraph constitute special circumstances that would 
make an award unjust.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56605, Sept. 13, 2011]



Sec. 263.104  Application for awards.

    (a) Time to file. An application and any other pleading or document 
related to the application may be filed with the Board whenever the 
applicant has prevailed in the proceeding within 30 days after service 
of the final order of the Board disposing of the proceeding.
    (b) Contents. An application for an award of fees and expenses under 
this subpart shall contain:
    (1) The name of the applicant and an identification of the 
proceeding;
    (2) A showing that the applicant has prevailed, and an 
identification of the way in which the applicant believes that the 
position of the Board in the proceeding was not substantially justified;
    (3) If the applicant is not an individual, a statement of the number 
of its employees on the date the proceeding was initiated;
    (4) A description of any affiliated individuals or entities, as 
defined in Sec. 263.103(c)(5), or a statement that none exist;
    (5) A declaration that the applicant, together with any affiliates, 
had a net worth not more than the maximum set forth in Sec. 263.103(b) 
as of the date the proceeding was initiated, supported by a net worth 
statement conforming to the requirements of Sec. 263.105;
    (6) A statement of the amount of fees and expenses for which an 
award is sought conforming to Sec. 263.107; and
    (7) Any other matters that the applicant wishes the Board to 
consider in determining whether and in what amount an award should be 
made.
    (c) Verification. The application shall be signed by the applicant 
or an authorized officer of or attorney for the applicant. It shall also 
contain or be accompanied by a written verification under oath or under 
penalty of perjury that the information provided in the application and 
supporting documents is true and correct.
    (d) Service. The application and related documents shall be served 
on all parties to the adversary proceeding in accordance with 
Sec. 263.11, except that statements of net worth shall be served only on 
counsel for the Board.
    (e) Presiding officer. Upon receipt of an application, the Board 
shall, if feasible, refer the matter to the administrative law judge who 
heard the underlying adversary proceeding.



Sec. 263.105  Statement of net worth.

    (a) General rule. A statement of net worth shall be filed with the 
application for an award of fees. The statement shall reflect the net 
worth of the applicant and all affiliates of the applicant, as specified 
in Sec. 263.103(c)(5). In all cases, the administrative law judge or the 
Board may call for additional information needed to establish the 
applicant's net worth as of the initiation of the proceeding.
    (b) Contents. (1) Except as otherwise provided herein, the statement 
of net worth may be in any form convenient to the applicant which fully 
discloses all the assets and liabilities of the applicant and all the 
assets and liabilities of its affiliates, as of the time of the 
initiation of the adversary adjudication. Unaudited financial statements 
are acceptable for individual applicants as long as the statement 
provides a reliable basis for evaluation, unless the administrative law 
judge or the Board otherwise requires. Financial statements or reports 
filed with or reported to a Federal or State agency, prepared before the 
initiation of the adversary proceeding for other purposes, and accurate 
as of a date not more than three months prior to the initiation of the 
proceeding, shall be acceptable in establishing net worth as of the time 
of the initiation of the proceeding, unless the administrative law judge 
or the Board otherwise requires.
    (2) In the case of applicants or affiliates that are not banks, net 
worth shall be considered for the purposes of this subpart to be the 
excess of total assets over total liabilities, as of the date the 
underlying proceeding was initiated, except as adjusted under

[[Page 530]]

Sec. 263.103(c)(5). The net worth of a bank holding company or a savings 
and loan holding company shall be considered on a consolidated basis. 
Assets and liabilities of individuals shall include those beneficially 
owned.
    (3) If the applicant or any of its affiliates is a bank or a savings 
association, the portion of the statement of net worth which relates to 
the bank or the savings association shall consist of a copy of the 
bank's or a savings association's last Consolidated Report of Condition 
and Income filed before the initiation of the adversary adjudication. 
Net worth shall be considered for the purposes of this subpart to be the 
total equity capital (or, in the case of mutual savings banks or mutual 
savings associations, the total surplus accounts) as reported, in 
conformity with applicable instructions and guidelines, on the bank's or 
the savings association's Consolidated Report of Condition and Income 
filed for the last reporting date before the initiation of the 
proceeding.
    (c) Statement confidential. Unless otherwise ordered by the Board or 
required by law, the statement of net worth shall be for the 
confidential use of the Board, counsel for the Board, and the 
administrative law judge.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56605, Sept. 13, 2011]



Sec. 263.106  Measure of awards.

    (a) General rule. Awards shall be based on rates customarily charged 
by persons engaged in the business of acting as attorneys, agents, and 
expert witnesses, provided that no award under this subpart for the fee 
of an attorney or agent shall exceed $75 per hour. No award to 
compensate an expert witness shall exceed the highest rate at which the 
Board pays expert witnesses. An award may include the reasonable 
expenses of the attorney, agent, or expert witness as a separate item, 
if the attorney, agent, or expert witness ordinarily charges clients 
separately for such expenses.
    (b) Determination of reasonableness of fees. In determining the 
reasonableness of the fee sought for an attorney, agent, or expert 
witness, subject to the limits set forth above, the administrative law 
judge shall consider the following:
    (1) If the attorney, agent, or expert witness is in private 
practice, his or her customary fee for like services;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent, or expert witness ordinarily performs 
services;
    (3) The time actually spent in the representation of the applicant;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the proceeding; and
    (5) Such other factors as may bear on the value of the services 
provided.
    (c) Awards for studies. The reasonable cost of any study, analysis, 
test, project, or similar matter prepared on behalf of an applicant may 
be awarded to the extent that the charge for the service does not exceed 
the prevailing rate payable for similar services, and the study or other 
matter was necessary solely for preparation of the applicant's case and 
not otherwise required by law or sound business or financial practice.



Sec. 263.107  Statement of fees and expenses.

    The application shall be accompanied by a statement fully 
documenting the fees and expenses for which an award is sought. A 
separate itemized statement shall be submitted for each professional 
firm or individual whose services are covered by the application, 
showing the hours spent in work in connection with the proceeding by 
each individual, a description of the specific services performed, the 
rate at which each fee has been computed, any expenses for which 
reimbursement is sought, the total amount claimed, and the total amount 
paid or payable by the applicant or by any other person or entity for 
the services performed. The administrative law judge or the Board may 
require the applicant to provide vouchers, receipts, or other 
substantiation for any expenses claimed.



Sec. 263.108  Responses to application.

    (a) By counsel for the Board. (1) Within 20 days after service of an 
application, counsel for the Board may file an answer to the 
application.

[[Page 531]]

    (2) The answer shall explain in detail any objections to the award 
requested and identify the facts relied on in support of the Board's 
position. If the answer is based on any alleged facts not already in the 
record of the proceeding, the answer shall include either supporting 
affidavits or a request for further proceedings under Sec. 263.109, or 
both.
    (b) Reply to answer. The applicant may file a reply only if the 
Board has addressed in its answer any of the following issues: that the 
position of the agency was substantially justified, that the applicant 
unduly protracted the proceedings, or that special circumstances make an 
award unjust. Any reply authorized by this section shall be filed within 
15 days of service of the answer. If the reply is based on any alleged 
facts not already in the record of the proceeding, the reply shall 
include either supporting affidavits or a request for further 
proceedings under Sec. 263.109, or both.
    (c) Additional response. Additional filings in the nature of 
pleadings may be submitted only by leave of the administrative law 
judge.



Sec. 263.109  Further proceedings.

    (a) General rule. The determination of a recommended award shall be 
made by the administrative law judge on the basis of the written record 
of the adversary adjudication, including any supporting affidavits 
submitted in connection with the application, unless, on the motion of 
either the applicant or Board counsel, or sua sponte, the administrative 
law judge or the Board orders further proceedings to amplify the record 
such as an informal conference, oral argument, additional written 
submissions, or an evidentiary hearing. Such further proceedings shall 
be held only when necessary for full and fair resolution of the issues 
arising from the application and shall be conducted promptly and 
expeditiously.
    (b) Request for further proceedings. A request for further 
proceedings under this section shall specifically identify the 
information sought or the issues in dispute and shall explain why 
additional proceedings are necessary.
    (c) Hearing. The administrative law judge shall hold an oral 
evidentiary hearing only on disputed issues of material fact which 
cannot be adequately resolved through written submissions.



Sec. 263.110  Recommended decision.

    The administrative law judge shall file with the Board a recommended 
decision on the fee application not later than 30 days after the 
submission of all pleadings and evidentiary material concerning the 
application. The recommended decision shall include written proposed 
findings and conclusions on the applicant's eligibility and its status 
as a prevailing party and, if applicable, an explanation of the reasons 
for any difference between the amount requested and the amount of the 
recommended award. The recommended decision shall also include, if at 
issue, proposed findings as to whether the Board's position was 
substantially justified, whether the applicant unduly protracted the 
proceedings, or whether special circumstances make an award unjust. The 
administrative law judge shall file the record of the proceeding on the 
fee application upon the filing of the recommended decision and, at the 
same time, serve upon each party a copy of the recommended decision, 
findings, conclusions, and proposed order.



Sec. 263.111  Action by the Board.

    (a) Exceptions to recommended decision. Within 20 days after service 
of the recommended decision, findings, conclusions, and proposed order, 
the applicant or counsel for the Board may file written exceptions 
thereto. A supporting brief may also be filed.
    (b) Decision by the Board. The Board shall render its decision 
within 90 days after it has notified the parties that the matter has 
been received for decision. The Board shall serve copies of the decision 
and order of the Board upon the parties. Judicial review of the decision 
and order may be obtained as provided in 5 U.S.C. 504(c)(2).

[[Page 532]]



 Subpart H_Issuance and Review of Orders Pursuant to Prompt Corrective 
         Action Provisions of the Federal Deposit Insurance Act

    Source: 57 FR 44888, Sept. 29, 1992, unless otherwise noted.



Sec. 263.201  Scope.

    (a) The rules and procedures set forth in this subpart apply to 
state member banks, companies that control state member banks or are 
affiliated with such banks, and senior executive officers and directors 
of state member banks that are subject to the provisions of section 38 
of the Federal Deposit Insurance Act (section 38) and subpart D of part 
208 of this chapter.
    (b) [Reserved]

[57 FR 44888, Sept. 29, 1992, as amended at 63 FR 58621, Nov. 2, 1998]



Sec. 263.202  Directives to take prompt regulatory action.

    (a) Notice of intent to issue directive--(1) In general. The Board 
shall provide an undercapitalized, significantly undercapitalized, or 
critically undercapitalized state member bank or, where appropriate, any 
company that controls the bank, prior written notice of the Board's 
intention to issue a directive requiring such bank or company to take 
actions or to follow proscriptions described in section 38 that are 
within the Board's discretion to require or impose under section 38 of 
the FDI Act, including sections 38(e)(5), (f)(2), (f)(3), or (f)(5). The 
bank shall have such time to respond to a proposed directive as provided 
by the Board under paragraph (c) of this section.
    (2) Immediate issuance of final directive. If the Board finds it 
necessary in order to carry out the purposes of section 38 of the FDI 
Act, the Board may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue a directive requiring a state member bank 
or any company that controls a state member bank immediately to take 
actions or to follow proscriptions described in section 38 that are 
within the Board's discretion to require or impose under section 38 of 
the FDI Act, including section 38(e)(5), (f)(2), (f)(3), or (f)(5). A 
bank or company that is subject to such an immediately effective 
directive may submit a written appeal of the directive to the Board. 
Such an appeal must be received by the Board within 14 calendar days of 
the issuance of the directive, unless the Board permits a longer period. 
The Board shall consider any such appeal, if filed in a timely matter, 
within 60 days of receiving the appeal. During such period of review, 
the directive shall remain in effect unless the Board, in its sole 
discretion, stays the effectiveness of the directive.
    (b) Contents of notice. A notice of intention to issue a directive 
shall include:
    (1) A statement of the bank's capital measures and capital levels;
    (2) A description of the restrictions, prohibitions, or affirmative 
actions that the Board proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of such affirmative 
actions; and
    (4) The date by which the bank or company subject to the directive 
may file with the Board a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank or company may 
file a written response to a notice of intent to issue a directive 
within the time period set by the Board. The date shall be at least 14 
calendar days from the date of the notice unless the Board determines 
that a shorter period is appropriate in light of the financial condition 
of the bank or other relevant circumstances.
    (2) Content of response. The response should include:
    (i) An explanation why the action proposed by the Board is not an 
appropriate exercise of discretion under section 38;
    (ii) Any recommended modification of the proposed directive; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
or company regarding the proposed directive.

[[Page 533]]

    (d) Board consideration of response. After considering the response, 
the Board may:
    (1) Issue the directive as proposed or in modified form;
    (2) Determine not to issue the directive and so notify the bank or 
company; or
    (3) Seek additional information or clarification of the response 
from the bank or company, or any other relevant source.
    (e) Failure to file response. Failure by a bank or company to file 
with the Board, within the specified time period, a written response to 
a proposed directive shall constitute a waiver of the opportunity to 
respond and shall constitute consent to the issuance of the directive.
    (f) Request for modification or rescission of directive. Any bank or 
company that is subject to a directive under this subpart may, upon a 
change in circumstances, request in writing that the Board reconsider 
the terms of the directive, and may propose that the directive be 
rescinded or modified. Unless otherwise ordered by the Board, the 
directive shall continue in place while such request is pending before 
the Board.



Sec. 263.203  Procedures for reclassifying a state member bank based on 
criteria other than capital.

    (a) Reclassification based on unsafe or unsound condition or 
practice--(1) Issuance of notice of proposed reclassification--(i) 
Grounds for reclassification. (A) Pursuant to Sec. 208.43(c) of 
Regulation H (12 CFR 208.43(c)), the Board may reclassify a well 
capitalized bank as adequately capitalized or subject an adequately 
capitalized or undercapitalized institution to the supervisory actions 
applicable to the next lower capital category if:
    (1) The Board determines that the bank is in unsafe or unsound 
condition; or
    (2) The Board deems the bank to be engaged in an unsafe or unsound 
practice and not to have corrected the deficiency.
    (B) Any action pursuant to this paragraph (a)(1)(i) shall 
hereinafter be referred to as ``reclassification.''
    (ii) Prior notice to institution. Prior to taking action pursuant to 
Sec. 208.33(c) of this chapter, the Board shall issue and serve on the 
bank a written notice of the Board's intention to reclassify the bank.
    (2) Contents of notice. A notice of intention to reclassify a bank 
based on unsafe or unsound condition shall include:
    (i) A statement of the bank's capital measures and capital levels 
and the category to which the bank would be reclassified;
    (ii) The reasons for reclassification of the bank;
    (iii) The date by which the bank subject to the notice of 
reclassification may file with the Board a written appeal of the 
proposed reclassification and a request for a hearing, which shall be at 
least 14 calendar days from the date of service of the notice unless the 
Board determines that a shorter period is appropriate in light of the 
financial condition of the bank or other relevant circumstances.
    (3) Response to notice of proposed reclassification. A bank may file 
a written response to a notice of proposed reclassification within the 
time period set by the Board. The response should include:
    (i) An explanation of why the bank is not in unsafe or unsound 
condition or otherwise should not be reclassified;
    (ii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
or company regarding the reclassification.
    (4) Failure to file response. Failure by a bank to file, within the 
specified time period, a written response with the Board to a notice of 
proposed reclassification shall constitute a waiver of the opportunity 
to respond and shall constitute consent to the reclassification.
    (5) Request for hearing and presentation of oral testimony or 
witnesses. The response may include a request for an informal hearing 
before the Board or its designee under this section. If the bank desires 
to present oral testimony or witnesses at the hearing, the bank shall 
include a request to do so with the request for an informal hearing. A 
request to present oral testimony or

[[Page 534]]

witnesses shall specify the names of the witnesses and the general 
nature of their expected testimony. Failure to request a hearing shall 
constitute a waiver of any right to a hearing, and failure to request 
the opportunity to present oral testimony or witnesses shall constitute 
a waiver of any right to present oral testimony or witnesses.
    (6) Order for informal hearing. Upon receipt of a timely written 
request that includes a request for a hearing, the Board shall issue an 
order directing an informal hearing to commence no later than 30 days 
after receipt of the request, unless the bank requests a later date. The 
hearing shall be held in Washington, DC or at such other place as may be 
designated by the Board, before a presiding officer(s) designated by the 
Board to conduct the hearing.
    (7) Hearing procedures. (i) The bank shall have the right to 
introduce relevant written materials and to present oral argument at the 
hearing. The bank may introduce oral testimony and present witnesses 
only if expressly authorized by the Board or the presiding officer(s). 
Neither the provisions of the Administrative Procedure Act (5 U.S.C. 
554-557) governing adjudications required by statute to be determined on 
the record nor the Uniform Rules of Practice and Procedure in subpart A 
of this part apply to an informal hearing under this section unless the 
Board orders that such procedures shall apply.
    (ii) The informal hearing shall be recorded, and a transcript shall 
be furnished to the bank upon request and payment of the cost thereof. 
Witnesses need not be sworn, unless specifically requested by a party or 
the presiding officer(s). The presiding officer(s) may ask questions of 
any witness.
    (iii) The presiding officer(s) may order that the hearing be 
continued for a reasonable period (normally five business days) 
following completion of oral testimony or argument to allow additional 
written submissions to the hearing record.
    (8) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the 
Board on the reclassification.
    (9) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the Board will decide whether to reclassify the 
bank and notify the bank of the Board's decision.
    (b) Request for rescission of reclassification. Any bank that has 
been reclassified under this section, may, upon a change in 
circumstances, request in writing that the Board reconsider the 
reclassification, and may propose that the reclassification be rescinded 
and that any directives issued in connection with the reclassification 
be modified, rescinded, or removed. Unless otherwise ordered by the 
Board, the bank shall remain subject to the reclassification and to any 
directives issued in connection with that reclassification while such 
request is pending before the Board.

[57 FR 44888, Sept. 29, 1992, as amended at 63 FR 58621, Nov. 2, 1998]



Sec. 263.204  Order to dismiss a director or senior executive officer.

    (a) Service of notice. When the Board issues and serves a directive 
on a state member bank pursuant to Sec. 263.202 requiring the bank to 
dismiss from office any director or senior executive officer under 
section 38(f) (2) (F) (ii) of the FDI Act, the Board shall also serve a 
copy of the directive, or the relevant portions of the directive where 
appropriate, upon the person to be dismissed.
    (b) Response to directive--(1) Request for reinstatement. A director 
or senior executive officer who has been served with a directive under 
paragraph (a) of this section (Respondent) may file a written request 
for reinstatement. The request for reinstatement shall be filed within 
10 calendar days of the receipt of the directive by the Respondent, 
unless further time is allowed by the Board at the request of the 
Respondent.
    (2) Contents of request; informal hearing. The request for 
reinstatement shall include reasons why the Respondent should be 
reinstated, and may include a request for an informal hearing before the 
Board or its designee under this section. If the Respondent desires to 
present oral testimony or witnesses at the hearing, the Respondent shall

[[Page 535]]

include a request to do so with the request for an informal hearing. The 
request to present oral testimony or witnesses shall specify the names 
of the witnesses and the general nature of their expected testimony. 
Failure to request a hearing shall constitute a waiver of any right to a 
hearing and failure to request the opportunity to present oral testimony 
or witnesses shall constitute a waiver of any right or opportunity to 
present oral testimony or witnesses.
    (3) Effective date. Unless otherwise ordered by the Board, the 
dismissal shall remain in effect while a request for reinstatement is 
pending.
    (c) Order for informal hearing. Upon receipt of a timely written 
request from a Respondent for an informal hearing on the portion of a 
directive requiring a bank to dismiss from office any director or senior 
executive officer, the Board shall issue an order directing an informal 
hearing to commence no later than 30 days after receipt of the request, 
unless the Respondent requests a later date. The hearing shall be held 
in Washington, DC, or at such other place as may be designated by the 
Board, before a presiding officer(s) designated by the Board to conduct 
the hearing.
    (d) Hearing procedures. (1) A Respondent may appear at the hearing 
personally or through counsel. A Respondent shall have the right to 
introduce relevant written materials and to present oral argument. A 
Respondent may introduce oral testimony and present witnesses only if 
expressly authorized by the Board or the presiding officer(s). Neither 
the provisions of the Administrative Procedure Act governing 
adjudications required by statute to be determined on the record nor the 
Uniform Rules of Practice and Procedure in subpart A of this part apply 
to an informal hearing under this section unless the Board orders that 
such procedures shall apply.
    (2) The informal hearing shall be recorded, and a transcript shall 
be furnished to the Respondent upon request and payment of the cost 
thereof. Witnesses need not be sworn, unless specifically requested by a 
party or the presiding officer(s). The presiding officer(s) may ask 
questions of any witness.
    (3) The presiding officer(s) may order that the hearing be continued 
for a reasonable period (normally five business days) following 
completion of oral testimony or argument to allow additional written 
submissions to the hearing record.
    (e) Standard for review. A Respondent shall bear the burden of 
demonstrating that his or her continued employment by or service with 
the bank would materially strengthen the bank's ability:
    (1) To become adequately capitalized, to the extent that the 
directive was issued as a result of the bank's capital level or failure 
to submit or implement a capital restoration plan; and
    (2) To correct the unsafe or unsound condition or unsafe or unsound 
practice, to the extent that the directive was issued as a result of 
classification of the bank based on supervisory criteria other than 
capital, pursuant to section 38(g) of the FDI Act.
    (f) Recommendation of presiding officers. Within 20 calendar days 
following the date the hearing and the record on the proceeding are 
closed, the presiding officer(s) shall make a recommendation to the 
Board concerning the Respondent's request for reinstatement with the 
bank.
    (g) Time for decision. Not later than 60 calendar days after the 
date the record is closed or the date of the response in a case where no 
hearing was requested, the Board shall grant or deny the request for 
reinstatement and notify the Respondent of the Board's decision. If the 
Board denies the request for reinstatement, the Board shall set forth in 
the notification the reasons for the Board's action.



Sec. 263.205  Enforcement of directives.

    (a) Judicial remedies. Whenever a state member bank or company that 
controls a state member bank fails to comply with a directive issued 
under section 38, the Board may seek enforcement of the directive in the 
appropriate United States district court pursuant to section 8(i) (1) of 
the FDI Act.
    (b) Administrative remedies--(1) Failure to comply with directive. 
Pursuant to section 8(i) (2) (A) of the FDI Act, the

[[Page 536]]

Board may assess a civil money penalty against any state member bank or 
company that controls a state member bank that violates or otherwise 
fails to comply with any final directive issued under section 38 and 
against any institution-affiliated party who participates in such 
violation or noncompliance.
    (2) Failure to implement capital restoration plan. The failure of a 
bank to implement a capital restoration plan required under section 38, 
subpart D of Regulation H (12 CFR part 208, subpart D), or this subpart, 
or the failure of a company having control of a bank to fulfill a 
guarantee of a capital restoration plan made pursuant to section 38 (e) 
(2) of the FDI Act shall subject the bank or company to the assessment 
of civil money penalties pursuant to section 8(i) (2) (A) of the FDI 
Act.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the Board may seek 
enforcement of the provisions of section 38 or subpart B of Regulation H 
(12 CFR part 208, subpart B) through any other judicial or 
administrative proceeding authorized by law.

[57 FR 44888, Sept. 29, 1992, as amended at 63 FR 58621, Nov. 2, 1998]



Subpart I_Submission and Review of Safety and Soundness Compliance Plans 
   and Issuance of Orders To Correct Safety and Soundness Deficiencies

    Source: 60 FR 35682, July 10, 1995, unless otherwise noted.



Sec. 263.300  Scope.

    The rules and procedures set forth in this subpart apply to State 
member banks that are subject to the provisions of section 39 of the 
Federal Deposit Insurance Act (section 39) (12 U.S.C. 1831p-1).



Sec. 263.301  Purpose.

    Section 39 of the FDI Act requires the Board to establish safety and 
soundness standards. Pursuant to section 39, a bank may be required to 
submit a compliance plan if it is not in compliance with a safety and 
soundness standard established by guideline under section 39(a) or (b). 
An enforceable order under section 8 may be issued if, after being 
notified that it is in violation of a safety and soundness standard 
established under section 39, the bank fails to submit an acceptable 
compliance plan or fails in any material respect to implement an 
accepted plan. This subpart establishes procedures for requiring 
submission of a compliance plan and issuing an enforceable order 
pursuant to section 39.



Sec. 263.302  Determination and notification of failure to meet safety
and soundness standard and request for compliance plan.

    (a) Determination. The Board may, based upon an examination, 
inspection, or any other information that becomes available to the 
Board, determine that a bank has failed to satisfy the safety and 
soundness standards contained in the Interagency Guidelines Establishing 
Standards for Safety and Soundness or the Interagency Guidelines 
Establishing Standards for Safeguarding Customer Information, set forth 
in appendices D-1 and D-2 to part 208 of this chapter, respectively.
    (b) Request for compliance plan. If the Board determines that a 
State member bank has failed a safety and soundness standard pursuant to 
paragraph (a) of this section, the Board may request, by letter or 
through a report of examination, the submission of a compliance plan, 
and the bank shall be deemed to have notice of the request three days 
after mailing of the letter by the Board or delivery of the report of 
examination.

[60 FR 35682, July 10, 1995, as amended at 63 FR 55488, Oct. 15, 1998; 
66 FR 8637, Feb. 1, 2001]



Sec. 263.303  Filing of safety and soundness compliance plan.

    (a) Schedule for filing compliance plan--(1) In general. A State 
member bank shall file a written safety and soundness compliance plan 
with the Board within 30 days of receiving a request for a compliance 
plan pursuant to Sec. 263.302(b), unless the Board notifies the bank in 
writing that the plan is to be filed within a different period.

[[Page 537]]

    (2) Other plans. If a State member bank is obligated to file, or is 
currently operating under, a capital restoration plan submitted pursuant 
to section 38 of the FDI Act (12 U.S.C. 1831o), a cease-and-desist order 
entered into pursuant to section 8 of the FDI Act, a formal or informal 
agreement, or a response to a report of examination or report of 
inspection, it may, with the permission of the Board, submit a 
compliance plan under this section as part of that plan, order, 
agreement, or response, subject to the deadline provided in paragraph 
(a)(1) of this section.
    (b) Contents of plan. The compliance plan shall include a 
description of the steps the State member bank will take to correct the 
deficiency and the time within which those steps will be taken.
    (c) Review of safety and soundness compliance plans. Within 30 days 
after receiving a safety and soundness compliance plan under this 
subpart, the Board shall provide written notice to the bank of whether 
the plan has been approved or seek additional information from the bank 
regarding the plan. The Board may extend the time within which notice 
regarding approval of a plan will be provided.
    (d) Failure to submit or implement a compliance plan--(1) 
Supervisory actions. If a State member bank fails to submit an 
acceptable plan within the time specified by the Board or fails in any 
material respect to implement a compliance plan, then the Board shall, 
by order, require the bank to correct the deficiency and may take 
further actions provided in section 39(e)(2)(B). Pursuant to section 
39(e)(3), the Board may be required to take certain actions if the bank 
commenced operations or experienced a change in control within the 
previous 24-month period, or the bank experienced extraordinary growth 
during the previous 18-month period.
    (2) Extraordinary growth. For purposes of paragraph (d)(1) of this 
section, extraordinary growth means an increase in assets of more than 
7.5 percent during any quarter within the 18-month period preceding the 
issuance of a request for submission of a compliance plan, by a bank 
that is not well capitalized for purposes of section 38 of the FDI Act. 
For purposes of calculating an increase in assets, assets acquired 
through merger or acquisition approved pursuant to the Bank Merger Act 
(12 U.S.C. 1828(c)) will be excluded.
    (e) Amendment of compliance plan. A State member bank that has filed 
an approved compliance plan may, after prior written notice to and 
approval by the Board, amend the plan to reflect a change in 
circumstance. Until such time as a proposed amendment has been approved, 
the bank shall implement the compliance plan as previously approved.



Sec. 263.304  Issuance of orders to correct deficiencies and to take or
refrain from taking other actions.

    (a) Notice of intent to issue order--(1) In general. The Board shall 
provide a bank prior written notice of the Board's intention to issue an 
order requiring the bank to correct a safety and soundness deficiency or 
to take or refrain from taking other actions pursuant to section 39 of 
the FDI Act. The bank shall have such time to respond to a proposed 
order as provided by the Board under paragraph (c) of this section.
    (2) Immediate issuance of final order. If the Board finds it 
necessary in order to carry out the purposes of section 39 of the FDI 
Act, the Board may, without providing the notice prescribed in paragraph 
(a)(1) of this section, issue an order requiring a bank immediately to 
take actions to correct a safety and soundness deficiency or take or 
refrain from taking other actions pursuant to section 39. A State member 
bank that is subject to such an immediately effective order may submit a 
written appeal of the order to the Board. Such an appeal must be 
received by the Board within 14 calendar days of the issuance of the 
order, unless the Board permits a longer period. The Board shall 
consider any such appeal, if filed in a timely matter, within 60 days of 
receiving the appeal. During such period of review, the order shall 
remain in effect unless the Board, in its sole discretion, stays the 
effectiveness of the order.
    (b) Contents of notice. A notice of intent to issue an order shall 
include:

[[Page 538]]

    (1) A statement of the safety and soundness deficiency or 
deficiencies that have been identified at the bank;
    (2) A description of any restrictions, prohibitions, or affirmative 
actions that the Board proposes to impose or require;
    (3) The proposed date when such restrictions or prohibitions would 
be effective or the proposed date for completion of any required action; 
and
    (4) The date by which the bank subject to the order may file with 
the Board a written response to the notice.
    (c) Response to notice--(1) Time for response. A bank may file a 
written response to a notice of intent to issue an order within the time 
period set by the Board. Such a response must be received by the Board 
within 14 calendar days from the date of the notice unless the Board 
determines that a different period is appropriate in light of the safety 
and soundness of the bank or other relevant circumstances.
    (2) Contents of response. The response should include:
    (i) An explanation why the action proposed by the Board is not an 
appropriate exercise of discretion under section 39;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation, or other evidence in support of the position of the bank 
regarding the proposed order.
    (d) Agency consideration of response. After considering the 
response, the Board may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and so notify the bank; or
    (3) Seek additional information or clarification of the response 
from the bank, or any other relevant source.
    (e) Failure to file response. Failure by a bank to file with the 
Board, within the specified time period, a written response to a 
proposed order shall constitute a waiver of the opportunity to respond 
and shall constitute consent to the issuance of the order.
    (f) Request for modification or rescission of order. Any bank that 
is subject to an order under this subpart may, upon a change in 
circumstances, request in writing that the Board reconsider the terms of 
the order, and may propose that the order be rescinded or modified. 
Unless otherwise ordered by the Board, the order shall continue in place 
while such request is pending before the Board.



Sec. 263.305  Enforcement of orders.

    (a) Judicial remedies. Whenever a State member bank fails to comply 
with an order issued under section 39, the Board may seek enforcement of 
the order in the appropriate United States district court pursuant to 
section 8(i)(1) of the FDI Act.
    (b) Failure to comply with order. Pursuant to section 8(i)(2)(A) of 
the FDI Act, the Board may assess a civil money penalty against any 
State member bank that violates or otherwise fails to comply with any 
final order issued under section 39 and against any institution-
affiliated party who participates in such violation or noncompliance.
    (c) Other enforcement action. In addition to the actions described 
in paragraphs (a) and (b) of this section, the Board may seek 
enforcement of the provisions of section 39 or this part through any 
other judicial or administrative proceeding authorized by law.



    Subpart J_Removal, Suspension, and Debarment of Accountants From 
                        Performing Audit Services

    Source: 68 FR 48267, Aug. 13, 2003, unless otherwise noted.



Sec. 263.400  Scope.

    This subpart, which implements section 36(g)(4) of the Federal 
Deposit Insurance Act (FDIA)(12 U.S.C. 1831m(g)(4)), provides rules and 
procedures for the removal, suspension, or debarment of independent 
public accountants and their accounting firms from performing 
independent audit and attestation services for insured state member 
banks, bank holding companies, and savings and loan holding companies 
required by section 36 of the FDIA (12 U.S.C. 1831m).

[68 FR 48267, Aug. 13, 2003, as amended at 76 FR 56605, Sept. 13, 2011]

[[Page 539]]



Sec. 263.401  Definitions.

    As used in this subpart, the following terms shall have the meaning 
given below unless the context requires otherwise:
    (a) Accounting firm means a corporation, proprietorship, 
partnership, or other business firm providing audit services.
    (b) Audit services means any service required to be performed by an 
independent public accountant by section 36 of the FDIA and 12 CFR part 
363, including attestation services. Audit services include any service 
performed with respect to the holding company of an insured bank that is 
used to satisfy requirements imposed by section 36 or part 363 on that 
bank.
    (c) Banking organization means an insured state member bank, bank 
holding company, or savings and loan holding company that obtains audit 
services that are used to satisfy requirements imposed by section 36 or 
part 363 on an insured subsidiary bank or insured savings association of 
that holding company.
    (d) Independent public accountant (accountant) means any individual 
who performs or participates in providing audit services.

[56 FR 38052, Aug. 9, 1991, as amended at 76 FR 56605, Sept. 13, 2011]



Sec. 263.402  Removal, suspension, or debarment.

    (a) Good cause for removal, suspension, or debarment--(1) 
Individuals. The Board may remove, suspend, or debar an independent 
public accountant from performing audit services for banking 
organizations that are subject to section 36 of the FDIA, if, after 
notice of and opportunity for hearing in the matter, the Board finds 
that the accountant:
    (i) Lacks the requisite qualifications to perform audit services;
    (ii) Has knowingly or recklessly engaged in conduct that results in 
a violation of applicable professional standards, including those 
standards and conflict of interest provisions applicable to accountants 
through the Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 
(2002) (Sarbanes-Oxley Act), and developed by the Public Company 
Accounting Oversight Board and the Securities and Exchange Commission;
    (iii) Has engaged in negligent conduct in the form of:
    (A) A single instance of highly unreasonable conduct that results in 
a violation of applicable professional standards in circumstances in 
which an accountant knows, or should know, that heightened scrutiny is 
warranted; or
    (B) Repeated instances of unreasonable conduct, each resulting in a 
violation of applicable professional standards, that indicate a lack of 
competence to perform audit services;
    (iv) Has knowingly or recklessly given false or misleading 
information, or knowingly or recklessly participated in any way in the 
giving of false or misleading information, to the Board or any officer 
or employee of the Board;
    (v) Has engaged in, or aided and abetted, a material and knowing or 
reckless violation of any provision of the Federal banking or securities 
laws or the rules and regulations thereunder, or any other law;
    (vi) Has been removed, suspended, or debarred from practice before 
any Federal or state agency regulating the banking, insurance, or 
securities industries, other than by an action listed in Sec. 263.403, 
on grounds relevant to the provision of audit services; or
    (vii) Is suspended or debarred for cause from practice as an 
accountant by any duly constituted licensing authority of any state, 
possession, commonwealth, or the District of Columbia.
    (2) Accounting firms. If the Board determines that there is good 
cause for the removal, suspension, or debarment of a member or employee 
of an accounting firm under paragraph (a)(1) of this section, the Board 
also may remove, suspend, or debar such firm or one or more offices of 
such firm. In considering whether to remove, suspend, or debar a firm or 
an office thereof, and the term of any sanction against a firm under 
this section, the Board may consider, for example:
    (i) The gravity, scope, or repetition of the act or failure to act 
that constitutes good cause for removal, suspension, or debarment;

[[Page 540]]

    (ii) The adequacy of, and adherence to, applicable policies, 
practices, or procedures for the accounting firm's conduct of its 
business and the performance of audit services;
    (iii) The selection, training, supervision, and conduct of members 
or employees of the accounting firm involved in the performance of audit 
services;
    (iv) The extent to which managing partners or senior officers of the 
accounting firm have participated, directly, or indirectly through 
oversight or review, in the act or failure to act; and
    (v) The extent to which the accounting firm has, since the 
occurrence of the act or failure to act, implemented corrective internal 
controls to prevent its recurrence.
    (3) Limited scope orders. An order of removal, suspension (including 
an immediate suspension), or debarment may, at the discretion of the 
Board, be made applicable to a particular banking organization or class 
of banking organizations.
    (4) Remedies not exclusive. The remedies provided in this subpart 
are in addition to any other remedies the Board may have under any other 
applicable provisions of law, rule, or regulation.
    (b) Proceedings to remove, suspend, or debar--(1) Initiation of 
formal removal, suspension, or debarment proceedings. The Board may 
initiate a proceeding to remove, suspend, or debar an accountant or 
accounting firm from performing audit services by issuing a written 
notice of intention to take such action that names the individual or 
firm as a respondent and describes the nature of the conduct that 
constitutes good cause for such action.
    (2) Hearing under paragraph (b) of this section. An accountant or 
firm named as a respondent in the notice issued under paragraph (b)(1) 
of this section may request a hearing on the allegations in the notice. 
Hearings conducted under this paragraph shall be conducted in the same 
manner as other hearings under the Uniform Rules of Practice and 
Procedure (12 CFR part 263, subpart A).
    (c) Immediate suspension from performing audit services--(1) In 
general. If the Board serves a written notice of intention to remove, 
suspend, or debar an accountant or accounting firm from performing audit 
services, the Board may, with due regard for the public interest and 
without a preliminary hearing, immediately suspend such accountant or 
firm from performing audit services for banking organizations, if the 
Board:
    (i) Has a reasonable basis to believe that the accountant or firm 
has engaged in conduct (specified in the notice served on the accountant 
or firm under paragraph (b) of this section) that would constitute 
grounds for removal, suspension, or debarment under paragraph (a) of 
this section;
    (ii) Determines that immediate suspension is necessary to avoid 
immediate harm to an insured depository institution or its depositors or 
to the depository system as a whole; and
    (iii) Serves such respondent with written notice of the immediate 
suspension.
    (2) Procedures. An immediate suspension notice issued under this 
paragraph will become effective upon service. Such suspension will 
remain in effect until the date the Board dismisses the charges 
contained in the notice of intention, or the effective date of a final 
order of removal, suspension, or debarment issued by the Board to the 
respondent.
    (3) Petition to stay. Any accountant or firm immediately suspended 
from performing audit services in accordance with paragraph (c)(1) of 
this section may, within 10 calendar days after service of the notice of 
immediate suspension, file with the Secretary, Board of Governors of the 
Federal Reserve System, Washington, DC 20551 for a stay of such 
immediate suspension. If no petition is filed within 10 calendar days, 
the immediate suspension shall remain in effect.
    (4) Hearing on petition. Upon receipt of a stay petition, the 
Secretary will designate a presiding officer who shall fix a place and 
time (not more than 10 calendar days after receipt of the petition, 
unless extended at the request of petitioner) at which the immediately 
suspended party may appear, personally or through counsel, to submit 
written materials and oral argument. Any Board employee engaged in 
investigative or prosecuting functions for

[[Page 541]]

the Board in a case may not, in that or a factually related case, serve 
as a presiding officer or participate or advise in the decision of the 
presiding officer or of the Board, except as witness or counsel in the 
proceeding. In the sole discretion of the presiding officer, upon a 
specific showing of compelling need, oral testimony of witnesses may 
also be presented. In hearings held pursuant to this paragraph there 
shall be no discovery and the provisions of Secs. 263.6 through 263.12, 
263.16, and 263.21 of this part shall apply.
    (5) Decision on petition. Within 30 calendar days after the hearing, 
the presiding officer shall issue a decision. The presiding officer will 
grant a stay upon a demonstration that a substantial likelihood exists 
of the respondent's success on the issues raised by the notice of 
intention and that, absent such relief, the respondent will suffer 
immediate and irreparable injury, loss, or damage. In the absence of 
such a demonstration, the presiding officer will notify the parties that 
the immediate suspension will be continued pending the completion of the 
administrative proceedings pursuant to the notice.
    (6) Review of presiding officer's decision. The parties may seek 
review of the presiding officer's decision by filing a petition for 
review with the presiding officer within 10 calendar days after service 
of the decision. Replies must be filed within 10 calendar days after the 
petition filing date. Upon receipt of a petition for review and any 
reply, the presiding officer shall promptly certify the entire record to 
the Board. Within 60 calendar days of the presiding officer's 
certification, the Board shall issue an order notifying the affected 
party whether or not the immediate suspension should be continued or 
reinstated. The order shall state the basis of the Board's decision.



Sec. 263.403  Automatic removal, suspension, and debarment.

    (a) An independent public accountant or accounting firm may not 
perform audit services for banking organizations if the accountant or 
firm:
    (1) Is subject to a final order of removal, suspension, or debarment 
(other than a limited scope order) issued by the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, or 
the Office of Thrift Supervision under section 36 of the FDIA;
    (2) Is subject to a temporary suspension or permanent revocation of 
registration or a temporary or permanent suspension or bar from further 
association with any registered public accounting firm issued by the 
Public Company Accounting Oversight Board or the Securities and Exchange 
Commission under sections 105(c)(4)(A) or (B) of the Sarbanes-Oxley Act 
of 2002 (15 U.S.C. 7215(c)(4)(A) or (B)); or
    (3) Is subject to an order of suspension or denial of the privilege 
of appearing or practicing before the Securities and Exchange 
Commission.
    (b) Upon written request, the Board, for good cause shown, may grant 
written permission to such accountant or firm to perform audit services 
for banking organizations. The request shall contain a concise statement 
of the action requested. The Board may require the applicant to submit 
additional information.



Sec. 263.404  Notice of removal, suspension, or debarment.

    (a) Notice to the public. Upon the issuance of a final order for 
removal, suspension, or debarment of an independent public accountant or 
accounting firm from providing audit services, the Board shall make the 
order publicly available and provide notice of the order to the other 
Federal banking agencies.
    (b) Notice to the Board by accountants and firms. An accountant or 
accounting firm that provides audit services to a banking organization 
must provide the Board with written notice of:
    (1) Any currently effective order or other action described in 
Sec. 263.402(a)(1)(vi) through (a)(1)(vii) or Sec. 263.403(a)(2) through 
(a)(3); and
    (2) Any currently effective action by the Public Company Accounting 
Oversight Board under sections 105(c)(4)(C) or (G) of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7215(c)(4)(C) or (G)).
    (c) Timing of notice. Written notice required by this paragraph 
shall be given no later than 15 calendar days following the effective 
date of an order or

[[Page 542]]

action, or 15 calendar days before an accountant or firm accepts an 
engagement to provide audit services, whichever date is earlier.



Sec. 263.405  Petition for reinstatement.

    (a) Form of petition. Unless otherwise ordered by the Board, a 
petition for reinstatement by an independent public accountant, an 
accounting firm, or an office of a firm that was removed, suspended, or 
debarred under Sec. 263.402 may be made in writing at any time. The 
request shall contain a concise statement of the action requested. The 
Board may require the petitioner to submit additional information.
    (b) Procedure. A petitioner for reinstatement under this section 
may, in the sole discretion of the Board, be afforded a hearing. The 
accountant or firm shall bear the burden of going forward with a 
petition and proving the grounds asserted in support of the petition. 
The Board may, in its sole discretion, direct that any reinstatement 
proceeding be limited to written submissions. The removal, suspension, 
or debarment shall continue until the Board, for good cause shown, has 
reinstated the petitioner or until the suspension period has expired. 
The filing of a petition for reinstatement shall not stay the 
effectiveness of the removal, suspension, or debarment of an accountant 
or firm.



PART 264_EMPLOYEE RESPONSIBILITIES AND CONDUCT--Table of Contents



    Authority: 5 U.S.C. 7301; 12 U.S.C. 244.



Sec. 264.101  Cross-reference to employees' ethical conduct standards and 
financial disclosure regulations.

    Employees of the Board of Governors of the Federal Reserve System 
(Board) are subject to the executive branch-wide standards of ethical 
conduct at 5 CFR part 2635 and the Board's regulation at 5 CFR part 
6801, which supplements the executive branch-wide standards, and the 
executive branch-wide financial disclosure regulation at 5 CFR part 
2634.

[61 FR 53830, Oct. 16, 1996]



PART 264a_POST-EMPLOYMENT RESTRICTIONS FOR SENIOR EXAMINERS--Table of Contents



Sec.
264a.1  What is the purpose and scope of this part?
264a.2  Who is considered a senior examiner of the Federal Reserve?
264a.3  What special post-employment restrictions apply to senior 
          examiners?
264a.4  When do these special restrictions become effective and may they 
          be waived?
264a.5  What are the penalties for violating these special post-
          employment restrictions?
264a.6  What other definitions and rules of construction apply for 
          purposes of this part?

    Authority: 12 U.S.C. 1820(k).

    Source: 70 FR 69638, Nov. 17, 2005, unless otherwise noted.



Sec. 264a.1  What is the purpose and scope of this part?

    This part identifies those officers and employees of the Federal 
Reserve that are subject to the special post-employment restrictions set 
forth in section 10(k) of the Federal Deposit Insurance Act (FDI Act) 
and implements those restrictions as they apply to officers and 
employees of the Federal Reserve.



Sec. 264a.2  Who is considered a senior examiner of the Federal Reserve?

    For purposes of this part, an officer or employee of the Federal 
Reserve is considered to be the ``senior examiner'' for a particular 
state member bank, bank holding company, savings and loan holding 
company, or foreign bank if--
    (a) The officer or employee has been authorized by the Board to 
conduct examinations or inspections on behalf of the Board;
    (b) The officer or employee has been assigned continuing, broad and 
lead responsibility for examining or inspecting the state member bank, 
bank holding company, savings and loan holding company, or foreign bank; 
and
    (c) The officer's or employee's responsibilities for examining, 
inspecting and supervising the state member bank, bank holding company, 
savings and loan holding company, or foreign bank--

[[Page 543]]

    (1) Represent a substantial portion of the officer's or employee's 
assigned responsibilities; and
    (2) Require the officer or employee to interact routinely with 
officers or employees of the state member bank, bank holding company, 
savings and loan holding company, or foreign bank or its affiliates.

[76 FR 56605, Sept. 13, 2011]



Sec. 264a.3  What special post-employment restrictions apply to 
senior examiners?

    (a) Senior Examiners of State Member Banks. An officer or employee 
of the Federal Reserve who serves as the senior examiner of a state 
member bank for two or more months during the last twelve months of such 
individual's employment with the Federal Reserve may not, within one 
year after leaving the employment of the Federal Reserve, knowingly 
accept compensation as an employee, officer, director or consultant 
from--
    (1) The state member bank; or
    (2) Any company (including a bank holding company) that controls the 
state member bank.
    (b) Senior Examiners of Bank Holding Companies. An officer or 
employee of the Federal Reserve who serves as the senior examiner of a 
bank holding company for two or more months during the last twelve 
months of such individual's employment with the Federal Reserve may not, 
within one year of leaving the employment of the Federal Reserve, 
knowingly accept compensation as an employee, officer, director or 
consultant from--
    (1) The bank holding company; or
    (2) Any depository institution that is controlled by the bank 
holding company.
    (c) Senior Examiners of Foreign Banks. An officer or employee of the 
Federal Reserve who serves as the senior examiner of a foreign bank for 
two or more months during the last twelve months of such individual's 
employment with the Federal Reserve may not, within one year of leaving 
the employment of the Federal Reserve, knowingly accept compensation as 
an employee, officer, director or consultant from--
    (1) The foreign bank; or
    (2) Any branch or agency of the foreign bank located in the United 
States; or
    (3) Any other depository institution controlled by the foreign bank.
    (d) Senior Examiners of Savings and Loan Holding Companies. An 
officer or employee of the Federal Reserve who serves as the senior 
examiner of a savings and loan holding company for two or more months 
during the last twelve months of such individual's employment with the 
Federal Reserve may not, within one year of leaving the employment of 
the Federal Reserve, knowingly accept compensation as an employee, 
officer, director or consultant from--
    (1) The savings and loan holding company; or
    (2) Any depository institution that is controlled by the savings and 
loan holding company.

[70 FR 69638, Nov. 17, 2005, as amended at 76 FR 56606, Sept. 13, 2011]



Sec. 264a.4  When do these special restrictions become effective 
and may they be waived?

    The post-employment restrictions set forth in section 10(k) of the 
FDI Act and Sec. 264a.3 do not apply to any officer or employee of the 
Federal Reserve, or any former officer or employee of the Federal 
Reserve, if--
    (a) The individual ceased to be an officer or employee of the 
Federal Reserve before December 17, 2005; or
    (b) The Chairman of the Board of Governors certifies, in writing and 
on a case-by-case basis, that granting the individual a waiver of the 
restrictions would not affect the integrity of the Federal Reserve's 
supervisory program.



Sec. 264a.5  What are the penalties for violating these special 
post-employment restrictions?

    (a) Penalties under section 10(k) of FDI Act. A senior examiner of 
the Federal Reserve who, after leaving the employment of the Federal 
Reserve, violates the restrictions set forth in Sec. 264a.3 shall, in 
accordance with section 10(k)(6) of the FDI Act, be subject to one or 
both of the following penalties--
    (1) An order--
    (i) Removing the individual from office or prohibiting the 
individual from

[[Page 544]]

further participation in the affairs of the relevant state member bank, 
bank holding company, savings and loan holding company, foreign bank or 
other depository institution or company for a period of up to five 
years; and
    (ii) Prohibiting the individual from participating in the affairs of 
any insured depository institution for a period of up to five years; 
and/or
    (2) A civil monetary penalty of not more than $250,000.
    (b) Imposition of penalties. The penalties described in paragraph 
(a) of this section shall be imposed by the appropriate Federal banking 
agency as determined under section 10(k)(6) of the FDI Act, which may be 
an agency other than the Federal Reserve.
    (c) Scope of prohibition orders. Any senior examiner who is subject 
to an order issued under paragraph (a) of this section shall, as 
required by section 10(k)(6)(B) of the FDI Act, be subject to paragraphs 
(6) and (7) of section 8(e) of the FDI Act in the same manner and to the 
same extent as a person subject to an order issued under section 8(e).
    (d) Procedures. The procedures applicable to actions under paragraph 
(a) of this section are provided in section 10(k)(6) of the FDI Act.
    (e) Other penalties. The penalties set forth in paragraph (a) of 
this section are not exclusive, and a senior examiner who violates the 
restrictions in Sec. 264a.3 also may be subject to other administrative, 
civil or criminal remedies or penalties as provided in law.

[70 FR 69638, Nov. 17, 2005, as amended at 76 FR 56606, Sept. 13, 2011]



Sec. 264a.6  What other definitions and rules of construction apply for
purposes of this part?

    For purposes of this part--
    (a) Bank holding company means any company that controls a bank (as 
provided in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841 et seq.)).
    (b) A person shall be deemed to act as a consultant for a bank or 
other company only if such person works directly on matters for, or on 
behalf of, such bank or other company.
    (c) Control has the meaning given in section 2 of the Bank Holding 
Company Act, with respect to banking holding companies, and has the 
meaning given in section 10 of the Home Owners' Loan Act, with respect 
to savings and loan holding companies.
    (d) Depository institution has the meaning given in section 3 of the 
FDI Act and includes an uninsured branch or agency of a foreign bank, if 
such branch or agency is located in any State.
    (e) Federal Reserve means the Board of Governors of the Federal 
Reserve System and the Federal Reserve Banks.
    (f) Foreign bank means any foreign bank or company described in 
section 8(a) of the International Banking Act of 1978 (12 U.S.C. 
3106(a)).
    (g) Insured depository institution has the meaning given in section 
3 of the FDI Act.
    (h) Savings and loan holding company means any company that controls 
a savings association (as provided in section 10 of the Home Owners' 
Loan Act (12 U.S.C. 1461 et seq.))

[70 FR 69638, Nov. 17, 2005, as amended at 76 FR 56606, Sept. 13, 2011]



PART 264b_RULES REGARDING FOREIGN GIFTS AND DECORATIONS--Table of Contents



Sec.
264b.1  Purpose and scope.
264b.2  Definitions.
264b.3  Restrictions on acceptance of gifts and decorations.
264b.4  Gifts of minimal value.
264b.5  Gifts of more than minimal value.
264b.6  Requirements for gifts of more than minimal value.
264b.7  Decorations.
264b.8  Disposition or retention of gifts and decorations deposited with 
          the Office of the Secretary.
264b.9  Enforcement.
264b.10  Certain grants excluded.

    Authority: 5 U.S.C. 552, 7342; 12 U.S.C. 248(i).

    Source: 68 FR 68721, Dec. 10, 2003, unless otherwise noted.



Sec. 264b.1  Purpose and scope.

    These rules govern when Board employees, their spouses, and their 
dependents may accept and retain gifts and decorations from foreign 
governments under the Foreign Gifts and

[[Page 545]]

Decorations Act of 1966, as amended (5 U.S.C. 7342) (``Act'').



Sec. 264b.2  Definitions.

    When used in this part, the following terms have the meanings 
indicated:
    (a) Board employees means:
    (1) Members of the Board of Governors of the Federal Reserve System 
(``Board''), officers, and other employees of the Board, including 
experts or consultants while employed by, and acting on behalf of, the 
Board; and
    (2) Spouses (unless separated) or dependents (within the meaning of 
section 152 of the Internal Revenue Code of 1986 (26 U.S.C. 152)) of 
such persons.
    (b) Foreign government means:
    (1) Any unit of foreign governmental authority, including any 
foreign national, State, local, or municipal government;
    (2) Any international or multinational organization whose membership 
is composed of any unit of foreign government as described in paragraph 
(b)(1) of this section; and
    (3) Any agent or representative of any such unit or organization, 
while acting as such.
    (c) Gift means a tangible or intangible present (other than a 
decoration) tendered by, or received from, a foreign government.
    (d) Decoration means an order, device, medal, badge, insignia, 
emblem, or award tendered by, or received from, a foreign government.
    (e) Minimal value means retail value in the United States at the 
time of acceptance of $285 or less as of January 1, 2002, and at 3-year 
intervals thereafter, as redefined in regulations prescribed by the 
Administrator of General Services, in consultation with the Secretary of 
State, to reflect changes in the consumer price index for the 
immediately preceding 3-year period.
    (f) Administrative Governor means the Board member serving as the 
Administrative Governor and includes persons designated by the 
Administrative Governor to exercise the authority granted under this 
part in the governor's absence.



Sec. 264b.3  Restrictions on acceptance of gifts and decorations.

    (a) Board employees are prohibited from requesting or otherwise 
encouraging the tender of a gift or decoration from a foreign 
government.
    (b) Board employees are prohibited from accepting a gift or 
decoration from a foreign government, except in accordance with this 
part.



Sec. 264b.4  Gifts of minimal value.

    (a) Board employees may accept and retain a gift of minimal value 
tendered and received as a souvenir or mark of courtesy. If more than 
one tangible gift is presented at or marks an event, the value of all 
such gifts must not exceed ``minimal value.'' If tangible gifts are 
presented at or mark separate events, their value must not exceed 
``minimal value'' for each event, but may exceed ``minimal value'' for 
all events, even if the events occur on the same day.
    (b) Board employees may determine at the time a gift is offered 
whether it is of minimal value, or they may submit an accepted gift as 
soon as practicable to the Office of the Secretary for valuation.
    (c) Disagreements over whether a gift is of minimal value will be 
resolved by an independent appraisal under procedures established by the 
Office of the Secretary.



Sec. 264b.5  Gifts of more than minimal value.

    (a) Educational scholarships or medical treatment. Board employees 
may accept and retain gifts of more than minimal value when such gifts 
are in the nature of an educational scholarship or medical treatment.
    (b) Travel or travel expenses. Board employees may accept gifts of 
travel or expenses for travel taking place entirely outside the United 
States (such as transportation, food, and lodging) of more than minimal 
value if appropriate, consistent with the interests of the United 
States, and permitted by the Board under paragraph (b)(1) or (b)(2) of 
this section.
    (1) Board employees may accept gifts of travel or expenses for 
travel under paragraph (b) of this section in accordance with specific 
instructions of the

[[Page 546]]

Board, as evidenced by the prior approval of the Administrative 
Governor. Board employees must request prior approval under procedures 
established by the Office of the Secretary.
    (2) Board employees may accept gifts of travel or expenses for 
travel under paragraph (b) of this section without the prior approval of 
the Administrative Governor if such expenses are reported under 
Sec. 264b.6(b) and the Administrative Governor approves their acceptance 
after the fact. Board employees must personally repay gifts of travel or 
expenses for travel of more than minimal value that are not approved by 
the Administrative Governor.
    (c) Other gifts. (1) Board employees may typically regard the 
refusal of gifts of more than minimal value at the inception (when 
offered or received without a prior offer) as consistent with the 
interests and general policy of the United States.
    (2) Board employees may accept gifts of more than minimal value when 
it appears that refusal would likely cause offense or embarrassment or 
otherwise adversely affect the foreign relations of the United States. 
Tangible gifts are considered to have been accepted on behalf of the 
United States and become the property of the United States on 
acceptance. Accordingly, they must be deposited and documented in 
accordance with Sec. 264b.6(a) and can only be returned or otherwise 
processed by the Office of the Secretary under Sec. 264b.8.



Sec. 264b.6  Requirements for gifts of more than minimal value.

    (a) Tangible gifts. Board employees must deposit tangible gifts of 
more than minimal value with the Office of the Secretary within 60 days 
of acceptance and assist in preparing a statement that contains the 
following information for each gift:
    (1) The name and position of the Board employee;
    (2) A brief description of the gift and the circumstances justifying 
acceptance;
    (3) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift;
    (4) The date of acceptance of the gift;
    (5) The estimated value in the United States of the gift at the time 
of acceptance; and
    (6) The disposition or current location of the gift.
    (b) Travel or travel expenses without prior approval. Board 
employees who accept a gift of travel or expenses for travel under 
Sec. 264b.5(b)(2) without the prior approval of the Administrative 
Governor must submit a report to the Office of the Secretary within 30 
days of acceptance that contains the following information:
    (1) The name and position of the Board employee;
    (2) A brief description of the gift, including its estimated value, 
and the circumstances justifying acceptance; and
    (3) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift.
    (c) Reports to the Secretary of State. The Office of the Secretary 
must report the information contained in the statements described in 
paragraphs (a) and (b) of this section to the Secretary of State, who 
must publish in the Federal Register not later than January 31 of each 
year a comprehensive listing of all such statements for gifts of more 
than minimal value that were received by federal employees during the 
preceding year.



Sec. 264b.7  Decorations.

    (a) Board employees may accept, retain, and wear a decoration 
tendered or awarded by a foreign government in recognition of active 
field service in time of combat operations or for other outstanding or 
unusually meritorious performance, subject to the approval of the 
Administrative Governor. Requests for approval must be submitted to the 
Office of the Secretary and contain a statement of the circumstances 
surrounding the award and include any accompanying documentation. The 
recipient may retain the decoration pending action on the request.
    (b) Decorations accepted by Board employees without the approval of 
the Administrative Governor are considered to have been accepted on 
behalf of the United States and must be deposited within 60 days of the 
decoration's

[[Page 547]]

acceptance with the Office of the Secretary for disposition or retention 
under Sec. 264b.8.



Sec. 264b.8  Disposition or retention of gifts and decorations deposited 
with the Office of the Secretary.

    (a) The Office of the Secretary may dispose of gifts and decorations 
deposited under Secs. 264b.6(a) and 264b.7(b) by returning them to the 
donors or by handling them in accordance with instructions from the 
General Services Administration under applicable law.
    (b) The Office of the Secretary may approve and retain gifts and 
decorations deposited under Secs. 264b.6(a) and 264b.7(b) for official 
use. The Office of the Secretary must dispose of a gift within 30 days 
of the termination of its official use in accordance with instructions 
from the General Services Administration under applicable law.



Sec. 264b.9  Enforcement.

    (a) The Administrative Governor, after consultation with the General 
Counsel, must report to the Attorney General cases in which there is 
reason to believe that a Board employee has violated the Act.
    (b) The Attorney General may bring a civil action in any district 
court of the United States against a Board employee who knowingly 
solicits or accepts a gift from a foreign government in violation of the 
Act, or who fails to deposit or report such a gift as required by the 
Act. The court may assess a maximum penalty of the retail value of a 
gift improperly solicited or received plus $5,000.



Sec. 264b.10  Certain grants excluded.

    This part does not apply to grants and other forms of assistance to 
which Sec. 108A of the Mutual Educational and Cultural Exchange Act of 
1961 applies. See 22 U.S.C. 2458a.



PART 265_RULES REGARDING DELEGATION OF AUTHORITY--Table of Contents



Sec.
265.1  Authority, purpose, and scope.
265.2  Delegation of functions generally.
265.3  Board review of delegated actions.
265.4  Functions delegated to Board members.
265.5  Functions delegated to Secretary of the Board.
265.6  Functions delegated to General Counsel.
265.7  Functions delegated to Director of Division of Banking 
          Supervision and Regulation.
265.8  Functions delegated to the Staff Director of the Division of 
          International Finance.
265.9  Functions delegated to the Director of Division of Consumer and 
          Community Affairs.
265.10  Functions delegated to Secretary of Federal Open Market 
          Committee.
265.11  Functions delegated to Federal Reserve Banks.

    Authority: 12 U.S.C. 248(i) and (k).

    Source: 56 FR 25619, June 5, 1991, unless otherwise noted.



Sec. 265.1  Authority, purpose, and scope.

    (a) Pursuant to section 11(k) of the Federal Reserve Act (12 U.S.C. 
248(k)), the Board of Governors of the Federal Reserve System (the 
``Board'') may delegate, by published order or rule, any of its 
functions other than those relating to rulemaking or pertaining 
principally to monetary and credit policies to Board members and 
employees, Reserve Banks, or administrative law judges. Pursuant to 
section 11(i) of the Federal Reserve Act (12 U.S.C. 248(i)), the Board 
may make all rules and regulations necessary to enable it to effectively 
perform the duties, functions, or services specified in that Act. 
Pursuant to section 5(b) of the Bank Holding Company Act (12 U.S.C. 
1844(b)), the Board is authorized to issue such regulations and orders 
as may be necessary to enable it to administer and carry out the 
purposes of this Act and prevent evasions thereof. Other provisions of 
Federal law also may authorize specific delegations by the Board.
    (b) The Board's Rules Regarding Delegation of Authority (12 CFR part 
265) detail the responsibilities that the Board has delegated. The table 
of contents, titles, and headings that appear in these rules are used 
solely for their descriptive convenience. Section 265.4 addresses the 
specific functions delegated to Board members. The functions that have 
been delegated to Board employees are set forth in Secs. 265.5, 265.6, 
265.7, 265.8, and 265.9. The functions that have been delegated to the 
Secretary of the Federal Open Market

[[Page 548]]

Committee are set forth in Sec. 265.10. The functions that have been 
delegated to the Reserve Banks are set forth in Sec. 265.11. Provisions 
for review of any action taken pursuant to delegated authority are found 
in Sec. 265.3. Except as otherwise indicated in these rules, the Board 
will review a delegated action only if a Board member, at his or her own 
initiative, requests a review.



Sec. 265.2  Delegation of functions generally.

    (a) The Board has determined to delegate authority to exercise the 
functions described in this part.
    (b) The Chairman of the Board shall assign responsibility for 
performing such delegated functions.



Sec. 265.3  Board review of delegated actions.

    (a) Request by Board member. The Board shall review any action taken 
at a delegated level upon the vote of one member of the Board, either on 
the member's own initiative or on the basis of a petition for review by 
any person claiming to be adversely affected by the delegated action.
    (b) Petition for review. A petition for review of a delegated action 
must be received by the Secretary of the Board not later than the fifth 
day following the date of the delegated action.
    (c) Notice of review. The Secretary shall give notice of review by 
the Board of a delegated action to any person with respect to whom the 
action was taken not later than the tenth day following the date of the 
delegated action. Upon receiving notice, such person may not proceed 
further in reliance upon the delegated action until notified of the 
outcome of the review by the Board.
    (d) By action of a delegee. A delegee may submit any matter to the 
Board for determination if the delegee considers it appropriate because 
of the importance or complexity of the matter.



Sec. 265.4  Functions delegated to Board members.

    (a) Individual members. Any Board member designated by the Chairman 
is authorized:
    (1) Review of denial of access to Board records; FOIA. To review and 
determine an appeal of denial of access to Board records under the 
Freedom of Information Act (5 U.S.C. 552), the Privacy Act (5 U.S.C. 
552a), and the Board's rules regarding such access (12 CFR parts 261 and 
261a, respectively).
    (2) Approval of amendments to notice of charges or cease and desist 
orders. To approve (after receiving recommendations of the Director of 
the Division of Banking Supervision and Regulation and the General 
Counsel) amendments to any notice, temporary order, or proposed order 
previously approved by the Board in a specific formal enforcement matter 
(including a notice of charges or removal notice) or any proposed or 
temporary cease and desist order previously approved by the Board under 
12 U.S.C. 1818 (b) and (c).
    (3) Requests for permission to appeal rulings. (i) To act, when 
requested by the Secretary, upon any request under Sec. 263.10(e) of the 
Board's Rules of Practice for Hearings (12 CFR part 263) for special 
permission to appeal from a ruling of the presiding officer on any 
motion made at a hearing conducted under the rules, and if special 
permission is granted, the merits of the appeal shall be presented to 
the Board for decision.
    (ii) Notwithstanding Sec. 265.3 of this part, the denial of special 
permission to appeal a ruling may be reviewed by the Board only if a 
Board member requests a review within two days of the denial. No person 
claiming to be adversely affected by the denial shall have any right to 
petition the Board or any Board member for review or reconsideration of 
the denial.
    (4) Extension of time period for final Board action. To extend for 
an additional 180 days the 180-day period within which final Board 
action is required on an application pursuant to section 7(d) of the 
International Banking Act.
    (b) Three member Action Committee. Any three Board members 
designated from time to time by the Chairman (the ``Action Committee'') 
are authorized:
    (1) Absence of quorum. To act, upon certification by the Secretary 
of the Board of an absence of a quorum of the Board present in person, 
by unanimous vote on any matter that the Chairman has certified must be 
acted upon

[[Page 549]]

promptly in order to avoid delay that would be inconsistent with the 
public interest except for matters:
    (i) Relating to rulemaking;
    (ii) Pertaining principally to monetary and credit policies; and
    (iii) For which a statute expressly requires the affirmative vote of 
more than three Board members.
    (2) [Reserved]

[56 FR 25619, June 5, 1991, as amended at 56 FR 67154, Dec. 30, 1991; 62 
FR 14793, Mar. 28, 1997]



Sec. 265.5  Functions delegated to Secretary of the Board.

    The Secretary of the Board (or the Acting Secretary) is authorized:
    (a) Procedure--(1) Extension of time period for public participation 
in proposed regulations. To extend, when appropriate under the Board's 
Rules of Procedure (12 CFR 262.2 (a) and (b)), the time period for 
public participation with respect to proposed regulations of the Board.
    (2) Extension of time period in notices, orders, rules, or 
regulations. (i) To grant or deny requests to extend any time period in 
any notice, order, rule, or regulation of the Board relating to filing 
information, comments, opposition, briefs, exceptions, or other matters, 
in connection with any application, request or petition for the Board's 
approval, authority, determination, or permission, or any other action 
by the Board.
    (ii) Notwithstanding Sec. 265.3 of this part, no person claiming to 
be adversely affected by any such extension of time by the Secretary 
shall have the right to petition the Board or any Board member for 
review or reconsideration of the extension.
    (3) Conforming citations and references in Board rules and 
regulations. (i) To conform references to administrative positions or 
units in Board rules and regulations with changes in the administrative 
structure of the Board and in the government and agencies of the United 
States.
    (ii) To conform citations and references in Board rules and 
regulations with other regulatory or statutory changes adopted or 
promulgated by the Board or by the government or agencies of the United 
States.
    (4) Technical corrections in Board rules and regulations. To make 
technical corrections, such as spelling, grammar, construction, and 
organization (including removal of obsolete provisions and consolidation 
of related provisions), to the Board's rules, regulations, and orders 
and other records of Board action but only with the concurrence of the 
Board's General Counsel.
    (b) Availability of information--(1) FOIA requests. To make 
available, upon request, information in Board records and consider 
requests for confidential treatment of information in Board records 
under the Freedom of Information Act (5 U.S.C. 552) and under the 
Board's Rules Regarding Availability of Information (12 CFR part 261).
    (2) Annual reports on Privacy Act. To approve annual reports 
required by the Privacy Act (5 U.S.C. 552a(p)) from the Board to the 
Office of Management and Budget for inclusion in the President's annual 
consolidated report to Congress.
    (3) Report on prime rate of commercial banks. To determine and 
report, under 26 U.S.C. (IRC) 6621, to the Secretary of the Treasury the 
average predominant prime rate quoted by commercial banks to large 
businesses.
    (c) Bank holding companies; Change in bank control; Mergers--(1) 
Reports on competitive factors in bank mergers. To furnish reports on 
competitive factors involved in a bank merger to the Comptroller of the 
Currency and the Federal Deposit Insurance Corporation under the 
provisions of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)); The 
Bank Holding Company Act (12 U.S.C. 1842(a), 1843(c)(14)); the Bank 
Service Corporation Act (12 U.S.C. 1865(a), (b), 1867(d)); the Change in 
Bank Control Act (12 U.S.C. 1817(j)); and the Federal Reserve Act (12 
U.S.C. 321 et seq., 601-604a, 611 et seq.).
    (2) Reserve Bank director interlocks. To take actions the Reserve 
Bank could take except for the fact that the Reserve Bank may not act 
because a director, senior officer, or principal shareholder of any 
holding company, bank, or company involved in the transaction is a 
director of that Reserve Bank or branch of the Reserve Bank.

[[Page 550]]

    (3) Application approval under section 5(d)(3) of the FDI Act. To 
approve applications pursuant to section 5(d)(3) of the Federal Deposit 
Insurance Act (12 U.S.C. 1815(d)(3)), in those cases in which the 
appropriate Federal Reserve Bank concludes that, because of unusual 
considerations, or for other good cause, it should not take action.
    (d) International banking--(1) Establishment of foreign branch or 
foreign agency or of Edge or Agreement Corporations. To approve, under 
sections 25 and 25A of the Federal Reserve Act (12 U.S.C. 601 and 604) 
and Regulation K (12 CFR part 211), the establishment, directly or 
indirectly, of a foreign branch or agency by a member bank or an Edge or 
Agreement Corporation if all of the following conditions are met:
    (i) The appropriate Reserve Bank and relevant divisions of the 
Board's staff recommend approval;
    (ii) No significant policy issue is raised on which the Board has 
not expressed its view; and
    (iii) The application is not for the applicant's first full-service 
branch in a foreign country.
    (2) Acquisition of foreign company or U.S. company financing 
exports. To grant, under sections 25 and 25A of the Federal Reserve Act 
(12 U.S.C. 601 and 604) and section 4(c)(13) of the Bank Holding Company 
Act (12 U.S.C. 1843(c)(13)) and the Board's Regulations K and Y (12 CFR 
parts 211 and 225), specific consent to the acquisition, either directly 
or indirectly, by a member bank, an Edge or Agreement corporation, or a 
bank holding company of stock of a company chartered under the laws of a 
foreign country or a company chartered under the laws of a state of the 
United States that is organized and operated for the purpose of 
financing exports from the United States, and to approve any such 
acquisition that may exceed the limitations of section 25A of the 
Federal Reserve Act based on the company's capital and surplus, if all 
of the following conditions are met:
    (i) The appropriate Reserve Bank and all relevant divisions of the 
Board's staff recommend approval;
    (ii) No significant policy issue is raised on which the Board has 
not expressed its view;
    (iii) The acquisition does not result, either directly or 
indirectly, in the bank, corporation, or bank holding company acquiring 
effective control of the company, except that this condition need not be 
met if:
    (A) The company is to perform nominee, fiduciary, or other services 
incidental to the activities of a foreign branch or affiliate of the 
bank holding company, or corporation; or
    (B) The stock is being acquired from the parent bank or bank holding 
company, or subsidiary Edge or Agreement corporation, as the case may 
be, and the selling parent or subsidiary holds the stock with the 
consent of the Board pursuant to Regulations K and Y (12 CFR parts 211 
and 225).
    (3) Investments in Edge and Agreement Corporations. To approve an 
application by a member bank to invest more than 10 percent of capital 
and surplus in Edge and agreement corporation subsidiaries, provided 
that:
    (i) The member bank's total investment, including the retained 
earnings of the Edge and agreement corporation subsidiaries, does not 
exceed 20 percent of the bank's capital and surplus or would not exceed 
that level as a result of the proposal; and
    (ii) The proposal raises no significant policy or supervisory 
issues.
    (e) Member banks--(1) Waiver of penalty for early withdrawals of 
time deposits. To permit depository institutions to waive the penalty 
for early withdrawal of time deposits under section 19(j) of the Federal 
Reserve Act (12 U.S.C. 371b) and Sec. 204.2 of Regulation D (12 CFR part 
204) if the following conditions are met:
    (i) The President declares an area of major disaster or emergency 
area pursuant to section 301 of the Disaster Relief Act of 1974 (42 
U.S.C. 5141);
    (ii) The waiver is limited to depositors suffering disaster or 
emergency related losses in the officially designated area; and
    (iii) The appropriate Reserve Bank and all relevant divisions of the 
Board's staff recommend approval.
    (2) [Reserved]
    (f) Location of institution. To determine the Federal Reserve 
District in which an institution is located pursuant to 
Sec. 204.3(b)(2)(ii) of Regulation D

[[Page 551]]

(12 CFR part 204) or Sec. 209.15(b) of Regulation I (12 CFR part 209) 
if:
    (1) The relevant Federal Reserve Banks and the institution agree on 
the specific Reserve Bank in which the institution should hold stock or 
with which the institution should maintain reserve balances; and
    (2) The agreed-upon location does not raise any significant policy 
issues.

[56 FR 25619, June 5, 1991, as amended at 56 FR 67153, 67154, Dec. 30, 
1991; 58 FR 26509, May 4, 1993; 62 FR 34617, June 27, 1997; 66 FR 58655, 
Nov. 23, 2001]



Sec. 265.6  Functions delegated to General Counsel.

    The Board's general counsel (or the general counsel's delegee) is 
authorized:
    (a) Procedure--(1) Reconsideration of Board action. Pursuant to 
Sec. 262.3(i) of this chapter (Rules of Procedure) to determine whether 
or not to grant a request for reconsideration or whether to deny a 
request for stay of the effective date of any action taken by the Board 
with respect to an action as provided in that part.
    (2) Public meetings. To order, after consulting with the directors 
of other interested divisions of the Board and the appropriate Reserve 
Bank, that a public meeting or other proceeding be held, under 
Sec. 262.25 of the Board's Rules of Procedure (12 CFR part 262), in 
connection with any application or notice filed with the Board, and to 
designate the presiding officer in the proceeding under terms and 
conditions the General Counsel deems appropriate.
    (3) Designation of Board counsel for hearings. To designate Board 
staff attorneys as Board counsel in any proceeding ordered by the Board 
in accordance with Sec. 263.6 of the Board's Rules of Practice for 
Hearings (12 CFR part 263).
    (4) Oaths, depositions, subpoenas. To take, or authorize designated 
persons to take, with the concurrence of the Director of the Division of 
Banking Supervision and Regulation, actions permitted under 12 U.S.C. 
1818(n), 1820(c), and 12 U.S.C. 1844(f), including administering oaths 
and affirmations, taking depositions, and issuing, revoking, quashing, 
or modifying subpoenas duces tecum.
    (b) Availability of Information--(1) FOIA requests. To make 
available information of the Board of the nature and in the 
circumstances described in the Board's Rules Regarding Availability of 
Information (12 CFR part 261).
    (2) Disclosure to foreign authorities. To make the determinations 
required for disclosure of information to a foreign bank regulatory or 
supervisory authority, and to obtain, to the extent necessary, the 
agreement of such authority to maintain the confidentiality of such 
information to the extent possible under applicable law.
    (3) Assistance to foreign authorities. To approve requests for 
assistance from any foreign bank regulatory or supervisory authority 
that is conducting an investigation regarding violations of any law or 
regulation relating to banking matters or currency transactions 
administered or enforced by such authority, and to make the 
determinations required for any investigation or collection of 
information and evidence pertinent to such request. In deciding whether 
to approve requests for assistance under this paragraph, the General 
Counsel shall consider:
    (i) Whether the requesting authority has agreed to provide 
reciprocal assistance with respect to banking matters within the 
jurisdiction of any appropriate Federal banking agency;
    (ii) Whether compliance with the request would prejudice the public 
interest of the United States; and
    (iii) Whether the request is consistent with the requirement that 
the Board conduct any such investigation in compliance with the laws of 
the United States and the policies and procedures of the Board.
    (c) Bank holding companies; Change in bank control; Mergers--(1) 
Control determinations under section 2(g) of BHC Act. To determine 
whether a company that transfers shares under section 2(g) of the Bank 
Holding Company Act (12 U.S.C. 1841(g)) is incapable of controlling the 
transferee.
    (2) Control determinations under section 4(c)(8) of BHC Act. To 
determine, or issue an order for a hearing to determine, whether a 
company engaged in financial, fiduciary, or insurance activities falls 
within the exemption in section 4(c)(8) of the Bank Holding

[[Page 552]]

Company Act (12 U.S.C. 1843(c)(8)), permitting retention or acquisition 
of control thereof by a bank holding company.
    (3) Notices under CBC Act. To revoke acceptance of and return as 
incomplete a notice filed under the Change in Bank Control Act (12 
U.S.C. 1817(j)) or to extend the time during which action must be taken 
on a notice where the General Counsel determines, with the concurrence 
of the Director of the Division of Banking Supervision and Regulation, 
that the notice is materially incomplete under that Act or Regulation Y 
(12 CFR part 225) or contains material information that is substantially 
inaccurate.
    (4) Tax certifications. To make prior and final certification for 
federal tax purposes (26 U.S.C. (IRC) 1101-1103, 6158) with respect to 
distributions pursuant to the Bank Holding Company Act (12 U.S.C. 1841 
et seq.).
    (d) Management interlocks--(1) General exceptions. To grant 
exceptions from the prohibitions of Regulation L (12 CFR part 212) when 
the primary federal supervisor of the depository institution in need of 
management assistance approves.
    (2) Temporary exceptions. To grant requests, after consultation with 
the Director for the Division of Banking Supervision and Regulation, for 
temporary director interlocks under Regulation L (12 CFR part 212) for 
newly chartered banks, banks in low income areas, minority banks, 
women's banks, organizations experiencing conditions endangering their 
safety or soundness, organizations sponsoring a credit union, and 
organizations that lose thirty percent or more of their directors or 
management officials due to changes in circumstances.
    (e) Consent enforcement orders. With the concurrence of the director 
of the Board's Division of Banking Supervision and Regulation (or the 
Director's delegee):
    (1) To enter into a cease-and-desist order, removal and prohibition 
order, or civil money penalty assessment order with a bank holding 
company or any nonbanking subsidiary thereof, with a state member bank, 
or with any other person or entity subject to the Board's jurisdiction, 
when the order has been consented to by the institution or individual 
subject to the order;
    (2) To stay, modify, terminate, or suspend an order issued pursuant 
to paragraph (e)(1) of this section.
    (f) International banking--(1) After-the-fact applications. With the 
concurrence of the Board's Director of the Division of Banking 
Supervision and Regulation, to grant a request by a foreign bank to 
establish a branch, agency, commercial lending company, or 
representative office through certain acquisitions, mergers, 
consolidations, or similar transactions, in conjunction with which:
    (i) The foreign bank would be required to file an after-the-fact 
application for the Board's approval under Sec. 211.24(a)(6) of 
Regulation K (12 CFR 211.24(a)(6)); or
    (ii) The General Counsel may waive the requirement for an after-the-
fact application if:
    (A) The surviving foreign bank commits to wind down the U.S. 
operations of the acquired foreign bank; and
    (B) The merger or consolidation raises no significant policy or 
supervisory issues.
    (2) To modify the requirement that a foreign bank that has submitted 
an application or notice to establish a branch, agency, commercial 
lending company, or representative office pursuant to Sec. 211.24(a)(6) 
of Regulation K (12 CFR 211.24(a)(6)) shall publish notice of the 
application or notice in a newspaper of general circulation in the 
community in which the applicant or notificant proposes to engage in 
business, as provided in Sec. 211.24(b)(2) of Regulation K (12 CFR 
211.24(b)(2)).
    (3) With the concurrence of the Board's Director of the Division of 
Banking Supervision and Regulation, to grant a request for an exemption 
under section 4(c)(9) of the Bank Holding Company Act (12 U.S.C. 
1843(c)(9)), provided that the request raises no significant policy or 
supervisory issues that the Board has not already considered.
    (4) To return applications and notices filed under the International 
Banking Act for informational deficits.

[[Page 553]]

    (5) To determine that an entity qualifies as a ``special-purpose 
foreign government-owned bank'' for purposes of Sec. 211.24(d)(3) (12 
CFR 211.24(d)(3)).
    (g) Conflicts of interest waivers. To issue individual conflicts of 
interest waivers under 18 U.S.C. 208(b)(1) to employees and officials 
other than Board members.

[56 FR 25619, June 5, 1991, as amended at 56 FR 67154, Dec. 30, 1991; 57 
FR 6789, Feb. 28, 1992; 57 FR 13002, Apr. 15, 1992; 58 FR 6363, Jan. 28, 
1993; 58 FR 26509, May 4, 1993; 58 FR 53394, Oct. 15, 1993; 60 FR 10307, 
Feb. 24, 1995; 61 FR 13395, Mar. 27, 1996; 62 FR 45150, Aug. 26, 1997; 
66 FR 54397, Oct. 26, 2001]



Sec. 265.7  Functions delegated to Director of Division of Banking 
Supervision and Regulation.

    The Board's Director of the Division of Banking Supervision and 
Regulation (or the Director's delegee) is authorized:
    (a) Procedure--(1) Cease and desist orders. To refuse, with the 
prior concurrence of the appropriate Reserve Bank and the Board's 
General Counsel, an application to the Board to stay, modify, terminate, 
or set aside any effective cease and desist order previously issued by 
the Board under section 8(b) of the Federal Deposit Insurance Act (12 
U.S.C. 1818(b)), or any written agreement between the Board or the 
Reserve Bank and a bank holding company or any nonbanking subsidiary 
thereof or a state member bank.
    (2) Modification of commitments or conditions. To grant or deny 
requests for modifying, including extending the time for, performing a 
commitment or condition relied on by the Board or its delegee in taking 
any action under the Bank Holding Company Act, the Bank Merger Act, the 
Change in Bank Control Act of 1978, the Federal Reserve Act, or the 
International Banking Act. In acting on such requests, the Board's 
Director may take into account changed circumstances and good faith 
efforts to fulfill the commitments or conditions, and shall consult with 
the directors of other interested divisions where appropriate. The 
Board's Director may not take any action that would be inconsistent with 
or result in an evasion of the provisions of the Board's original 
action.
    (3) Notice of insufficient capital. To issue, with the concurrence 
of the Board's General Counsel, a notice that a state member bank or 
bank holding company has insufficient capital and which directs the bank 
or company to file with its regional Reserve Bank a capital improvement 
plan under subpart D of the Board's Rules of Practice for Hearings (12 
CFR part 263).
    (4) Obtaining possession or control of securities; extending time 
period. To approve, under Sec. 403.5(g) of the Treasury Department 
regulations (17 CFR part 403) implementing the Government Securities Act 
of 1986, as amended (Pub. L. 95-571), the application of a member bank, 
a state branch or agency of a foreign bank, a foreign bank, or a 
commercial lending company owned or controlled by a foreign bank, to 
extend for one or more limited periods commensurate with the 
circumstances the 30-day time period specified in 17 CFR 
403.5(c)(1)(iii), provided the Director is satisfied that the applicant 
is acting in good faith and that exceptional circumstances warrant such 
action.
    (b) Availability of Information--(1) FOIA requests. To make 
available information of the Board of the nature and in the 
circumstances described in Sec. 261.11 of the Board's Rules Regarding 
Availability of Information (12 CFR part 261).
    (2) FOIA; Availability of information. To make available, under the 
Board's Rules Regarding Availability of Information (12 CFR part 261), 
reports and other information of the Board acquired pursuant to the 
Board's Regulations G, T, U, and X (12 CFR parts 207, 220, 221, 224) of 
the nature and in circumstances described in Secs. 261.8(a) (2) and (3) 
of these rules.
    (c) Bank holding companies; Change in bank control; Mergers--(1) 
Bank holding company registration forms and annual reports. To 
promulgate registration forms and annual reports and other forms for use 
in connection with the Bank Holding Company Act, after receiving 
clearance from the Office of Management and Budget (where necessary), 
under section 5 of the Bank Holding Company Act (12 U.S.C. 1844) and in 
accordance with 5 U.S.C. 553.
    (2) Emergency action. To take actions the Reserve Bank could take 
under this

[[Page 554]]

part at Secs. 265.11(c)(2)(ii) and 265.11(c)(3)(iii) if immediate or 
expeditious action is required to avert failure of a bank or savings 
association or because of an emergency pursuant to sections 3(a) and 
4(c)(8) of the Bank Holding Company Act (12 U.S.C. 1842(a), 1843(c)(8)) 
on the Change in Bank Control Act (12 U.S.C. 1817(j)).
    (3) Waiver of notice. To waive, dispense with, modify or excuse the 
failure to comply with the requirement for publication and solicitation 
of public comment regarding a notice filed under the Change in Bank 
Control Act (12 U.S.C. 1817(j)), with the concurrence of the Board's 
General Counsel, provided a written finding is made that such disclosure 
would seriously threaten the safety or soundness of a bank holding 
company or a bank.
    (4) Notices for addition or change of directors or officers. Under 
section 914(a) of the Financial Institutions Reform, Recovery and 
Enforcement Act (12 U.S.C. 1831i) and subpart H of Regulation Y (12 CFR 
part 225), provided that no senior officer or director or proposed 
senior officer or director of the notificant is also a director of the 
Reserve Bank or a branch of the Reserve Bank:
    (i) To determine the informational sufficiency of notices filed 
pursuant to Sec. 225.72 of Regulation Y (12 CFR part 225); and
    (ii) To waive the prior notice requirements of that section.
    (5) ERISA violations. To provide the Department of Labor written 
notification of possible significant violations of the Employee 
Retirement Income Security Act (ERISA) by bank holding companies, in 
accordance with section 3004(b) of ERISA and the Interagency Agreement 
adopted to implement its provisions.
    (6) Appraisal not required. To determine pursuant to 12 CFR 
225.63(b)(12) that the services of an appraiser are not necessary in 
order to protect Federal financial and public policy interests in real 
estate-related financial transactions or to protect the safety and 
soundness of an institution.
    (d) International banking--(1) Foreign bank reports. To require 
submission of a report of condition respecting any foreign bank in which 
a member bank holds stock acquired under Sec. 211.5(b) of Regulation K 
(12 CFR part 211) and section 25 of the Federal Reserve Act (12 U.S.C. 
602).
    (2) Edge corporation reports. To require submission and publication 
of reports by an Edge corporation under section 25A of the Federal 
Reserve Act (12 U.S.C. 625).
    (3) Capital stock of Edge corporation; articles of association; 
additional investments in Agreement corporation. To approve under 
sections 25 and 25A as of the Federal Reserve Act (12 U.S.C. 601 and 
604), increases and decreases in the capital stock of and amendments to 
the articles of association of an Edge corporation and additional 
investments by a member bank in the stock of an Agreement corporation.
    (4) Authority under general-consent and prior-notice procedures. (i) 
With regard to a prior notice to establish a branch in a foreign country 
under Sec. 211.3 of Regulation K (12 CFR 211.3):
    (A) To waive the notice period;
    (B) To suspend the notice period;
    (C) To determine not to object to the notice; or
    (D) To require the notificant to file an application for the Board's 
specific consent.
    (ii) With regard to a prior notice to make an investment under 
Sec. 211.9(f) of Regulation K (12 CFR 211.9(f)):
    (A) To waive the notice period;
    (B) To suspend the notice period; or
    (C) To require the notificant to file an application for the Board's 
specific consent.
    (iii) With regard to a prior notice of a foreign bank to establish 
certain U.S. offices under Sec. 211.24(a)(2)(i) of Regulation K (12 CFR 
211.24(a)(2)(i)):
    (A) To waive the notice period;
    (B) To suspend the notice period; or
    (C) To require the notificant to file an application for the Board's 
specific consent.
    (iv) To suspend the ability:
    (A) Of a foreign banking organization to establish an office under 
the prior-notice procedures in Sec. 211.24(a)(2)(i) of Regulation K (12 
CFR 211.24(a)(2)(i)) or the general-consent procedures in 
Sec. 211.24(a)(3) of Regulation K (12 CFR 211.24(a)(3));
    (B) Of a U.S. banking organization to establish a foreign branch 
under the

[[Page 555]]

prior-notice or general-consent procedures in Sec. 211.3(b) of 
Regulation K (12 CFR 211.3(b));
    (C) Of an investor to make investments under the general-consent or 
prior-notice procedures in Sec. 211.9 of Regulation K (12 CFR 211.9); 
and
    (D) Of an eligible investor to make an investment in an export 
trading company under the general-consent procedures in Sec. 211.34(b) 
of Regulation K (12 CFR 211.34(b)).
    (5) Investment by foreign subsidiaries in U.S. affiliates. To 
permit, after consultation with the Board's General Counsel, a foreign 
subsidiary of a bank holding company to invest in shares of a U.S. 
affiliate of the bank holding company where the investment is made as 
part of an internal corporate reorganization or an internal transfer of 
funds, subject to any conditions and terms the Director and General 
Counsel deem appropriate and consistent with the purposes of Regulation 
K (12 CFR part 211).
    (6) Allocated transfer risk reserves. To determine the need for 
establishing and the amount of any allocated transfer risk reserve 
against specific international assets, and notify the banking 
institutions of the determination and the amount of the reserve and 
whether the reserve may be reduced under subpart D of Regulation K (12 
CFR part 211).
    (7) Underwriting and dealing authority outside the United States; 
hedging techniques. To approve, under Sec. 211.5(d)(14) of Regulation K 
(12 CFR part 211):
    (i) Requests for authority to engage in the activities of 
underwriting, distributing, and dealing in shares outside the United 
States, provided that the Director has determined that the internal 
procedures and operations of the organization and the effect of the 
proposed activities on capital adequacy are consistent with approval.
    (ii) Hedging methods authorized under Sec. 211.5(d)(14)(iii)(A) of 
Regulation K (12 CFR part 211).
    (8) Conduct and coordination of examinations. To authorize the 
conduct of examinations of the U.S. offices and affiliates of foreign 
banks as provided in sections 7(c) and 10(c) of the IBA (12 U.S.C. 
3105(c), 3107(c)), and, where appropriate, to coordinate those 
examinations with examinations of the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, and the state 
entity that is authorized to supervise or regulate a state branch, state 
agency, commercial lending company, or representative office.
    (9) Allowing use of general-consent procedures. To allow an investor 
that is not well-capitalized and well-managed to make investments under 
the general-consent procedures in Sec. 211.9 or 211.34(b) of Regulation 
K (12 CFR 211.9 or 211.34(b)), provided that:
    (i) The investor has implemented measures to become well-capitalized 
and well-managed;
    (ii) Granting such authority raises no significant policy or 
supervisory concerns; and
    (iii) Authority granted by the Director under this paragraph (d)(9) 
expires after one year, but may be renewed.
    (10) Exceeding general-consent investment limits. To allow an 
investor to exceed the general-consent investment limits under 
Sec. 211.9 of Regulation K (12 CFR 211.9), provided that:
    (i) The investor demonstrates adequate financial and managerial 
strength;
    (ii) The investor's investment strategy is not unsafe or unsound;
    (iii) Granting such authority raises no significant policy or 
supervisory concerns; and
    (iv) Authority granted by the Director under this paragraph (d)(10) 
expires after one year, but may be renewed.
    (11) Approval of temporary U.S. offices. To allow a foreign bank to 
operate a temporary office in the United States, pursuant to Sec. 211.24 
of Regulation K (12 CFR 211.24), provided that:
    (i) There is no direct public access to such office, with respect to 
any branch or agency function; and
    (ii) The proposal raises no significant policy or supervisory 
issues.
    (12) With the concurrence of the General Counsel, to approve 
applications, notices, exemption requests, waivers and suspensions, and 
other related matters under Regulation K (12 CFR part 211), where such 
matters do not raise any significant policy or supervisory issues.
    (13) With the concurrence of the General Counsel, to approve:

[[Page 556]]

    (i) The establishment by a bank holding company or member bank of an 
agreement corporation under section 25 of the Federal Reserve Act; and
    (ii) Any initial investment associated with the establishment of 
such agreement corporation.
    (14) With the concurrence of the General Counsel, to determine that 
an election by a foreign bank to become or to be treated as a financial 
holding company is effective, provided that:
    (i) The foreign bank meets the criteria for becoming or being 
treated as a financial holding company; and
    (ii) The election raised no significant policy or supervisory 
issues.
    (e) Member banks--(1) Membership certification to FDIC. Tocertify, 
under section 4(b) of the Federal Deposit Insurance Act (12 U.S.C. 
1814(b)), to the Federal Deposit Insurance Corporation that the factors 
specified in section 6 of the Act (12 U.S.C. 1816) were considered with 
respect to the admission of a state-chartered bank to Federal Reserve 
membership.
    (2) Dollar exchange. To permit any member bank to accept drafts or 
bill of exchange drawn upon it for the purpose of furnishing dollar 
exchange under section 13(12) of the Federal Reserve Act (12 U.S.C. 
373).
    (3) ERISA violations. To provide to the Department of Labor written 
notification of possible significant violations of the Employee 
Retirement Income Security Act (ERISA) by member banks, in accordance 
with section 3004(b) of ERISA and the Interagency Agreement adopted to 
implement its provisions.
    (4) Examiners. To select or approve the appointment of Federal 
Reserve examiners, assistant examiners, and special examiners for the 
purpose of making examinations for or by the direction of the Board 
under 12 U.S.C. 325, 338, 625, 1844(c), and 3105(b)(1).
    (5) Capital stock reduction; branch applications; declaration of 
dividends; investment in bank premises. To exercise the functions 
described in Sec. 265.11(e)(5), (11), and (12) of this part (reductions 
in capital, issuance of subordinated debt, and early retirement of 
subordinated debt) when the conditions specified in those sections 
preclude a Reserve Bank from acting on a member bank's request for 
action or when the Reserve Bank concludes that it should not take 
action, and to exercise the functions in Sec. 265.11(e)(3), (4), and (7) 
of this part (approving branch applications, declaration of dividends, 
and investment in bank premises) in cases in which the Reserve Bank 
concludes that it should not take action.
    (6) Security devices; Regulation P. To exercise the functions 
described in Sec. 265.11(e)(8) of this part in those cases in which the 
appropriate Reserve Bank concludes that it should not take action for 
good cause.
    (f) Securities--(1) Registration statements by member banks. Under 
section 12(g) of the Securities Exchange Act (15 U.S.C. 78l(g)):
    (i) To accelerate the effective date of a registration statement 
filed by a member bank with respect to its securities;
    (ii) To accelerate termination of the registration of a security 
that is no longer held of record by 300 persons; and
    (iii) To extent the time for filing a registration statement by a 
member bank.
    (2) Exemption from registration. To issue notices with respect to 
application by a statement member bank for exemption from registration 
under section 12(h) of the Securities Exchange Act (15 U.S.C. 78l(h)).
    (3) Accelerating registration of security on national securities 
exchange. To accelerate the effective date of an application by a state 
member bank for registration of a security on a national securities 
exchange under section 12(d) of the Securities Exchange Act (15 U.S.C. 
78l(d)).
    (4) Unlisted trading in security of state member bank. To issue 
notices with respect to an application by a national securities exchange 
for unlisted trading privileges in a security of a state member bank 
under section 12(f) of the Securities Exchange Act (15 U.S.C. 78l(f)).
    (5) Transfer agent registration; acceleration; withdrawal or 
cancellation. (i) To accelerate, under section 17A(c)(2) of the 
Securities Exchange Act of 1934, as amended (15 U.S.C. 78q-1), the 
effective date of a registration statement for transfer agent activities 
filed by a

[[Page 557]]

member bank or a subsidiary thereof, a bank holding company or a 
subsidiary thereof that is a bank as defined in section 3(a)(6) of the 
Act other than a bank specified in clause (i) or (iii) of section 
3(a)(34)(B) of the Act (15 U.S.C. 78c).
    (ii) To withdraw or cancel, under section 17A(c)(3)(C) of the 
Securities Exchange Act of 1934, as amended (15 U.S.C. 78q-1(c)(3)(C)), 
the transfer agent registration of a member bank or a subsidiary 
thereof, a bank holding company, or a subsidiary thereof that is a bank 
as defined in section 3(a)(6) of that Act other than a bank specified in 
clause (i) or (iii) of section 3(a)(34)(B) of the Act (15 U.S.C. 78c), 
that has filed a written notice of withdrawal with the Board or upon a 
finding that such transfer agent is no longer in existence or has ceased 
to do business as a transfer agent.
    (6) Proxy solicitation; financial statements. (i) To permit the 
mailing of proxy and other soliciting materials by a state member bank 
before the expiration of the time prescribed therein under Sec. 208.36 
of Regulation H (12 CFR part 208).
    (ii) To permit the omission of financial statements from reports by 
a state member bank, or to require other financial statements in 
addition to, or in substitution for, the statements required therein 
under Sec. 208.36 of Regulation H (12 CFR part 208).
    (7) Municipal securities dealers. Under section 23 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78w).
    (i) To grant or deny requests for waiver of examination and waiting 
period requirements for municipal securities principals and 
representatives under Municipal Securities Rulemaking Board Rule G-3;
    (ii) To grant or deny requests for a determination that a natural 
person or municipal securities dealer subject to a statutory 
disqualification is qualified to act as a municipal securities 
representative or dealer under Municipal Securities Rulemaking Board 
Rule G-4;
    (iii) To approve or disapprove clearing arrangements under Municipal 
Securities Rulemaking Board Rule G-8, in connection with the 
administration of these rules for municipal securities dealers for which 
the Board is the appropriate regulatory agency under section 3(a)(34) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(34)).
    (8) Making reports available to SEC. To make available, upon 
request, to the Securities and Exchange Commission reports of 
examination of transfer agents, clearing agencies, and municipal 
securities dealers for which the Board is the appropriate regulatory 
agency for use by the Commission in exercising its supervisory 
responsibilities under the Act under section 17(c)(3) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q(c)(3)).
    (9) Issuing examination manuals, forms, and other materials. To 
issue examination or inspection manuals, registration, report, 
agreement, and examination forms, guidelines, instructions, and other 
similar materials for use in administering sections 7, 8, 15B, and 
17A(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78g, 78h, 78o-
4, and 78q-1).
    (10) Lists of OTC and foreign margin stocks. To approve issuance of 
the lists of OTC margin stocks and foreign margin stocks and add, omit, 
or remove any stock in circumstances indicating that such change is 
necessary or appropriate in the public interest under Sec. 207.6(d) of 
Regulation G (12 CFR part 207), Sec. 220.17(f) of Regulation T (12 CFR 
part 220), or Sec. 221.7(d) of Regulation U (12 CFR part 221).

[56 FR 25619, June 5, 1991, as amended at 56 FR 67153, 67154, Dec. 30, 
1991; 57 FR 13002, Apr. 15, 1992; 58 FR 6363, Jan. 28, 1993; 58 FR 
26509, May 4, 1993; 62 FR 64996, Dec. 9, 1997; 63 FR 58621, Nov. 2, 
1998; 66 FR 54397, Oct. 26, 2001]



Sec. 265.8  Functions delegated to the Staff Director of the Division 
of International Finance.

    The Board's Staff Director of the Division of International Finance 
(or the Director's delegee) is authorized:
    (a) Establishment of foreign accounts. To approve the establishment 
of foreign accounts and the terms of any account-related agreements with 
the Federal Reserve Bank of New York under section 14(e) of the Federal 
Reserve Act (12 U.S.C. 358).
    (b) [Reserved]

[[Page 558]]



Sec. 265.9  Functions delegated to the Director of Division of Consumer 
and Community Affairs.

    The Director of the Board's Division of Consumer and Community 
Affairs (or the Director's delegee) is authorized:
    (a) Issuing examination manuals, forms, and other materials. To 
issue examination or inspection manuals; report, agreement, and 
examination forms; examination procedures, guidelines, instructions, and 
other similar materials pursuant to: section 11(a) of the Federal 
Reserve Act (12 U.S.C. 248(a)); sections 108(b), 621(c), 704(b), 814(c), 
and 917(b) of the Consumer Credit Protection Act (15 U.S.C. 1607(b), 
1681s(b), 1691c(b), 1692l(c) and 1693o(b)); section 305(c) of the Home 
Mortgage Disclosure Act (12 U.S.C. 2804(c)); section 18(f)(3) of the 
Federal Trade Commission Act (15 U.S.C. 57a(f)(3)); section 808(c) of 
the Civil Rights Act of 1968 (42 U.S.C. 3608(c)); section 270(b) of the 
Truth in Savings Act (12 U.S.C. 4309); and section 5 of the Bank Holding 
Company Act of 1956 (12 U.S.C. 1844(c)). The foregoing manuals, forms, 
and other materials are for use within the Federal Reserve System in the 
administration of enforcement responsibilities in connection with:
    (1) Sections 1-200 and 501-921 of the Consumer Credit Protection Act 
(15 U.S.C. 1601-1693r), in regard to the Truth in Lending Act, the 
Consumer Leasing Act, the Equal Credit Opportunity Act, the Electronic 
Fund Transfer Act, the Fair Credit Reporting Act and the Fair Debt 
Collection Practices Act;
    (2) Sections 301-312 of the Home Mortgage Disclosure Act (12 U.S.C. 
2801-2811);
    (3) Section 18(f)(1)-(3) of the Federal Trade Commission Act (15 
U.S.C. 57a(f)(1)-(3));
    (4) Section 805 of the Civil Rights Act of 1968 (42 U.S.C. 3605) and 
rules and regulations issued thereunder;
    (5) Section 1364 of the National Flood Insurance Act of 1968 (42 
U.S.C. 4101(a)), and sections 105(b) and 202(b) of the Flood Disaster 
Protection Act of 1973 (42 U.S.C. 4012a(b), 4106(b));
    (6) Section 19(j) of the Federal Reserve Act (12 U.S.C. 371b); and
    (7) Sections 801-806 of the Community Reinvestment Act (12 U.S.C. 
2901-2905).
    (8) Sections 261-274 of the Truth in Savings Act (12 U.S.C. 4301-
4313).
    (b) Consumer Advisory Council. Pursuant to section 703(b) of the 
Consumer Credit Protection Act (15 U.S.C. 1691b(b)), to call meetings of 
and consult with the Consumer Advisory Council established under that 
section, approve the agenda for such meetings, and accept any 
resignations from Consumer Advisory Council members.
    (c) Determining inconsistencies between state and federal laws. To 
determine whether a state law is inconsistent with the following federal 
acts and regulations:
    (1) Sections 111, 171(a) and 186(a) of the Truth in Lending Act (15 
U.S.C. 1610(a), 1666j(a), 1667e(a)) and Sec. 226.28 of Regulation Z (12 
CFR part 226) and Sec. 213.7 of Regulation M (12 CFR part 213);
    (2) Section 919 of the Electronic Fund Transfer Act (15 U.S.C. 
1693q), Sec. 205.12 of Regulation E (12 CFR part 205);
    (3) Section 705(f) of the Equal Credit Opportunity Act (15 U.S.C. 
1691d(f) and Sec. 202.11 of Regulation B (12 CFR part 202);
    (4) Section 306(a) of the Home Mortgage Disclosure Act (12 U.S.C. 
2805(a)) and Sec. 203.3 of Regulation C (12 CFR part 203); and
    (5) Section 273 of the Truth in Savings Act (12 U.S.C. 4312) and 
Sec. 230.1 of Regulation DD (12 CFR part 230).
    (d) Interpreting the Fair Credit Reporting Act. To issue 
interpretations pursuant to section 621(e) of the Fair Credit Reporting 
Act (15 U.S.C. 1681s(e));
    (e) Annual adjustments. To adjust as required by law:
    (1) The amount specified in section 103(aa)(1)(B)(ii) of the Truth 
in Lending Act and Sec. 226.32(a)(1)(ii) of Regulation Z (12 CFR part 
226), relating to mortgages bearing fees above a certain amount in 
accord with section 103(aa)(3) of that act (15 U.S.C. 1602(aa)); and
    (2) The amount specified in section 309(b)(1) of the Home Mortgage 
Disclosure Act (12 U.S.C. 2808(b)(1)) and Sec. 203.3(a)(1)(ii) of 
Regulation C (12 CFR part 203) relating to the asset threshold above 
which a depository institution must collect and report data.

[[Page 559]]

    (f) Community Reinvestment Act determinations. To make 
determinations, pursuant to section 804 of the Community Reinvestment 
Act (12 U.S.C. 2903), approving or disapproving:
    (1) Strategic plans and any amendments thereto pursuant to 
Sec. 228.27(g) and (h) of Regulation BB (12 CFR part 228); and
    (2) Requests for designation as a wholesale or limited purpose bank 
or the revocation of such designation, pursuant to Sec. 228.25(b) of 
Regulation BB (12 CFR part 228).
    (g) Public hearings. To conduct hearings or other proceedings 
required by law, concerning consumer law or other matters within the 
responsibilities of the Division of Consumer and Community Affairs, in 
consultation with other interested divisions of the Board where 
appropriate.

[56 FR 25619, June 5, 1991, as amended at 56 FR 67154, Dec. 30, 1991; 58 
FR 65540, Dec. 15, 1993; 63 FR 65044, Nov. 25, 1998]



Sec. 265.10  Functions delegated to Secretary of Federal Open Market
Committee.

    The Secretary of the Federal Open Market Committee (or the Deputy 
Secretary in the Secretary's absence) is authorized:
    (a) Records of policy actions. To approve for inclusion in the 
Board's Annual Report to Congress, records of policy actions of the 
Federal Open Market Committee.
    (b) [Reserved]



Sec. 265.11  Functions delegated to Federal Reserve Banks.

    Each Federal Reserve Bank is authorized as to a member bank or other 
indicated organization for which the Reserve Bank is reponsible for 
receiving applications or registration statements or to take other 
actions as indicated:
    (a) Procedure--(1) Member bank affiliate's reports. To extend the 
time for good cause shown, within which an affiliate of a state member 
bank must file reports under section 9(17) of the Federal Reserve Act 
(12 U.S.C. 334).
    (2) Edge corporation's divestiture of stock. To extend the time in 
which an Edge Act corporation must divest itself of stock acquired in 
satisfaction of a debt previously contracted under section 25A(9) of the 
Federal Reserve Act (12 U.S.C. 615).
    (3) Edge corporation's corporate existence. To extend the period of 
corporate existence of an Edge corporation under section 25A(22) of the 
Federal Reserve Act (12 U.S.C. 628).
    (4) Bank holding company registration statement. To extend the time 
within which a bank holding company must file a registration statement 
under section 5(a) of the Bank Holding Company Act (12 U.S.C. 1844(a)).
    (5) Bank holding company divestiture of nonbanking interests. To 
extend the time within which a bank holding company must divest itself 
of interests in nonbanking organizations under section 4(a) of the Bank 
Holding Company Act (12 U.S.C. 1843(a)).
    (6) Bank holding company divestiture of dpc interests. To extend the 
time within which a bank holding company or any of its subsidiaries must 
divest itself of interests acquired in satisfaction of a debt previously 
contracted:
    (i) Under section 4(c)(2) of the Bank Holding Company Act (12 U.S.C. 
1843(c)(2)) or Sec. 225.22(c)(1) of Regulation Y (12 CFR part 225); or
    (ii) Under sections 2(a)(5)(D) and 3(a) of the Bank Holding Company 
Act (12 U.S.C. 1841(a)(5)(D) and 1842(a)).
    (7) Member bank's surrender of Reserve Bank stock upon withdrawal 
from membership. To extend the time within which a member bank that has 
given notice of intention to withdraw from membership must surrender its 
Federal Reserve Bank stock and its certificate of membership under 
Regulation H (12 CFR 209.3(e)).
    (8) Members bank's reports of condition. To extend the time for 
publication of reports of condition under Regulation H (12 CFR part 208) 
for good cause shown.
    (9) Bank holding company's annual reports. To grant to a bank 
holding company a 90-day extension of time in which to file an annual 
report, and for good cause shown grant an additional extension of time 
not to exceed 90 days under section 5(c) of the Bank Holding Company Act 
(12 U.S.C. 1844(c)).
    (10) Regulation K--Divestiture of foreign portfolio investment, 
joint venture, or

[[Page 560]]

subsidiary acquired through debt previously contracted. To extend the 
time within which an investor must divest itself of interests in a 
foreign portfolio investment, joint venture, or subsidiary acquired in 
satisfaction of a debt previously contracted under Regulation K (12 CFR 
211.5(e)).
    (11) Bank holding company's acquisition of shares, opening new bank, 
consummating merger. To extend the time within which a bank holding 
company may acquire shares, open a new bank to be acquired, or 
consummante a merger in connection with an application approved by the 
Board, if no material change relevant to the proposal has occurred since 
its approval.
    (12) Member bank's establishing domestic or foreign branch; Edge or 
agreement corporation's establishing branch or agency. To extend the 
times within which:
    (i) A member bank may establish a domestic branch;
    (ii) A member bank may establish a foreign branch; or
    (iii) An Edge or agreement corporation may establish a branch or 
agency, if no material change has occurred in the bank's (or 
corporation's) general condition since the application was approved.
    (13) Purchase of stock by Edge or Agreement Corporation, member 
bank, or bank holding company. To extend the time within which an Edge 
or Agreement corporation, member bank, or a bank holding company may 
accomplish a purchase of stock if no material change has occurred in the 
general condition of the corporation, the member bank, or bank holding 
company since such authorization under sections 25 or 25A of the Federal 
Reserve Act or section 4(c)(13) of the Bank Holding Company Act (12 
U.S.C. 615, 628, 1843).)
    (14) Federal Reserve Membership. To extend the time within which 
Federal Reserve membership must be accomplished, if no material change 
has occurred in the bank's general condition since the application was 
approved.
    (15) Enforcement actions; written agreements; cease and desist 
orders. With the prior approval of both the Board's Director of the 
Division of Banking Supervision and Regulation and the Board's General 
Counsel;
    (i) To enter into a written agreement with a bank holding company or 
any nonbanking subsidiary thereof, with a state member bank, or with any 
other person or entity subject to the Board's supervisory jurisdiction 
under 12 U.S.C. 1818(b) concerning the prevention or correction of an 
unsafe or unsound practice in conducting the business of the bank 
holding company, nonbanking subsidiary, or state member bank or other 
entity, or concerning the correction or prevention of any violation of 
law, rule, or regulation, or any condition imposed in writing by the 
Board in connection with the granting of any application or other 
request by the bank or company or any other appropriate matter;
    (ii) To stay, modify, terminate, or suspend an agreement entered 
into pursuant to this paragraph;
    (iii) To stay, modify, terminate, or suspend an outstanding cease 
and desist order that has become final pursuant to 12 U.S.C. 1818 (b) 
and (k). Any agreement authorized under this paragraph may, by its 
terms, be enforceable to the same extent and in the same manner as an 
effective and outstanding cease and desist order that has become final 
pursuant to 12 U.S.C. 1818 (b) and (k).
    (16) Appointment of assistant Federal Reserve agents. To approve the 
appointment of assistant Federal Reserve agents (including 
representatives or alternate representatives of such agents) under 
section 4, paragraph 21 of the Federal Reserve Act (12 U.S.C. 306).
    (b) Availability of Information--(1) Availability of Information; 
Board records. To make available information of the Board of the nature 
and in the circumstances described in the Board's Rules Regarding 
Availability of Information (12 CFR 261.11).
    (2) [Reserved]
    (c) Bank holding companies; Change in bank control; Mergers--(1) 
Require reports under oath. To require reports under oath to determine 
whether a company is complying with section 5(c) of the Bank Holding 
Company Act (12 U.S.C. 1844(c)).
    (2) Acquisition of going concern--authorization of consummation; 
early consummation. (i) To notify a bank holding

[[Page 561]]

company that, because the circumstances surrounding the application to 
acquire a going concern indicate that additional information is required 
or that the acquisition should be considered by the Board, the 
acquisition should not be consummated until specifically authorized by 
the Reserve Bank or by the Board.
    (ii) To permit a bank holding company to make a proposed acquisition 
of a going concern before the expiration of the 30-day period referred 
to in Regulation Y (12 CFR 225.23(a)(2)) because exigent circumstances 
justify consummation of the acquisition at an earlier time.
    (3) Petition for review of decision that adverse comments are not 
substantive; permit proposed de novo activities; authorization of 
consummation; early consummation. Under Sec. 225.4(b)(1) of Regulation Y 
(12 CFR part 225) and subject to Sec. 265.3 of this part, if a person 
submitting adverse comments that the Reserve Bank had decided are not 
substantive files a petition for review by the Board of that decision:
    (i) To permit a bank holding company to engage de novo in activities 
specified in Sec. 225.25 of Regulation Y (12 CFR part 225), or retain 
shares in a company established de novo and engaging in such activities, 
if the Reserve Bank's evaluation of the considerations specified in 
section 4(c)(8) of the Bank Holding Company Act leads it to conclude 
that the proposal can reasonably be expected to produce benefits to the 
public.
    (ii) To notify a bank holding company that the proposal should not 
be consummated until specifically authorized by the Reserve Bank or by 
the Board or that the proposal should be processed in accordance with 
the procedures in Sec. 225.23(a)(2) of Regulation Y (12 CFR part 225).
    (iii) To permit a bank holding company to consummate the proposal 
before the expiration of the 45-day period referred to in 
Sec. 225.23(a)(1) of Regulation Y because exigent circumstances justify 
consummation at an earlier time under Sec. 225.4(b)(1) of Regulation Y 
(12 CFR part 225).
    (4) Permit or stay of modification or location of activities. To 
permit or stay a proposed de novo modification or relocation of 
activities engaged in by a bank holding company on the same basis as de 
novo proposals under Sec. 265.11(d)(3) of this part.
    (5) Notices under change in Bank Control Act. With respect to the 
bank holding company or a state member bank:
    (i) To determine the informational sufficiency of notices and 
reports filed under the Change in Bank Control Act;
    (ii) To extend periods for consideration of notices;
    (iii) To determine whether a person who is or will be subject to a 
presumption described in Sec. 225.41(b) of Regulation Y (12 CFR part 
225) should file a notice regarding a proposed transaction; and
    (iv) To issue a notice of intention not to disapprove a proposed 
change in control if all the following conditions are met:
    (A) No member of the Board has indicated an objection prior to the 
Reserve Bank's action;
    (B) No senior officer or director of an involved party is also a 
director of a Federal Reserve Bank or branch;
    (C) All relevant departments of the Reserve Bank concur;
    (D) If the proposal involves shares of a state member bank or a bank 
holding company controlling a state member bank, the appropriate bank 
supervisory authorities have indicated that they have no objection to 
the proposal, or no objection has been received from them within the 
time allowed by the act; and
    (E) No significant policy issue under the change in Bank Control 
Act, 12 U.S.C. 1817(j) or Sec. 225.41 of Regulation Y (12 CFR part 225) 
is raised by the proposal as to which the Board has not expressed its 
view.
    (6) Failure to comply with publication requirement under change in 
Bank Control Act. To waive, dispense with, modify, or excuse the failure 
to comply with the requirement for publication and solicitation of 
public comment regarding a notice filed under the Change in Bank Control 
Act, with the concurrence of the Board's Director of the Division of 
Banking Supervision and Regulation and the Board's General Counsel, 
provided that a written finding is

[[Page 562]]

made that such disclosure or solicitation would seriously threaten the 
safety or soundness of a bank holding company or bank under the Change 
in Bank Control Act (12 U.S.C. 1817(j)(2)).
    (7) Grandfathered nonbanking activities. To determine under section 
4(a)(2) of the Bank Holding Company Act (12 U.S.C. 1843(a)(2)) that 
termination of grandfathered nonbanking activities of a particular bank 
holding company is not warranted, provided the Reserve Bank is satisfied 
all of the following conditions are met:
    (i) The company or its successor is ``a company covered in 1970'';
    (ii) The nonbanking activities for which indefinite grandfather 
privileges are being sought do not present any significant unsettled 
policy issues; and
    (iii) The bank holding company was lawfully engaged in such 
activities as of June 30, 1968 and has been engaged in such activities 
continuously thereafter.
    (8) Opening of additional nonbanking offices. To approve 
applications by a bank holding company under sections 4(c)(8) and 5(b) 
of the Bank Holding Company Act (12 U.S.C. 1843(c)(8), 1844(b)) and 
Sec. 225.23(b) of Regulation Y (12 CFR part 225) to open additional 
offices to engage in nonbanking activities for which the bank holding 
company previously received approval pursuant to Board order, unless one 
of the conditions specified in Sec. 265.11(f) (1), (2), (3), or (4), of 
this part is present.
    (9) Notices for addition or change of directors or officers. Under 
section 914(a) of the Financial Institutions Reform, Recovery and 
Enforcement Act (12 U.S.C. 1831i) and subpart H of Regulation Y (12 CFR 
part 225), provided that no senior officer or director or proposed 
senior officer or director of the notificant is also a director of the 
Reserve Bank or a branch of the Reserve Bank:
    (i) To determine the informational sufficiency of notices filed 
pursuant to Sec. 225.72 of Regulation Y; and
    (ii) To waive the prior notice requirements of that section.
    (10) Acquisition approvals under section 5(d)(3) of the FDI Act. To 
approve, under section 5(d)(3)(E) of the Federal Deposit Insurance Act, 
requests by a bank holding company to engage in any transaction 
described in section 5(d)(3)(A) of that Act.
    (11) Applications requiring Board approval; competitive factors 
reports for bank mergers. To approve applications requiring prior 
approval of the Board and furnish to the Comptroller of the Currency and 
the Federal Deposit Insurance Corporation reports on competitive factors 
involved in a bank merger required to be approved by one of those 
agencies, unless one or more of the following conditions is present.
    (i) A member of the Board has indicated an objection prior to the 
Reserve Bank's action; or
    (ii) The Board has indicated that such delegated authority shall not 
be exercised by the Reserve Bank in whole or in part; or
    (iii) A written substantive objection to the application has been 
properly made; or
    (iv) The application raises a significant policy issue or legal 
question on which the Board has not established its position; or
    (v) With respect to bank holding company formations, bank 
acquisitions or mergers, the proposed transaction involves two or more 
banking organizations that, upon consummation of the proposal, would 
control over 35 percent of total deposits (including 50 percent of 
thrift deposits) in banking offices in the relevant geographic market, 
or would result in an increase of at least 200 points in the Herfindahl-
Hirschman Index (HHI) in a highly concentrated market (a market with a 
post-merger HHI of at least 1800); or
    (vi) With respect to nonbank acquisitions, the nonbanking activities 
involved do not clearly fall within activities that the Board has 
designated as permissible for bank holding companies under 
Sec. 225.25(b) of Regulation Y.
    (d) International banking--(1) Application to establish Edge 
Corporation. To approve the application by a U.S. banking organization 
to establish an Edge corporation under section 25 of the Federal Reserve 
Act (12 U.S.C. 611) and the Board's Regulation K (12 CFR part 211) if 
all of the following criteria are met:
    (i) The U.S. banking organization meets the capital adequacy 
guidelines

[[Page 563]]

and is otherwise in satisfactory condition;
    (ii) The proposed Edge corporation will be a wholly-owned subsidiary 
of a single banking organization; and
    (iii) No other significant policy issue is raised on which the Board 
has not previously expressed its view.
    (2) Issuance of permit to Edge corporation to commence business. To 
issue to an Edge corporation under section 25A of the Federal Reserve 
Act (12 U.S.C. 612) and Regulation K, Sec. 211.4(a) (12 CFR part 211) a 
final permit to commence business and to approve amendments to the 
articles of association of any Edge corporation to reflect the 
following:
    (i) Any increase in capital stock where all additional shares are to 
be acquired by existing shareholders;
    (ii) Any change in the location of the home office in the city where 
the Edge corporation is presently located;
    (iii) Any change in the number of members of the board of directors;
    (iv) Any change in the name; and
    (v) Deletion of the requirements that all directors and shareholders 
must be U.S. citizens.
    (3) Edge corporation establishing branch abroad. To approve, under 
Sec. 211.3(a) Regulation K (12 CFR part 211), an Edge corporation 
application to establish a branch abroad, provided that no senior 
officer or director of the involved parties is also a director of a 
Reserve Bank or branch and that no significant policy issue is raised by 
the proposal as to which the Board has not expressed its view.
    (4) Member bank establishing foreign branch. To approve under 
Sec. 211.3(a) of Regulation K (12 CFR part 211) a member bank's 
establishing, directly or indirectly, a foreign branch where the 
application is not one for a full-service branch in a foreign country, 
provided that no senior officer or director of the involved parties is 
also a director of a Reserve Bank or branch and that no significant 
policy issue is raised by the proposal as to which the Board has not 
expressed its view.
    (5) Agreement with foreign bank concerning deposits of out-of-home-
state branch. To enter into an agreement or undertaking with a foreign 
bank that it shall receive only such deposits at its out-of-home-state 
branch as would be permissible for an Edge corporation under section 5 
of the International Banking Act (12 U.S.C. 3103).
    (6) Waiver of 30-day prior notification period. To waive the 30-day 
prior notification period with respect to a foreign bank's change of 
home state under Sec. 211.22(c)(1) of Regulation K (12 CFR part 211).
    (7) Granting specific consent. To grant prior specific consent to an 
investor for an investment in its first subsidiary or its first joint 
venture, where such investment does not exceed the general consent 
limitations under 211.5(c) of Regulation K (12 CFR part 211).
    (8) Authority under prior-notice procedures. (i) With regard to a 
prior notice to make an investment under Sec. 211.9(f) of Regulation K 
(12 CFR 211.9(f)):
    (A) To suspend the notice period; or
    (B) To require the notificant to file an application for the Board's 
specific consent.
    (ii) With regard to a prior notice of a foreign bank to establish 
certain U.S. offices under Sec. 211.24(a)(2)(i) of Regulation K (12 CFR 
211.24(a)(2)(i)):
    (A) To suspend the notice period; or
    (B) To require that the foreign bank file an application for the 
Board's specific consent.
    (9) Investment in export trading company. To issue a notice of 
intention not to disapprove a proposed investment in an export trading 
company if all the following criteria are met:
    (i) The proposed export trading company will be a wholly-owned 
subsidiary of a single investor, or ownership will be shared with an 
individual or individuals involved in the operation of the export 
trading company;
    (ii) A bank holding company investor and its lead bank meet the 
minimum capital adequacy guidelines of the Board, the Comptroller of the 
Currency, or the Federal Deposit Insurance Corporation or have enacted 
capital enhancement plans that have been determined by the appropriate 
supervisory authority to be acceptable.
    (iii) The proposed activities of the export trading company do not 
include product research or design, product modification, or activities 
not specifically covered by the list of services contained in 
4(c)(14)(F)(ii) of the Bank

[[Page 564]]

Holding Company Act (12 U.S.C. 1843(c)(14)(F)(ii));
    (iv) No other significant policy issue is raised on which the Board 
has not previously expressed its view under section 4(c)(14) of the Bank 
Holding Company Act (12 U.S.C. 1843(c)(14) and Regulation K (12 CFR 
211.31-211.34).
    (10) Futures commission merchant activities. To approve, under 
Sec. 211.5(d)(17) of Regulation K (12 CFR part 211), applications to 
engage in futures commission merchant activities on an exchange that 
requires members to guarantee or otherwise contract to cover losses 
suffered by the other members, provided that the Board has previously 
approved the exchange and the application is on the same terms and 
conditions on which the Board based its approval of the exchange.
    (11) Investments in Edge and agreement Corporation subsidiaries. To 
approve an application by a member bank to invest more than 10 percent 
of capital and surplus in Edge and agreement corporation subsidiaries, 
provided that:
    (i) The member bank's total investment, including the retained 
earnings of the Edge and agreement corporation subsidiaries, does not 
exceed 20 percent of the bank's capital and surplus or would not exceed 
that level as a result of the proposal; and
    (ii) The proposal raises no significant policy or supervisory 
issues.
    (12) Amendments to Edge corporation charters. To approve amendments 
to Edge corporation charters.
    (e) Member banks--(1) Approval of membership applications. To 
approve applications for membership in the Federal Reserve System under 
section 9 of the Federal Reserve Act (12 U.S.C. 321 et seq.) and 
Regulation H (12 CFR part 208) if the Reserve Bank is satisfied that 
approval is warranted after considering the factors set forth in 12 CFR 
208.3(b).
    (2) Waiver of notice of intention to withdraw from membership. To 
approve or deny applications by state banks for waiver of the required 
six months' notice of intention to withdraw from Federal Reserve 
membership under section 9(10) of the Federal Reserve Act (12 U.S.C. 
328).
    (3) Approval of branch applications. To approve a state member 
bank's establishment of a domestic branch under section 9 of the Federal 
Reserve Act (12 U.S.C. 321 et seq.) and Regulation H (12 CFR part 208) 
if the Reserve Bank is satisfied that approval is warranted after 
considering the factors set forth in 12 CFR 208.6(b).
    (4) Declaration of dividends in excess of net profits. To permit a 
state member bank under section 9(6) of the Federal Reserve Act (12 
U.S.C. 324 and 60) to declare dividends in excess of the amounts allowed 
in 12 CFR 208.5(c) if the Reserve Bank is satisfied that approval is 
warranted after giving consideration to:
    (i) The banks capitalization in relation to the character and 
condition of its assets and to its deposit liabilities and other 
corporate responsibilities, including the volume of its risk assets and 
of its marginal and inferior quality assets, all considered in relation 
to the strength of its management; and
    (ii) The bank's capitalization after payment of the proposed 
dividends.
    (5) Reduction of capital stock. To permit a state member bank under 
section 9(11) of the Federal Reserve Act (12 U.S.C. 239) to reduce its 
capital stock below the amounts set forth in 12 CFR 208.5(d) if the 
state member bank's capitalization thereafter will be:
    (i) In conformity with the requirements of federal law; and
    (ii) Adequate in relation to the character and condition of its 
assets and to its deposit liabilities and other corporate 
responsibilities, including the volume of its risk assets and of its 
marginal and inferior quality assets, all considered in relation to the 
strength of its management.
    (6) Acceptance of drafts and bills of exchange. To permit a member 
bank or a federal or state branch or agency of a foreign bank that is 
subject to reserve requirements under section 7 of the International 
Banking Act of 1978 (12 U.S.C. 3105) to accept drafts or bills of 
exchange under section 13(7) of the Federal Reserve Act (12 U.S.C. 372) 
in an aggregate amount at any one time up to 200 percent of its paid-up 
and unimpaired capital stock and surplus, if the Reserve Bank is 
satisfied that such permission is warranted after giving consideration 
to the institution's

[[Page 565]]

capitalization in relation to the character and condition of its assets 
and to its deposit liabilities and other corporate responsibilities, 
including the volume of its risk assets and of its marginal and 
inferior-quality assets, all considered in relation to the strength of 
its management.
    (7) Investment in bank premises in excess of capital stock. To 
permit a state member bank to invest in bank premises under section 24A 
of the Federal Reserve Act (12 U.S.C. 371a) in an amount in excess of 
that set forth in 12 CFR 208.21(a), if the Reserve Bank is satisfied 
that approval is warranted after giving consideration to the bank's 
capitalization in relation to the character and condition of its assets 
and to its deposit liabilities and other corporate responsibilities, 
including the volume of its risk assets and of its marginal and inferior 
quality assets, all considered in relation to the strength of its 
management.
    (8) Security devices. To determine whether security devices and 
procedures of state member banks are deficient in meeting the 
requirements of Regulation H (12 CFR part 208) and whether such 
requirements should be varied in the circumstances of a particular 
banking office, and whether to require corrective action.
    (9) Classifying member banks for election of directors. To classify 
member banks for the purposes of electing Federal Reserve Bank class A 
and class B directors under section 4(16) of the Federal Reserve Act (12 
U.S.C. 304), giving consideration to:
    (i) The statutory requirement that each of the three groups shall 
consist as nearly as may be of banks of similar capitalization; and
    (ii) The desirability that every member bank have the opportunity to 
vote for a class A or a class B director at least once every three 
years.
    (10) Waiver of penalty for deficient reserves. To waive the penalty 
for deficient reserves by a member bank if, after a review of all the 
circumstances relating to the deficiency, the Reserve Bank concludes 
that waiver is warranted, except that in no case may a penalty be waived 
if the deficiency in reserves arises out of the bank's gross negligence 
or conduct inconsistent with the principles and purposes of reserve 
requirements.
    (11) Retirement of subordinated debt. To approve the retirement 
prior to maturity of capital notes described in Sec. 204.2(a)(1)(vii)(C) 
of Regulation D (12 CFR part 204) and issued by a state member bank, 
provided the Reserve Bank is satisfied that the capital position of the 
bank will be adequate after the proposed redemption.
    (12) Public welfare investments. To permit a state member bank to 
make a public welfare investment that meets the conditions of 12 CFR 
208.22(b)(1)-(3), (b)(5) and (b)(7), if the Reserve Bank is satisfied 
that:
    (i) The state member bank received at least an overall rating of 
``3'' as of its most recent consumer compliance examination; and
    (ii) The aggregate of all such investments of the state member bank 
does not exceed 10 percent of its capital stock and surplus as defined 
under 12 CFR 208.2(d).
    (f) Securities. To approve applications by a registered lender for 
termination of the registration under Sec. 221.3(b)(2) of Regulation U 
(12 CFR 221.3(b)(2)).
    (g) Management interlocks--(1) Change in circumstances requiring 
termination of management interlocks; Regulation L. To grant time for 
compliance with Sec. 121.6 of Regulation L (12 CFR part 212) of up to an 
aggregate of 15 months from the date on which the change in 
circumstances as specified in that section occurs when the additional 
time appears to be appropriate to avoid undue disruption to the 
depository organizations involved in the management interlocks.
    (2) Depository Institutions Management Interlocks Act. After 
consultation with the General Counsel of the Board, to decide not to 
disapprove notices to establish director interlocks with diversified 
savings and loan holding companies. (12 U.S.C. 3204(8)).

[56 FR 25619, June 5, 1991, as amended at 56 FR 67154, Dec. 30, 1991; 57 
FR 11907, Apr. 8, 1992; 57 FR 40600, Sept. 4, 1992; 58 FR 6363, Jan. 28, 
1993; 59 FR 22968, May 4, 1994; 60 FR 22257, May 5, 1995; 63 FR 2839, 
Jan. 16, 1998; 63 FR 58622, Nov. 2, 1998; 66 FR 54398, Oct. 26, 2001; 66 
FR 58656, Nov. 23, 2001]

[[Page 566]]



PART 266_LIMITATIONS ON ACTIVITIES OF FORMER MEMBERS AND EMPLOYEES OF 
THE BOARD--Table of Contents



Sec.
266.1  Basis and scope.
266.2  Definitions.
266.3  Limitations.
266.4  Suspension of appearance privilege.
266.5  Criminal penalties.

    Authority: Sec. 11(i), Federal Reserve Act (12 U.S.C. 248(i)); 5 
U.S.C. 552.

    Source: 38 FR 31672, Nov. 16, 1973, unless otherwise noted.



Sec. 266.1  Basis and scope.

    This part, issued under authority of section 11(i) of the Federal 
Reserve Act (12 U.S.C. 248(i)), and pursuant to section 552 of title 5 
of the United States Code, which requires that every agency shall 
publish in the Federal Register its rules of procedure, relates to 
limitations on former members and employees of the Board with respect to 
participation in matters connected with their former duties and official 
responsibilities while serving with the Board. \1\
---------------------------------------------------------------------------

    \1\ While the Board has not adopted rules with regard to the 
disclosure of unpublished information by former Board members and 
employees, it advises such persons not to disclose unpublished 
information of the Board obtained in the course of their work. Questions 
in this regard may be addressed to the General Counsel or the Secretary 
of the Board.
---------------------------------------------------------------------------



Sec. 266.2  Definitions.

    (a) Employee means a regular officer or employee of the Board; it 
does not include a consultant to the Board. \2\
---------------------------------------------------------------------------

    \2\ While former consultants to the Board are not covered by these 
Rules, they appear to fall within the coverage of section 207 of the 
United States Criminal Code (18 U.S.C. 207) that provides criminal 
penalties for engaging in activities similar, although not identical, to 
those described in paragraphs (a) and (b) of Sec. 266.3.
---------------------------------------------------------------------------

    (b) Official responsibility, with respect to a matter, means 
administrative, supervisory, or decisional authority, whether 
intermediate or final, exercisable alone or with others, personally or 
through subordinates, to approve, disapprove, decide, or recommend Board 
action or to express staff opinions in dealings with the public.
    (c) Appear personally includes personal appearance or attendance 
before, or personal communication, either written or oral, with the 
Board or a Federal Reserve Bank of any member or employee thereof, or 
personal participation in the formulation or preparation of any material 
presented or communicated to, or filed with, the Board, in connection 
with any application or interpretation arising under the statutes or 
regulations administered by the Board or the Federal Reserve Banks, 
except that requests for general information or explanations of Board 
policy or interpretation shall not be construed to be a personal 
appearance.



Sec. 266.3  Limitations.

    (a) Matters on which Board member or employee worked. No former 
member or employee of the Board shall appear personally before the Board 
or a Federal Reserve Bank on behalf of anyone other than the United 
States, an agency thereof, or a Federal Reserve Bank, in connection with 
any judicial or other proceedings, application, request for ruling or 
determination, or other particular matter involving a specific party or 
parties in which the United States, an agency thereof, or a Federal 
Reserve Bank is also a party or has a direct and substantial interest 
and in which he participated personally and substantially as a member or 
employee of the Board through approval, disapproval, decision, 
recommendation, advice, investigation or otherwise.
    (b) Matters within Board member or employee's official 
responsibility. No former member or employee of the Board shall appear 
personally before the Board or a Federal Reserve Bank on behalf of 
anyone other than the United States, an agency thereof, or a Federal 
Reserve Bank, in connection with any judicial or other proceeding, 
application, request for ruling or determination, or other particular 
matter involving a specific party or parties in which the United States, 
an agency thereof, or a Federal Reserve Bank is also a party or has a 
direct and substantial interest, and which matter was in process during 
his tenure of office or period of employment and under his official 
Board

[[Page 567]]

responsibility, at any time within a period of one year after the 
termination of such responsibility.
    (c) Consultation as to propriety of appearance before the Board. Any 
former member or employee of the Board who wishes to personally appear 
before the Board or a Federal Reserve Bank on behalf of any party other 
than the United States or an agency thereof or a Federal Reserve Bank at 
any time within two years from termination of employment with the Board 
is advised to consult the General Counsel or the Secretary of the Board 
as to the propriety of such appearance.
    (d) Rulemaking proceedings. Nothing in this section shall preclude a 
former member or employee of the Board from representing another person 
in any Board or Federal Reserve Bank proceeding governed by a rule, 
regulation, standard, or policy of the Board solely by reason of the 
fact that such former member or employee participated in or had official 
responsibility in the formation or adoption of such rule, regulation, 
standard, or policy.
    (e) Effective date. This part shall become effective November 6, 
1973. Notwithstanding the foregoing, the limitations of this part shall 
not apply to any activities with respect to a specific matter before the 
Board in which any former Board member or employee may be engaged on 
September 21, 1973, the date of publication of this part, until the 
expiration of 60 days following the effective date of this part or of 
such additional period as the Secretary of the Board may determine to be 
appropriate in order to avoid inequity.



Sec. 266.4  Suspension of appearance privilege.

    If any person knowingly and willfully fails to comply with the 
provisions of this part, the Board may decline to permit such person to 
appear personally before it or a Federal Reserve Bank for such periods 
of time as it may determine and may impose such other sanctions as the 
Board may deem just and proper.



Sec. 266.5  Criminal penalties.

    Any former member or employee of the Board who engages in actions in 
contravention of paragraph (a) or (b) of Sec. 266.3 may be subject to 
criminal penalties for violation of section 207 of the United States 
Criminal Code (18 U.S.C. 207).

                           PART 267 [RESERVED]



PART 268_RULES REGARDING EQUAL OPPORTUNITY--Table of Contents



             Subpart A_General Provisions and Administration

Sec.
268.1  Authority, purpose and scope.
268.2  Definitions.

          Subpart B_Board Program To Promote Equal Opportunity

268.101  General policy for equal opportunity.
268.102  Board program for equal employment opportunity.
268.103  Complaints of discrimination covered by this part.
268.104  Pre-complaint processing.
268.105  Individual complaints.
268.106  Dismissals of complaints.
268.107  Investigation of complaints.
268.108  Hearings.
268.109  Final action by the Board.

        Subpart C_Provisions Applicable to Particular Complaints

268.201  Age Discrimination in Employment Act.
268.202  Equal Pay Act.
268.203  Rehabilitation Act.
268.204  Class complaints.
268.205  Employment of aliens; Access to sensitive information.

                       Subpart D_Related Processes

268.301  Negotiated grievance procedure.
268.302  Mixed case complaints.

    Subpart E_Appeals to the Equal Employment Opportunity Commission

268.401  Appeals to the Equal Employment Opportunity Commission.
268.402  Time for appeals to the Equal Employment Opportunity 
          Commission.
268.403  How to appeal.
268.404  Appellate Procedure.
268.405  Decisions on appeals.
268.406  Civil action: title VII, Age Discrimination in Employment Act 
          and Rehabilitation Act.
268.407  Civil action: Equal Pay Act.
268.408  Effect of filing a civil action.

[[Page 568]]

                   Subpart F_Remedies and Enforcement

268.501  Remedies and relief.
268.502  Compliance with final Commission decisions.
268.503  Enforcement of final EEOC decisions.
268.504  Compliance with settlement agreements and final actions.
268.505  Interim relief.

               Subpart G_Matters of General Applicability

268.601  EEO group statistics.
268.602  Reports to the Commission.
268.603  Voluntary settlement attempts.
268.604  Filing and computation of time.
268.605  Representation and official time.
268.606  Joint processing and consolidation of complaints.
268.607  Delegation of Authority.

   Subpart H_Prohibition Against Discrimination in Board Programs and 
          Activities Because of a Physical or Mental Disability

268.701  Purpose and application.
268.702  Definitions
268.703  Notice.
268.704  General prohibition against discrimination.
268.705  Employment.
268.706  Program accessibility: Discrimination prohibited.
268.707  Program accessibility: Existing facilities.
268.708  Program accessibility: New construction and alterations.
268.709  Communications.
268.710  Compliance procedures.

    Authority: 12 U.S.C. 244 and 248(i), (k) and (1).

    Source: 68 FR 18085, Apr. 15, 2003, unless otherwise noted.



             Subpart A_General Provisions and Administration



Sec. 268.1  Authority, purpose and scope.

    (a) Authority. The regulations in this part (12 CFR part 268) are 
issued by the Board of Governors of the Federal Reserve System (Board) 
under the authority of sections 10(4) and 11(i), (k), and (l) of the 
Federal Reserve Act (partially codified in 12 U.S.C. 244 and 248(i), (k) 
and (1)).
    (b) Purpose and scope. This part sets forth the Board's policy, 
program and procedures for providing equal opportunity to Board 
employees and applicants for employment without regard to race, color, 
religion, sex, national origin, age, or physical or mental disability. 
It also sets forth the Board's policy, program and procedures for 
prohibiting discrimination on the basis of physical or mental disability 
in programs and activities conducted by the Board. It also specifies the 
circumstances under which the Board will hire or decline to hire persons 
who are not citizens of the United States, consistent with the Board's 
operational needs and applicable law.



Sec. 268.2  Definitions.

    The definitions contained in this section shall have the following 
meanings throughout this part unless otherwise stated.
    (a) Commission or EEOC means the Equal Employment Opportunity 
Commission.
    (b) Title VII means title VII of the Civil Rights Act (42 U.S.C. 
2000e et seq.).



          Subpart B_Board Program To Promote Equal Opportunity



Sec. 268.101  General policy for equal opportunity.

    (a) It is the policy of the Board to provide equal opportunity in 
employment for all persons, to prohibit discrimination in employment 
because of race, color, religion, sex, national origin, age or 
disability, and to promote the full realization of equal opportunity in 
employment through a continuing affirmative program.
    (b) No person shall be subject to retaliation for opposing any 
practice made unlawful by title VII of the Civil Rights Act (title VII) 
(42 U.S.C. 2000e et seq.), the Age Discrimination in Employment Act 
(ADEA) (29 U.S.C. 621 et seq.), the Equal Pay Act (29 U.S.C. 206(d)), or 
the Rehabilitation Act (29 U.S.C. 791 et seq.) or for participating in 
any stage of administrative or judicial proceedings under those 
statutes.



Sec. 268.102  Board program for equal employment opportunity.

    (a) The Board shall maintain a continuing affirmative program to 
promote equal opportunity and to identify and eliminate discriminatory 
practices and policies. In support of this program, the Board shall:

[[Page 569]]

    (1) Provide sufficient resources to its equal opportunity program to 
ensure efficient and successful operation;
    (2) Provide for the prompt, fair and impartial processing of 
complaints in accordance with this part and the instructions contained 
in the Commission's Management Directives;
    (3) Conduct a continuing campaign to eradicate every form of 
prejudice or discrimination from the Board's personnel policies, 
practices and working conditions;
    (4) Communicate the Board's equal employment opportunity policy and 
program and its employment needs to all sources of job candidates 
without regard to race, color, religion, sex, national origin, age or 
disability, and solicit their recruitment assistance on a continuing 
basis;
    (5) Review, evaluate and control managerial and supervisory 
performance in such a manner as to insure a continuing affirmative 
application and vigorous enforcement of the policy of equal opportunity, 
and provide orientation, training and advice to managers and supervisors 
to assure their understanding and implementation of the equal employment 
opportunity policy and program;
    (6) Take appropriate disciplinary action against employees who 
engage in discriminatory practices;
    (7) Make reasonable accommodation to the religious needs of 
employees and applicants for employment when those accommodations can be 
made without undue hardship on the business of the Board;
    (8) Make reasonable accommodation to the known physical or mental 
limitations of qualified applicants and employees with a disability 
unless the accommodation would impose an undue hardship on the 
operations of the Board's program;
    (9) Provide recognition to employees, supervisors, managers and 
units demonstrating superior accomplishment in equal employment 
opportunity;
    (10) Establish a system for periodically evaluating the 
effectiveness of the Board's overall equal employment opportunity 
effort;
    (11) Provide the maximum feasible opportunity to employees to 
enhance their skills through on-the-job training, work-study programs 
and other training measures so that they may perform at their highest 
potential and advance in accordance with their abilities;
    (12) Inform its employees and recognized labor organizations of the 
Board's affirmative equal opportunity policy and program and enlist 
their cooperation; and
    (13) Participate at the community level with other employers, with 
schools and universities and with other public and private groups in 
cooperative action to improve employment opportunities and community 
conditions that affect employability.
    (b) In order to implement its program, the Board shall:
    (1) Develop the plans, procedures and regulations necessary to carry 
out its program;
    (2) Establish or make available an alternative dispute resolution 
program. Such program must be available for both the precomplaint 
process and the formal complaint process.
    (3) Appraise its personnel operations at regular intervals to assure 
their conformity with the Board's program, this part 268 and the 
instructions contained in the Commission's management directives;
    (4) Designate a Director for Equal Employment Opportunity (EEO 
Programs Director), EEO Officer(s), and such Special Emphasis Program 
Managers/Coordinators (e.g., People with Disabilities Program, Federal 
Women's Program and Hispanic Employment Program), clerical and 
administrative support as may be necessary to carry out the functions 
described in this part in all organizational units of the Board and at 
all Board installations. The EEO Programs Director shall be under the 
immediate supervision of the Chairman.
    (5) Make written materials available to all employees and applicants 
informing them of the variety of equal employment opportunity programs 
and administrative and judicial remedial procedures available to them 
and prominently post such written materials in all personnel and EEO 
offices and throughout the workplace;
    (6) Ensure that full cooperation is provided by all Board employees 
to

[[Page 570]]

EEO Counselors and Board EEO personnel in the processing and resolution 
of pre-complaint matters and complaints within the Board and that full 
cooperation is provided to the Commission in the course of appeals, 
including, granting the Commission routine access to personnel records 
of the Board when required in connection with an investigation;
    (7) Publicize to all employees and post at all times the names, 
business telephone numbers and business addresses of the EEO Counselors 
(unless the counseling function is centralized, in which case only the 
telephone number and address need be publicized and posted), a notice of 
the time limits and necessity of contacting a Counselor before filing a 
complaint and the telephone numbers and addresses of the EEO Programs 
Director, EEO Officer(s) and the Special Emphasis Program Managers/
Coordinators.
    (c) The EEO Programs Director shall be responsible for:
    (1) Advising the Board of Governors with respect to the preparation 
of national and regional equal employment opportunity plans, procedures, 
regulations, reports and other matters pertaining to the policy in 
Sec. 268.101 and the Board's program;
    (2) Evaluating from time to time the sufficiency of the total Board 
program for equal employment opportunity and reporting to the Board of 
Governors with recommendations as to any improvement or correction 
needed, including remedial or disciplinary action with respect to 
managerial, supervisory or other employees who have failed in their 
responsibilities;
    (3) When authorized by the Board of Governors, making changes in 
programs and procedures designed to eliminate discriminatory practices 
and to improve the Board's program for equal employment opportunity;
    (4) Providing for counseling of aggrieved individuals and for the 
receipt and processing of individual and class complaints of 
discrimination; and
    (5) Assuring that individual complaints are fairly and thoroughly 
investigated and that final action is taken in a timely manner in 
accordance with this part.
    (d) Directives, instructions, forms and other Commission materials 
referenced in this part may be obtained in accordance with the 
provisions of 29 CFR 1610.7.



Sec. 268.103  Complaints of discrimination covered by this part.

    (a) Individual and class complaints of employment discrimination and 
retaliation prohibited by title VII (discrimination on the basis of 
race, color, religion, sex and national origin), the ADEA 
(discrimination on the basis of age when the aggrieved person is at 
least 40 years of age), the Rehabilitation Act (discrimination on the 
basis of disability), or the Equal Pay Act (sex-based wage 
discrimination) shall be processed in accordance with this part. 
Complaints alleging retaliation prohibited by these statutes are 
considered to be complaints of discrimination for purposes of this part.
    (b) This part applies to all Board employees and applicants for 
employment at the Board, and to all employment policies or practices 
affecting Board employees or applicants for employment.
    (c) This part does not apply to Equal Pay Act complaints of 
employees whose services are performed within a foreign country or 
certain United States territories as provided in 29 U.S.C. 213(f).



Sec. 268.104  Pre-complaint processing.

    (a) Aggrieved persons who believe they have been discriminated 
against on the basis of race, color, religion, sex, national origin, age 
or disability must consult a Counselor prior to filing a complaint in 
order to try to informally resolve the matter.
    (1) An aggrieved person must initiate contact with a Counselor 
within 45 days of the date of the matter alleged to be discriminatory 
or, in the case of a personnel action, within 45 days of the effective 
date of the action.
    (2) The Board or the Commission shall extend the 45-day time limit 
in paragraph (a)(1) of this section when the individual shows that he or 
she was not notified of the time limits and was not otherwise aware of 
them, that he or she did not know and reasonably

[[Page 571]]

should not have known that the discriminatory matter or personnel action 
occurred, that despite due diligence he or she was prevented by 
circumstances beyond his or her control from contacting the counselor 
within the time limits, or for other reasons considered sufficient by 
the Board or the Commission.
    (b)(1) At the initial counseling session, Counselors must advise 
individuals in writing of their rights and responsibilities, including 
the right to request a hearing or an immediate final decision after an 
investigation by the Board in accordance with Sec. 268.107(f), election 
rights pursuant to Sec. 268.302, the right to file a notice of intent to 
sue pursuant to Sec. 268.201(a) and a lawsuit under the ADEA instead of 
an administrative complaint of age discrimination under this part, the 
duty to mitigate damages, administrative and court time frames, and that 
only the claims raised in precomplaint counseling (or issues or claims 
like or related to issues or claims raised in pre-complaint counseling) 
may be alleged in a subsequent complaint filed with the Board. 
Counselors must advise individuals of their duty to keep the Board and 
the Commission informed of their current address and to serve copies of 
appeal papers on the Board. The notice required by paragraphs (d) or (e) 
of this section shall include a notice of the right to file a class 
complaint. If the aggrieved person informs the Counselor that he or she 
wishes to file a class complaint, the Counselor shall explain the class 
complaint procedures and the responsibilities of a class agent.
    (2) Counselors shall advise aggrieved persons that, where the Board 
agrees to offer ADR in the particular case, they may choose between 
participation in the alternative dispute resolution program and the 
counseling activities provided for in paragraph (c) of this section.
    (c) Counselors shall conduct counseling activities in accordance 
with instructions contained in Commission Management Directives. When 
advised that a complaint has been filed by an aggrieved person, the 
Counselor shall submit a written report within 15 days to the EEO 
Programs Director and the aggrieved person concerning the issues 
discussed and actions taken during counseling.
    (d) Unless the aggrieved person agrees to a longer counseling period 
under paragraph (e) of this section, or the aggrieved person chooses an 
alternative dispute resolution procedure in accordance with paragraph 
(b)(2) of this section, the Counselor shall conduct the final interview 
with the aggrieved person within 30 days of the date the aggrieved 
person contacted the Board's EEO Programs Office to request counseling. 
If the matter has not been resolved, the aggrieved person shall be 
informed in writing by the Counselor, not later than the thirtieth day 
after contacting the Counselor, of the right to file a discrimination 
complaint with the Board. This notice shall inform the complainant of 
the right to file a discrimination complaint within 15 days of receipt 
of the notice, of the appropriate official with whom to file a complaint 
and of the complainant's duty to assure that the EEO Programs Director 
is informed immediately if the complainant retains counsel or a 
representative.
    (e) Prior to the end of the 30-day period, the aggrieved person may 
agree in writing with the Board to postpone the final interview and 
extend the counseling period for an additional period of no more than 60 
days. If the matter has not been resolved before the conclusion of the 
agreed extension, the notice described in paragraph (d) of this section 
shall be issued.
    (f) Where the aggrieved person chooses to participate in an 
alternative dispute resolution procedure in accordance with paragraph 
(b)(2) of this section, the pre-complaint processing period shall be 90 
days. If the claim has not been resolved before the 90th day, the notice 
described in paragraph (d) of this section shall be issued.
    (g) The Counselor shall not attempt in any way to restrain the 
aggrieved person from filing a complaint. The Counselor shall not reveal 
the identity of an aggrieved person who consulted the Counselor, except 
when authorized to do so by the aggrieved person, or until the Board has 
received a discrimination complaint under this part

[[Page 572]]

from that person involving the same matter.



Sec. 268.105  Individual complaints.

    (a) A complaint must be filed with the agency that allegedly 
discriminated against the complainant.
    (b) A complaint must be filed within 15 days of receipt of the 
notice required by Sec. 268.104 (d), (e) or (f).
    (c) A complaint must contain a signed statement from the person 
claiming to be aggrieved or that person's attorney. This statement must 
be sufficiently precise to identify the aggrieved individual and the 
Board and to describe generally the action(s) or practice(s) that form 
the basis of the complaint. The complaint must also contain a telephone 
number and address where the complainant or the representative can be 
contacted.
    (d) A complainant may amend a complaint at any time prior to the 
conclusion of the investigation to include issues or claims like or 
related to those raised in the complaint. After requesting a hearing, a 
complainant may file a motion with the administrative judge to amend a 
complaint to include issues or claims like or related to those raised in 
the complaint.
    (e) The Board shall acknowledge receipt of a complaint or an 
amendment to a complaint in writing and inform the complainant of the 
date on which the complaint or amendment was filed. The Board shall 
advise the complainant in the acknowledgment of the EEOC office and its 
address where a request for a hearing shall be sent. Such acknowledgment 
shall also advise the complainant that:
    (1) The complainant has the right to appeal the final action on or 
dismissal of a complaint; and
    (2) The Board is required to conduct an impartial and appropriate 
investigation of the complaint within 180 days of the filing of the 
complaint unless the parties agree in writing to extend the time period. 
When a complaint has been amended, the Board shall complete its 
investigation within the earlier of 180 days after the last amendment to 
the complaint or 360 days after the filing of the original complaint, 
except that the complainant may request a hearing from an administrative 
judge on the consolidated complaints any time after 180 days from the 
date of the first filed complaint.



Sec. 268.106  Dismissals of complaints.

    (a) Prior to a request for a hearing in a case, the Board shall 
dismiss an entire complaint:
    (1) That fails to state a claim under Sec. 268.103 or 
Sec. 268.105(a), or states the same claim that is pending before or has 
been decided by the Board or the Commission;
    (2) That fails to comply with the applicable time limits contained 
in Secs. 268.104, 268.105 and 268.204(c), unless the Board extends the 
time limits in accordance with Sec. 268.604(c), or that raises a matter 
that has not been brought to the attention of a Counselor and is not 
like or related to a matter that has been brought to the attention of a 
Counselor;
    (3) That is the basis of a pending civil action in a United States 
District Court in which the complainant is a party provided that at 
least 180 days have passed since the filing of the administrative 
complaint, or that was the basis of a civil action decided by a United 
States District Court in which the complainant was a party;
    (4) Where a complainant has raised the matter in an appeal to the 
Merit Systems Protection Board and Sec. 268.302 indicates that the 
complainant has elected to pursue the non-EEO process;
    (5) That is moot or alleges that a proposal to take a personnel 
action, or other preliminary step to taking a personnel action, is 
discriminatory;
    (6) Where the complainant cannot be located, provided that 
reasonable efforts have been made to locate the complainant and the 
complainant has not responded within 15 days to a notice of proposed 
dismissal sent to his or her last known address;
    (7) Where the Board has provided the complainant with a written 
request to provide relevant information or otherwise proceed with the 
complaint, and the complainant has failed to respond to the request 
within 15 days of its receipt or the complainant's response does not 
address the Board's request, provided that the request included a

[[Page 573]]

notice of the proposed dismissal. Instead of dismissing for failure to 
cooperate, the complaint may be adjudicated if sufficient information 
for that purpose is available;
    (8) That alleges dissatisfaction with the processing of a previously 
filed complaint; or
    (9) Where the Board, strictly applying the criteria set forth in 
Commission decisions, finds that the complaint is part of a clear 
pattern of misuse of the EEO process for a purpose other than the 
prevention and elimination of employment discrimination. A clear pattern 
of misuse of the EEO process requires:
    (i) Evidence of multiple complaint filings; and
    (ii) Allegations that are similar or identical, lack specificity or 
involve matters previously resolved; or
    (iii) Evidence of circumventing other administrative processes, 
retaliating against the Board's in-house administrative processes or 
overburdening the EEO complaint system.
    (b) Where the Board believes that some but not all of the claims in 
a complaint should be dismissed for the reasons contained in paragraphs 
(a)(1) through (9) of this section, the Board shall notify the 
complainant in writing of its determination, the rationale for that 
determination and that those claims will not be investigated, and shall 
place a copy of the notice in the investigative file. A determination 
under this paragraph is reviewable by an administrative judge if a 
hearing is requested on the remainder of the complaint, but is not 
appealable until final action is taken on the remainder of the 
complaint.



Sec. 268.107  Investigation of complaints.

    (a) The investigation of complaints filed against the Board shall be 
conducted by the Board.
    (b) In accordance with instructions contained in Commission 
Management Directives, the Board shall develop an impartial and 
appropriate factual record upon which to make findings on the claims 
raised by the written complaint. An appropriate factual record is one 
that allows a reasonable fact finder to draw conclusions as to whether 
discrimination occurred. The Board may use an exchange of letters or 
memoranda, interrogatories, investigations, fact-finding conferences or 
any other fact-finding methods that efficiently and thoroughly address 
the matters at issue. The Board may incorporate alternative dispute 
resolution techniques into its investigative efforts in order to promote 
early resolution of complaints.
    (c) The procedures in paragraphs (c)(1) through (3) of this section 
apply to the investigation of complaints:
    (1) The complainant, the Board, and any employee of the Board shall 
produce such documentary and testimonial evidence as the investigator 
deems necessary.
    (2) Investigators are authorized to administer oaths. Statements of 
witnesses shall be made under oath or affirmation or, alternatively, by 
written statement under penalty of perjury.
    (3) When the complainant, or the Board or its employees fail without 
good cause shown to respond fully and in timely fashion to requests for 
documents, records, comparative data, statistics, affidavits or the 
attendance of witness(es), the investigator may note in the 
investigative record that the decisionmaker should, or the Commission on 
appeal may, in appropriate circumstances:
    (i) Draw an adverse inference that the requested information, or the 
testimony of the requested witness, would have reflected unfavorably on 
the party refusing to provide the requested information;
    (ii) Consider the matters to which the requested information or 
testimony pertains to be established in favor of the opposing party;
    (iii) Exclude other evidence offered by the party failing to produce 
the requested information or witness;
    (iv) Issue a decision fully or partially in favor of the opposing 
party; or
    (v) Take such other actions as it deems appropriate.
    (d) Any investigation will be conducted by investigators with 
appropriate security clearances.
    (e)(1) The Board shall complete its investigation within 180 days of 
the date of filing of an individual complaint or within the time period 
contained in an order from the Office of

[[Page 574]]

Federal Operations on an appeal from a dismissal pursuant to 
Sec. 268.106. By written agreement within those time periods, the 
complainant and the Board may voluntarily extend the time period for not 
more than an additional 90 days. The Board may unilaterally extend the 
time period or any period of extension for not more than 30 days where 
it must sanitize a complaint file that may contain information 
classified pursuant to Executive Order No. 12356, or successor orders, 
as secret in the interest of national defense or foreign policy, 
provided the Board notifies the complainant of the extension.
    (2) Confidential supervisory information, as defined in 12 CFR 
261.2(c), and other confidential information of the Board may be 
included in the investigative file by the investigator, the EEO Programs 
Director, or another appropriate officer of the Board, where such 
information is relevant to the complaint. Neither the complainant nor 
the complainant's personal representative may make further disclosure of 
such information, however, except in compliance with the Board's Rules 
Regarding Availability of Information, 12 CFR part 261, and where 
applicable, the Board's Rules Regarding Access to Personal Information 
under the Privacy Act of 1974, 12 CFR part 261a.
    (f) Within 180 days from the filing of the complaint, or where a 
complaint was amended, within the earlier of 180 days after the last 
amendment to the complaint or 360 days after the filing of the original 
complaint, within the time period contained in an order from the Office 
of Federal Operations on an appeal from a dismissal, or within any 
period of extension provided for in paragraph (e) of this section, the 
Board shall provide the complainant with a copy of the investigative 
file, and shall notify the complainant that, within 30 days of receipt 
of the investigative file, the complainant has the right to request a 
hearing and decision from an administrative judge or may request an 
immediate final decision pursuant to Sec. 268.109(b) from the Board.
    (g) Where the complainant has received the notice required in 
paragraph (f) of this section or at any time after 180 days have elapsed 
from the filing of the complaint, the complainant may request a hearing 
by submitting a written request for a hearing directly to the EEOC 
office indicated in the Board's acknowledgment letter. The complainant 
shall send a copy of the request for a hearing to the Board's EEO 
Programs Office. Within 15 days of receipt of the request for a hearing, 
the Board's EEO Programs Office shall provide a copy of the complaint 
file to EEOC and, if not previously provided, to the complainant.



Sec. 268.108  Hearings.

    (a) When a complainant requests a hearing, the Commission shall 
appoint an administrative judge to conduct a hearing in accordance with 
this section. Upon appointment, the administrative judge shall assume 
full responsibility for the adjudication of the complaint, including 
overseeing the development of the record. Any hearing will be conducted 
by an administrative judge or hearing examiner with appropriate security 
clearances.
    (b) Dismissals. Administrative judges may dismiss complaints 
pursuant to Sec. 268.106, on their own initiative, after notice to the 
parties, or upon the Board's motion to dismiss a complaint.
    (c) Offer of resolution. (1) Any time after the filing of the 
written complaint but not later than the date an administrative judge is 
appointed to conduct a hearing, the Board may make an offer of 
resolution to a complainant who is represented by an attorney.
    (2) Any time after the parties have received notice that an 
administrative judge has been appointed to conduct a hearing, but not 
later than 30 days prior to the hearing, the Board may make an offer of 
resolution to the complainant, whether represented by an attorney or 
not.
    (3) The offer of resolution shall be in writing and shall include a 
notice explaining the possible consequences of failing to accept the 
offer. The Board's offer, to be effective, must include attorney's fees 
and costs and must specify any non-monetary relief. With regard to 
monetary relief, the Board may make a lump sum offer covering all forms 
of monetary liability, or it may

[[Page 575]]

itemize the amounts and types of monetary relief being offered. The 
complainant shall have 30 days from receipt of the offer of resolution 
to accept it. If the complainant fails to accept an offer of resolution 
and the relief awarded in the administrative judge's decision, the 
Board's final decision, or the Commission's decision on appeal is not 
more favorable than the offer, then, except where the interest of 
justice would not be served, the complainant shall not receive payment 
from the Board of attorney's fees or costs incurred after the expiration 
of the 30-day acceptance period. An acceptance of an offer must be in 
writing and will be timely if postmarked or received within the 30-day 
period. Where a complainant fails to accept an offer of resolution, the 
Board may make other offers of resolution and either party may seek to 
negotiate a settlement of the complaint at any time.
    (d) Discovery. The administrative judge shall notify the parties of 
the right to seek discovery prior to the hearing and may issue such 
discovery orders as are appropriate. Unless the parties agree in writing 
concerning the methods and scope of discovery, the party seeking 
discovery shall request authorization from the administrative judge 
prior to commencing discovery. Both parties are entitled to reasonable 
development of evidence on matters relevant to the issues raised in the 
complaint, but the administrative judge may limit the quantity and 
timing of discovery. Evidence may be developed through interrogatories, 
depositions, and requests for admissions, stipulations or production of 
documents. It shall be grounds for objection to producing evidence that 
the information sought by either party is irrelevant, overburdensome, 
repetitious, or privileged.
    (e) Conduct of hearing. The Board shall provide for the attendance 
at a hearing of all employees approved as witnesses by an administrative 
judge. Attendance at hearings will be limited to persons determined by 
the administrative judge to have direct knowledge relating to the 
complaint. Hearings are part of the investigative process and are thus 
closed to the public. The administrative judge shall have the power to 
regulate the conduct of a hearing, limit the number of witnesses where 
testimony would be repetitious, and exclude any person from the hearing 
for contumacious conduct or misbehavior that obstructs the hearing. The 
administrative judge shall receive into evidence information or 
documents relevant to the complaint. Rules of evidence shall not be 
applied strictly, but the administrative judge shall exclude irrelevant 
or repetitious evidence. The administrative judge or the Commission may 
refer to the Disciplinary Committee of the appropriate Bar Association 
any attorney or, upon reasonable notice and an opportunity to be heard, 
suspend or disqualify from representing complainants or agencies in EEOC 
hearings any representative who refuses to follow the orders of an 
administrative judge, or who otherwise engages in improper conduct.
    (f) Procedures. (1) The complainant, the Board and any employee of 
the Board shall produce such documentary and testimonial evidence as the 
administrative judge deems necessary. The administrative judge shall 
serve all orders to produce evidence on both parties.
    (2) Administrative judges are authorized to administer oaths. 
Statements of witnesses shall be made under oath or affirmation or, 
alternatively, by written statement under penalty of perjury.
    (3) When the complainant, or the Board, or its employees fail 
without good cause shown to respond fully and in timely fashion to an 
order of an administrative judge, or requests for the investigative 
file, for documents, records, comparative data, statistics, affidavits, 
or the attendance of witness(es), the administrative judge shall, in 
appropriate circumstances:
    (i) Draw an adverse inference that the requested information, or the 
testimony of the requested witness, would have reflected unfavorably on 
the party refusing to provide the requested information;
    (ii) Consider the matters to which the requested information or 
testimony pertains to be established in favor of the opposing party;

[[Page 576]]

    (iii) Exclude other evidence offered by the party failing to produce 
the requested information or witness;
    (iv) Issue a decision fully or partially in favor of the opposing 
party; or
    (v) Take such other actions as appropriate.
    (g) Decisions without hearing. (1) If a party believes that some or 
all material facts are not in genuine dispute and there is no genuine 
issue as to credibility, the party may, at least 15 days prior to the 
date of the hearing or at such earlier time as required by the 
administrative judge, file a statement with the administrative judge 
prior to the hearing setting forth the fact or facts and referring to 
the parts of the record relied on to support the statement. The 
statement must demonstrate that there is no genuine issue as to any such 
material fact. The party shall serve the statement on the opposing 
party.
    (2) The opposing party may file an opposition within 15 days of 
receipt of the statement in paragraph (g)(1) of this section. The 
opposition may refer to the record in the case to rebut the statement 
that a fact is not in dispute or may file an affidavit stating that the 
party cannot, for reasons stated, present facts to oppose the request. 
After considering the submissions, the administrative judge may order 
that discovery be permitted on the fact or facts involved, limit the 
hearing to the issues remaining in dispute, issue a decision without a 
hearing or make such other ruling as is appropriate.
    (3) If the administrative judge determines upon his or her own 
initiative that some or all facts are not in genuine dispute, he or she 
may, after giving notice to the parties and providing them an 
opportunity to respond in writing within 15 calendar days, issue an 
order limiting the scope of the hearing or issue a decision without 
holding a hearing.
    (h) Record of hearing. The hearing shall be recorded and the Board 
shall arrange and pay for verbatim transcripts. All documents submitted 
to, and accepted by, the administrative judge at the hearing shall be 
made part of the record of the hearing. If the Board submits a document 
that is accepted, it shall furnish a copy of the document to the 
complainant. If the complainant submits a document that is accepted, the 
administrative judge shall make the document available to the Board's 
representative for reproduction.
    (i) Decisions by administrative judges. Unless the administrative 
judge makes a written determination that good cause exists for extending 
the time for issuing a decision, an administrative judge shall issue a 
decision on the complaint, and shall order appropriate remedies and 
relief where discrimination is found, within 180 days of receipt by the 
administrative judge of the complaint file from the Board. The 
administrative judge shall send copies of the hearing record, including 
the transcript, and the decision to the parties. If the Board does not 
issue a final order within 40 days of receipt of the administrative 
judge's decision in accordance with Sec. 268.109(a), then the decision 
of the administrative judge shall become the final action of the Board.



Sec. 268.109  Final action by the Board.

    (a) Final action by the Board following a decision by an 
administrative judge. When an EEOC administrative judge has issued a 
decision under Secs. 268.108(b), (g), or (i), the Board shall take final 
action on the complaint by issuing a final order within 40 days of 
receipt of the hearing file and the administrative judge's decision. The 
final order shall notify the complainant whether or not the Board will 
fully implement the decision of the administrative judge and shall 
contain notice of the complainant's right to appeal to the Equal 
Employment Opportunity Commission, the right to file a civil action in 
federal district court, the name of the proper defendant in any such 
lawsuit and the applicable time limits for appeals and lawsuits. If the 
final order does not fully implement the decision of the administrative 
judge, then the Board shall simultaneously file an appeal in accordance 
with Sec. 268.403 and append a copy of its appeal to the final order. A 
copy of EEOC Form 573 shall be attached to the final order.
    (b) Final action by the Board in all other circumstances. When the 
Board dismisses an entire complaint under

[[Page 577]]

Sec. 268.106, receives a request for an immediate final decision or does 
not receive a reply to the notice issued under Sec. 268.107(f), the 
Board shall take final action by issuing a final decision. The final 
decision shall consist of findings by the Board on the merits of each 
issue in the complaint, or, as appropriate, the rationale for dismissing 
any claims in the complaint and, when discrimination is found, 
appropriate remedies and relief in accordance with subpart F of this 
part. The Board shall issue the final decision within 60 days of 
receiving notification that a complainant has requested an immediate 
decision from the Board, or within 60 days of the end of the 30-day 
period for the complainant to request a hearing or an immediate final 
decision where the complainant has not requested either a hearing or a 
decision. The final action shall contain notice of the right to appeal 
the final action to the Equal Employment Opportunity Commission, the 
right to file a civil action in federal district court, the name of the 
proper defendant in any such lawsuit and the applicable time limits for 
appeals and lawsuits. A copy of EEOC Form 573 shall be attached to the 
final action. The Board may issue a final decision within 30 days after 
receiving a decision of the Commission pursuant to Sec. 268.405(c) of 
this part.



        Subpart C_Provisions Applicable to Particular Complaints



Sec. 268.201  Age Discrimination in Employment Act.

    (a) As an alternative to filing a complaint under this part, an 
aggrieved individual may file a civil action in a United States district 
court under the ADEA against the Chairman of the Board of Governors 
after giving the Commission not less than 30 days' notice of the intent 
to file such an action. Such notice must be filed in writing with EEOC, 
at PO Box 19848, Washington, DC 20036, or by personal delivery or 
facsimile within 180 days of the occurrence of the alleged unlawful 
practice.
    (b) The Commission may exempt a position from the provisions of the 
ADEA if the Commission establishes a maximum age requirement for the 
position on the basis of a determination that age is a bona fide 
occupational qualification necessary to the performance of the duties of 
the position.
    (c) When an individual has filed an administrative complaint 
alleging age discrimination that is not a mixed case, administrative 
remedies will be considered to be exhausted for purposes of filing a 
civil action:
    (1) 180 days after the filing of an individual complaint if the 
Board has not taken final action and the individual has not filed an 
appeal or 180 days after the filing of a class complaint if the Board 
has not issued a final decision;
    (2) After final action on an individual or class complaint if the 
individual has not filed an appeal; or
    (3) After the issuance of a final decision by the Commission on an 
appeal or 180 days after the filing of an appeal, if the Commission has 
not issued a final decision.



Sec. 268.202  Equal Pay Act.

    Complaints alleging violations of the Equal Pay Act shall be 
processed under this part.



Sec. 268.203  Rehabilitation Act.

    (a) Model employer. The Board shall be a model employer of 
individuals with disabilities. The Board shall give full consideration 
to the hiring, placement, and advancement of qualified individuals with 
disabilities.
    (b) ADA standards. The standards used to determine whether section 
501 of the Rehabilitation Act of 1973, as amended (29 U.S.C. 791), has 
been violated in a complaint alleging nonaffirmative action employment 
discrimination under this part shall be the standards applied under 
titles I and V (sections 501 through 504 and 510) of the Americans with 
Disabilities Act of 1990, as amended (42 U.S.C. 12101, 12111, 12201), as 
such sections relate to employment. These standards are set forth in the 
Commission's ADA regulation at 29 CFR part 1630.



Sec. 268.204  Class complaints.

    (a) Definitions--(1) Class is a group of Board employees, former 
employees or applicants for employment who, it is alleged, have been or 
are being adversely affected by a Board personnel

[[Page 578]]

management policy or practice that discriminates against the group on 
the basis of their race, color, religion, sex, national origin, age or 
disability.
    (2) Class complaint is a written complaint of discrimination filed 
on behalf of a class by the agent of the class alleging that:
    (i) The class is so numerous that a consolidated complaint of the 
members of the class is impractical;
    (ii) There are questions of fact common to the class;
    (iii) The claims of the agent of the class are typical of the claims 
of the class;
    (iv) The agent of the class, or, if represented, the representative, 
will fairly and adequately protect the interests of the class.
    (3) An agent of the class is a class member who acts for the class 
during the processing of the class complaint.
    (b) Pre-complaint processing. An employee or applicant who wishes to 
file a class complaint must seek counseling and be counseled in 
accordance with Sec. 268.104. A complainant may move for class 
certification at any reasonable point in the process when it becomes 
apparent that there are class implications to the claim raised in an 
individual complaint. If a complainant moves for class certification 
after completing the counseling process contained in Sec. 268.104, no 
additional counseling is required. The administrative judge shall deny 
class certification when the complainant has unduly delayed in moving 
for certification.
    (c) Filing and presentation of a class complaint. (1) A class 
complaint must be signed by the agent or representative and must 
identify the policy or practice adversely affecting the class as well as 
the specific action or matter affecting the class agent.
    (2) The complaint must be filed with the Board not later than 15 
days after the agent's receipt of the notice of right to file a class 
complaint.
    (3) The complaint shall be processed promptly; the parties shall 
cooperate and shall proceed at all times without undue delay.
    (d) Acceptance or dismissal. (1) Within 30 days of the Board's 
receipt of a complaint, the Board shall: Designate an agency 
representative who shall not be one of the individuals referenced in 
Sec. 268.102(b)(4), and forward the complaint, along with a copy of the 
Counselor's report and any other information pertaining to timeliness or 
other relevant circumstances related to the complaint, to the 
Commission. The Commission shall assign the complaint to an 
administrative judge or complaints examiner with a proper security 
clearance when necessary. The administrative judge may require the 
complainant or the Board to submit additional information relevant to 
the complaint.
    (2) The administrative judge may dismiss the complaint, or any 
portion, for any of the reasons listed in Sec. 268.106 or because it 
does not meet the prerequisites of a class complaint under 
Sec. 268.204(a)(2).
    (3) If an allegation is not included in the Counselor's report, the 
administrative judge shall afford the agent 15 days to state whether the 
matter was discussed with the Counselor and, if not, explain why it was 
not discussed. If the explanation is not satisfactory, the 
administrative judge shall dismiss the allegation. If the explanation is 
satisfactory, the administrative judge shall refer the allegation to the 
Board for further counseling of the agent. After counseling, the 
allegation shall be consolidated with the class complaint.
    (4) If an allegation lacks specificity and detail, the 
administrative judge shall afford the agent 15 days to provide specific 
and detailed information. The administrative judge shall dismiss the 
complaint if the agent fails to provide such information within the 
specified time period. If the information provided contains new 
allegations outside the scope of the complaint, the administrative judge 
shall advise the agent how to proceed on an individual or class basis 
concerning these allegations.
    (5) The administrative judge shall extend the time limits for filing 
a complaint and for consulting with a Counselor in accordance with the 
time limit extension provisions contained in Secs. 268.104(a)(2) and 
268.604.
    (6) When appropriate, the administrative judge may decide that a 
class be divided into subclasses and that each

[[Page 579]]

subclass be treated as a class, and the provisions of this section then 
shall be construed and applied accordingly.
    (7) The administrative judge shall transmit his or her decision to 
accept or dismiss a complaint to the Board and the agent. The Board 
shall take final action by issuing a final order within 40 days of 
receipt of the hearing record and administrative judge's decision. The 
final order shall notify the agent whether or not the Board will 
implement the decision of the administrative judge. If the final order 
does not implement the decision of the administrative judge, the Board 
shall simultaneously appeal the administrative judge's decision in 
accordance with Sec. 268.403 and append a copy of the appeal to the 
final order. A dismissal of a class complaint shall inform the agent 
either that the complaint is being filed on that date as an individual 
complaint of discrimination and will be processed under subpart B or 
that the complaint is also dismissed as an individual complaint in 
accordance with Sec. 268.106. In addition, it shall inform the agent of 
the right to appeal the dismissal of the class complaint to the Equal 
Employment Opportunity Commission or to file a civil action and shall 
include EEOC Form 573, Notice of Appeal/Petition.
    (e) Notification. (1) Within 15 days of receiving notice that the 
administrative judge has accepted a class complaint or a reasonable time 
frame specified by the administrative judge, the Board shall use 
reasonable means, such as delivery, mailing to last known address or 
distribution, to notify all class members of the acceptance of the class 
complaint.
    (2) Such notice shall contain:
    (i) An identification of the Board as the named agency, its 
location, and the date of acceptance of the complaint;
    (ii) A description of the issues accepted as part of the class 
complaint;
    (iii) An explanation of the binding nature of the final decision or 
resolution of the class complaint on class members; and
    (iv) The name, address and telephone number of the class 
representative.
    (f) Obtaining evidence concerning the complaint. (1) The 
administrative judge shall notify the agent and the Board's 
representative of the time period that will be allowed both parties to 
prepare their cases. This time period will include at least 60 days and 
may be extended by the administrative judge upon the request of either 
party. Both parties are entitled to reasonable development of evidence 
on matters relevant to the issues raised in the complaint. Evidence may 
be developed through interrogatories, depositions, and requests for 
admissions, stipulations or production of documents. It shall be grounds 
for objection to producing evidence that the information sought by 
either party is irrelevant, overburdensome, repetitious, or privileged.
    (2) If mutual cooperation fails, either party may request the 
administrative judge to rule on a request to develop evidence. If a 
party fails without good cause shown to respond fully and in timely 
fashion to a request made or approved by the administrative judge for 
documents, records, comparative data, statistics or affidavits, and the 
information is solely in the control of one party, such failure may, in 
appropriate circumstances, cause the administrative judge:
    (i) To draw an adverse inference that the requested information 
would have reflected unfavorably on the party refusing to provide the 
requested information;
    (ii) To consider the matters to which the requested information 
pertains to be established in favor of the opposing party;
    (iii) To exclude other evidence offered by the party failing to 
produce the requested information;
    (iv) To recommend that a decision be entered in favor of the 
opposing party; or
    (v) To take such other actions as the administrative judge deems 
appropriate.
    (3) During the period for development of evidence, the 
administrative judge may, in his or her discretion, direct that an 
investigation of facts relevant to the class complaint or any portion be 
conducted by an agency certified by the Commission.
    (4) Both parties shall furnish to the administrative judge copies of 
all materials that they wish to be examined

[[Page 580]]

and such other material as may be requested.
    (g) Opportunity for resolution of the complaint. (1) The 
administrative judge shall furnish the agent and the Board's 
representative a copy of all materials obtained concerning the complaint 
and provide opportunity for the agent to discuss the materials with the 
Board's representative and attempt resolution of the complaint.
    (2) The complaint may be resolved by agreement of the Board and the 
agent at any time pursuant to the notice and approval procedure 
contained in paragraph (g)(4) of this section.
    (3) If the complaint is resolved, the terms of the resolution shall 
be reduced to writing and signed by the agent and the Board.
    (4) Notice of the resolution shall be given to all class members in 
the same manner as notification of the acceptance of the class complaint 
and to the administrative judge. It shall state the relief, if any, to 
be granted by the Board and the name and address of the EEOC 
administrative judge assigned to the case. It shall state that within 30 
days of the date of the notice of resolution, any member of the class 
may petition the administrative judge to vacate the resolution because 
it benefits only the class agent, or is otherwise not fair, adequate and 
reasonable to the class as a whole. The administrative judge shall 
review the notice of resolution and consider any petitions to vacate 
filed. If the administrative judge finds that the proposed resolution is 
not fair, adequate and reasonable to the class as a whole, the 
administrative judge shall issue a decision vacating the agreement and 
may replace the original class agent with a petitioner or some other 
class member who is eligible to be the class agent during further 
processing of the class complaint. The decision shall inform the former 
class agent or the petitioner of the right to appeal the decision to the 
Equal Employment Opportunity Commission and include EEOC Form 573, 
Notice of Appeal/Petition. If the administrative judge finds that the 
resolution is fair, adequate and reasonable to the class as a whole, the 
resolution shall bind all members of the class.
    (h) Hearing. On expiration of the period allowed for preparation of 
the case, the administrative judge shall set a date for hearing. The 
hearing shall be conducted in accordance with 12 CFR 268.108(a) through 
(f).
    (i) Report of findings and recommendations. (1) The administrative 
judge shall transmit to the Board a report of findings and 
recommendations on the complaint, including a recommended decision, 
systemic relief for the class and any individual relief, where 
appropriate, with regard to the personnel action or matter that gave 
rise to the complaint.
    (2) If the administrative judge finds no class relief appropriate, 
he or she shall determine if a finding of individual discrimination is 
warranted and, if so, shall recommend appropriate relief.
    (3) The administrative judge shall notify the agent of the date on 
which the report of findings and recommendations was forwarded to the 
Board.
    (j) Board decision. (1) Within 60 days of receipt of the report of 
findings and recommendations issued under Sec. 268.204(i), the Board 
shall issue a final decision, which shall accept, reject, or modify the 
findings and recommendations of the administrative judge.
    (2) The final decision of the Board shall be in writing and shall be 
transmitted to the agent by certified mail, return receipt requested, 
along with a copy of the report of findings and recommendations of the 
administrative judge.
    (3) When the Board's final decision is to reject or modify the 
findings and recommendations of the administrative judge, the decision 
shall contain specific reasons for the Board's action.
    (4) If the Board has not issued a final decision within 60 days of 
its receipt of the administrative judge's report of findings and 
recommendations, those findings and recommendations shall become the 
final decision. The Board shall transmit the final decision to the agent 
within five days of the expiration of the 60-day period.
    (5) The final decision of the Board shall require any relief 
authorized by law and determined to be necessary or desirable to resolve 
the issue of discrimination.

[[Page 581]]

    (6) The final decision on a class complaint shall, subject to 
subpart E of this part, be binding on all members of the class and the 
Board.
    (7) The final decision shall inform the agent of the right to appeal 
or to file a civil action in accordance with subpart E of this part and 
of the applicable time limits.
    (k) Notification of decision. The Board shall notify class members 
of the final decision and relief awarded, if any, through the same media 
employed to give notice of the existence of the class complaint. The 
notice, where appropriate, shall include information concerning the 
rights of class members to seek individual relief, and of the procedures 
to be followed. Notice shall be given by the Board within 10 days of the 
transmittal of its final decision to the agent.
    (l) Relief for individual class members. (1) When discrimination is 
found, the Board must eliminate or modify the employment policy or 
practice out of which the complaint arose and provide individual relief, 
including an award of attorney's fees and costs, to the agent in 
accordance with Sec. 268.501.
    (2) When class-wide discrimination is not found, but it is found 
that the class agent is a victim of discrimination, Sec. 268.501 shall 
apply. The Board shall also, within 60 days of the issuance of the final 
decision finding no class-wide discrimination, issue the acknowledgment 
of receipt of an individual complaint as required by Sec. 268.105(d) and 
process in accordance with the provisions of subpart B of this part, 
each individual complaint that was subsumed into the class complaint.
    (3) When discrimination is found in the final decision and a class 
member believes that he or she is entitled to individual relief, the 
class member may file a written claim with the Board or the Board's EEO 
Programs Director within 30 days of receipt of notification by the Board 
of its final decision. Administrative judges shall retain jurisdiction 
over the complaint in order to resolve any disputed claims by class 
members. The claim must include a specific, detailed showing that the 
claimant is a class member who was affected by the discriminatory policy 
or practice, and that this discriminatory action took place within the 
period of time for which the Board found class-wide discrimination in 
its final decision. Where a finding of discrimination against a class 
has been made, there shall be a presumption of discrimination as to each 
member of the class. The Board must show by clear and convincing 
evidence that any class member is not entitled to relief. The 
administrative judge may hold a hearing or otherwise supplement the 
record on a claim filed by a class member. The Board or the Commission 
may find class-wide discrimination and order remedial action for any 
policy or practice in existence within 45 days of the agent's initial 
contact with the Counselor. Relief otherwise consistent with this Part 
may be ordered for the time the policy or practice was in effect. The 
Board shall issue a final decision on each such claim within 90 days of 
filing. Such decision must include a notice of the right to file an 
appeal or a civil action in accordance with subpart E of this part and 
the applicable time limits.



Sec. 268.205  Employment of aliens; Access to sensitive information.

    (a) Definitions. The definitions contained in this paragraph (a) 
apply only to this section:
    (1) Classified Information means information that is classified for 
national security purposes under Executive Order No. 12958, entitled 
``Classified National Security Information,'' including any amendments 
or superseding orders that the President of the United States may issue 
from time to time.
    (2) Confidential Supervisory Information means confidential 
supervisory information of the Board, as defined in 12 CFR 261.2(c). 
Three internal security designations, which are subject to change by the 
Board, apply to Confidential Supervisory Information. Those designations 
are:
    (i) Restricted-Controlled FR generally applies to information that, 
if disclosed to or modified by unauthorized individuals, might result in 
the risk of serious monetary loss, serious productivity loss or serious 
embarrassment to the Federal Reserve System. Examples

[[Page 582]]

of Confidential Supervisory Information designated as Restricted-
Controlled FR include, but are not limited to, certain significant lists 
of financial institution supervisory ratings and nonpublic advance 
information regarding bank mergers or failures.
    (ii) Restricted FR covers information that is less sensitive than 
Restricted-Controlled FR information and, in general, is the largest 
category of Confidential Supervisory Information. This information, if 
disclosed to or modified by unauthorized individuals, might result in 
the risk of significant monetary loss, significant productivity loss, or 
significant embarrassment to the Federal Reserve System. Examples of 
Confidential Supervisory Information designated as Restricted FR 
include, but are not limited to, single supervisory ratings (e.g., 
CAMELS, BOPEC, etc.), Federal Reserve examination and inspection reports 
and workpapers, Interagency Country Exposure Review Committee (ICERC) 
country exposure determinations, and shared national credit data or 
listings.
    (iii) Internal FR covers information that is less sensitive than 
Restricted FR or Restricted-Controlled FR and generally applies to 
information that, if disclosed to or modified by unauthorized 
individuals, might result in the risk of some monetary loss, some 
productivity loss, or some embarrassment to the Federal Reserve System. 
Examples of Confidential Supervisory Information designated as Internal 
FR include, but are not limited to, foreign banking organization country 
studies and Federal Reserve risk assessments.
    (3) Country List refers to the list contained in the annual federal 
appropriations laws of specific countries, including a general category 
of ``countries allied with the United States in a current defense 
effort,'' from which particular categories of persons who are exempt 
from a ban on the use of appropriated funds are eligible to be hired as 
Federal employees in the excepted service or in the senior executive 
service. The appropriations ban is codified at 5 U.S.C. 3101 note. The 
list of eligible countries and persons is subject to legislative and 
other change.
    (4) Eligible Position refers to a position or job family requiring 
access to Sensitive Information for which the Board determines that 
hiring a Non-Citizen is appropriate.
    (5) Employee means an individual who works full-time or part-time 
and is appointed into Board service for a period of more than 90 days. 
The term ``Employee'' does not include members of the Board.
    (6) FOMC Information means confidential information of the Federal 
Open Market Committee (FOMC) regardless of the form or format in which 
it is created, conveyed, or maintained. FOMC Information includes 
information derived from confidential FOMC materials. Three internal 
security designations, which are subject to change by the FOMC, apply to 
FOMC Information as follows:
    (i) Class I FOMC generally applies to materials containing 
policymaker input, such as that related to monetary policy decisions at 
meetings, views expressed by policy makers on future policy, and 
identification of meeting participants who express particular views. 
Examples of Class I FOMC Information include, but are not limited to, 
the ``Bluebook,'' drafts of meeting minutes, unreleased meeting 
transcripts, documents reflecting the preparation of semi-annual 
forecasts and related testimony, and certain sensitive internal 
memorandums and reports.
    (ii) Class II FOMC covers information that is less sensitive than 
Class I FOMC. This designation generally applies to staff forecasts 
prepared for the FOMC and to information about open market operations. 
Examples of Class II FOMC Information include, but are not limited to, 
Part I of the ``Greenbook,'' reports of the Manager on domestic and 
foreign open market operations, and other materials on economic and 
financial developments.
    (iii) Class III FOMC covers information that is less sensitive than 
either Class II or Class I. This designation generally applies to 
background information supporting policy discussions and includes, but 
is not limited to, Part II of the Greenbook.
    (7) National refers to any individual who meets the requirements 
described in 8 U.S.C. 1408.

[[Page 583]]

    (8) Non-Citizen refers to any individual who is not a Protected 
Individual.
    (9) Protected Individual means--
    (i) A citizen or National of the United States,
    (ii) An alien who:
    (A) Meets the conditions set forth in 8 U.S.C. 1324b(a)(3)(B), as 
amended, and
    (B) Has filed with the Board or the appropriate Federal Reserve Bank 
a declaration of intention to become a citizen of the United States, or
    (iii) An alien who:
    (A) Is lawfully admitted for permanent residence, is admitted for 
temporary residence under 8 U.S.C. 1160(a) or section 1255a(a)(1), is 
admitted as a refugee under 8 U.S.C. 1157, or is granted asylum under 8 
U.S.C. 1158;
    (B) Was an Employee of the Board or a Federal Reserve Bank on 
January 1, 2006;
    (C) Before requesting access to Sensitive Information filed an 
application for U.S. citizenship;
    (D) Has had his or her application for citizenship pending for two 
years or less, unless in the case of an application pending for a longer 
period, the alien can establish that the alien is actively pursuing 
naturalization. Time consumed by the Department of Homeland Security, 
Citizenship and Immigration Services (or its predecessor or successor 
agency) in processing the application shall not be counted toward the 2-
year period; and
    (E) Has completed a background investigation acceptable to the 
Board.
    (10) Sensitive Information means FOMC Information, Classified 
Information, and Confidential Supervisory Information.
    (b) Hiring and access--(1) Prohibition against hiring unauthorized 
aliens. An individual is eligible for employment with the Board only if 
he or she satisfies the requirements of Section 101 of the Immigration 
Reform and Control Act of 1986, 8 U.S.C. 1324a.
    (2) Preference. Consistent with applicable law, where two applicants 
for employment at the Board are equally qualified for a position, the 
Board shall prefer the citizen or National of the United States over the 
equally qualified person who is not a citizen or National of the United 
States.
    (3) Protected Individuals' access to Sensitive Information. The 
Board may hire a person as an Employee into a position that requires 
access to Sensitive Information if the person is a Protected Individual.
    (4) Non-Citizens' access to Sensitive Information. The Board shall 
not hire a Non-Citizen into a position that requires access to Sensitive 
Information unless the Non-Citizen:
    (i) Is in an Eligible Position; and
    (ii) Meets the requirements of paragraph (c) of this section 
allowing access to Sensitive Information.
    (c) Access to Sensitive Information--(1) Generally. The Board will 
grant access to Sensitive Information only in accordance with the 
Board's rules and policies regarding access to Sensitive Information 
and, if applicable, the rules and policies of the FOMC. Access to any 
level of Sensitive Information includes access to all lower levels of 
that type of Sensitive Information. An Employee who is not a Protected 
Individual may not have access to FOMC Information or Confidential 
Supervisory Information unless otherwise permitted by this paragraph 
(c).
    (2) FOMC Information--(i) Access by a Non-Citizen from a country on 
the Country List. An Employee in an Eligible Position who is a Non-
Citizen from a country that, on the date the Employee begins employment 
with the Federal Reserve System or on the date access is granted, is on 
the Country List shall be granted access to Class I FOMC Information 
only if the Employee:
    (A) Has been recommended for such access by the Employee's Division 
Director;
    (B) Has been resident in the United States for at least six years, 
at least two of which include satisfactory employment with the Board 
and/or one or more of the Federal Reserve Banks; and
    (C) Has completed a background investigation acceptable to the 
Board.
    (ii) Access by a Non-Citizen from a country not on the Country List. 
An Employee in an Eligible Position who is a Non-Citizen from a country 
that, on the date the Employee begins employment with the Federal 
Reserve System

[[Page 584]]

and on the date access is granted, is not on the Country List:
    (A) Shall not be granted access to Class I FOMC Information, and
    (B) Shall be granted access to Class II FOMC Information only upon:
    (1) The recommendation of the Employee's Division Director;
    (2) Six years of residence in the United States, at least two of 
which include satisfactory employment by the Board and/or one or more of 
the Federal Reserve Banks; and
    (3) Completion of a background investigation acceptable to the 
Board.
    (iii) Changes to the Country List. If the Employee's country is 
deleted from the Country List after the date the Employee begins 
employment with the Federal Reserve System, the Employee's existing 
access to Class I or Class II FOMC information will not be affected by 
the change in the Country List. Similarly, the Employee would continue 
to be eligible for access to Class I information and may be granted such 
access if he or she meets the remaining conditions outlined in paragraph 
(c)(2)(i) for employees from a country on the Country List.
    (3) Confidential Supervisory Information--(i) Access by a Non-
Citizen from a country on the Country List. An Employee in an Eligible 
Position who is a Non-Citizen from a country that, on the date the 
Employee begins employment with the Federal Reserve System or on the 
date access is granted, is on the Country List shall be granted access 
to Confidential Supervisory Information designated as Restricted-
Controlled FR only if the Employee:
    (A) Has been recommended for such access by the Employee's Division 
Director;
    (B) Has been resident in the United States for at least six years, 
at least two of which include satisfactory employment with the Board 
and/or one or more of the Federal Reserve Banks; and
    (C) Has completed a background investigation acceptable to the 
Board.
    (ii) Access by a Non-Citizen from a country not on the Country List. 
An Employee in an Eligible Position who is a Non-Citizen from a country 
that, on the date the Employee begins employment with the Federal 
Reserve System and on the date access is granted, is not on the Country 
List:
    (A) Shall not be granted access to Confidential Supervisory 
Information designated as Restricted-Controlled FR; and
    (B) Shall be granted access to Confidential Supervisory Information 
designated as Restricted FR only upon:
    (1) The recommendation of the Employee's Division Director;
    (2) Six years of residence in the United States, at least two of 
which include satisfactory employment by the Board and/or one or more of 
the Federal Reserve Banks; and
    (3) Completion of a background investigation acceptable to the 
Board.
    (iii) Changes to the Country List. If the Employee's country is 
deleted from the Country List after the date the Employee begins 
employment with the Federal Reserve System, the Employee's existing 
access to Confidential Supervisory Information designated as Restricted 
FR or Restricted-Controlled FR will not be affected by the change in the 
Country List. Similarly, the Employee would continue to be eligible for 
access to Confidential Supervisory Information designated as Restricted-
Controlled FR information and may be granted such access if he or she 
meets the remaining conditions outlined in paragraph (c)(3)(i) for 
employees from a country on the Country List.
    (4) Access to Sensitive Information by Reserve Bank employees--(i) 
FOMC Information. By action of the FOMC, a Reserve Bank employee may 
access FOMC Information in accordance with these rules.
    (ii) Confidential Supervisory Information. A Reserve Bank employee 
will be granted access to Confidential Supervisory Information only to 
the extent the employee meets all of the requirements for access to 
Confidential Supervisory Information provided in this paragraph (c) and 
the employee has received approval for such access from the Board's 
Director for Banking Supervision and Regulation. Notwithstanding the 
foregoing, this rule does not affect access that has been granted to 
employees hired before the effective date of this rule.

[[Page 585]]

    (5) Exceptions for access to Confidential Supervisory Information. A 
Board or Reserve Bank employer may request an exception for access to 
Confidential Supervisory Information. The requester must demonstrate 
that unusual circumstances exist and that the Board or Reserve Bank 
employee for whom access is being requested has a strong and 
particularized need for access to the information. All exceptions for 
access to Confidential Supervisory Information must be approved by the 
Chairman of the Board's Committee on Supervisory and Regulatory Affairs.
    (6) Classified Information. Access to Classified Information is 
limited to those persons who are permitted access to Classified 
Information pursuant to the applicable executive orders and any 
subsequent amendments or superseding orders that the President of the 
United States may issue from time to time.

[71 FR 44558, Aug. 7, 2006, as amended at 73 FR 17887, Apr. 2, 2008]



                       Subpart D_Related Processes



Sec. 268.301  Negotiated grievance procedure.

    When an employee of the Board, which is not an agency subject to 5 
U.S.C. 7121(d), is covered by a negotiated grievance procedure, 
allegations of discrimination shall be processed as complaints under 
this part, except that the time limits for processing the complaint 
contained in Sec. 268.105 and for appeal to the Commission contained in 
Sec. 268.402 may be held in abeyance during processing of a grievance 
covering the same matter as the complaint if the Board notifies the 
complainant in writing that the complaint will be held in abeyance 
pursuant to this section.



Sec. 268.302  Mixed case complaints.

    A mixed case complaint is a complaint of employment discrimination 
filed with the Board based on race, color, religion, sex, national 
origin, age or disability related to or stemming from an action that can 
be appealed to the Merit System Protection Board (MSPB). The complaint 
may contain only an allegation of employment discrimination or it may 
contain additional allegations that the MSPB has jurisdiction to 
address. A mixed case appeal is an appeal filed with the MSPB that 
alleges that an appealable Board action was effected, in whole or in 
part, because of discrimination on the basis of race, color, religion, 
sex, national origin, disability or age. Only a Board employee who is a 
preference eligible employee as defined by the Veterans Preference Act 
can file a mixed case complaint with the Board or a mixed case appeal 
with the MSPB. A mixed case complaint or mixed case appeal may only be 
filed for action(s) over which the MSPB has jurisdiction. The Board will 
apply sections 1614.302 to 1614.310 of 29 CFR to the processing of a 
mixed case complaint or mixed case appeal.



    Subpart E_Appeals to the Equal Employment Opportunity Commission



Sec. 268.401  Appeals to the Equal Employment Opportunity Commission.

    (a) A complainant may appeal the Board's final action or dismissal 
of a complaint.
    (b) The Board may appeal as provided in Sec. 268.109(a).
    (c) A class agent or the Board may appeal an administrative judge's 
decision accepting or dismissing all or part of a class complaint; a 
class agent may appeal a final decision on a class complaint; a class 
member may appeal a final decision on a claim for individual relief 
under a class complaint; and a class member, a class agent or the Board 
may appeal a final decision on a petition pursuant to 
Sec. 268.204(g)(4).
    (d) A complainant, agent of the class or individual class claimant 
may appeal to the Commission the Board's alleged noncompliance with a 
settlement agreement or final decision in accordance with Sec. 268.504.



Sec. 268.402  Time for appeals to the Equal Employment 
Opportunity Commission.

    (a) Appeals described in Sec. 268.401(a) and (c) must be filed 
within 30 days of receipt of the dismissal, final action or decision. 
Appeals described in Sec. 268.401(b) must be filed within 40 days of 
receipt of the hearing file and decision. Where a complainant has 
notified the Board's EEO Programs Director of

[[Page 586]]

alleged noncompliance with a settlement agreement in accordance with 
Sec. 268.504, the complainant may file an appeal 35 days after service 
of the allegations of noncompliance, but no later than 30 days after 
receipt of the Board's determination.
    (b) If the complainant is represented by an attorney of record, then 
the 30-day time period provided in paragraph (a) of this section within 
which to appeal shall be calculated from the receipt of the required 
document by the attorney. In all other instances, the time within which 
to appeal shall be calculated from the receipt of the required document 
by the complainant.



Sec. 268.403  How to appeal.

    (a) The complainant, the Board, agent or individual class claimant 
(hereinafter appellant) must file an appeal with the Director, Office of 
Federal Operations, Equal Employment Opportunity Commission, at PO Box 
19848, Washington, DC 20036, or by personal delivery or facsimile. The 
appellant should use EEOC Form 573, Notice of Appeal/Petition, and 
should indicate what is being appealed.
    (b) The appellant shall furnish a copy of the appeal to the opposing 
party at the same time it is filed with the Commission. In or attached 
to the appeal to the Commission, the appellant must certify the date and 
method by which service was made on the opposing party.
    (c) If an appellant does not file an appeal within the time limits 
of this subpart, the appeal shall be dismissed by the Commission as 
untimely.
    (d) Any statement or brief on behalf of a complainant in support of 
the appeal must be submitted to the Office of Federal Operations within 
30 days of filing the notice of appeal. Any statement or brief on behalf 
of the Board in support of its appeal must be submitted to the Office of 
Federal Operations within 20 days filing the notice of appeal. The 
Office of Federal Operations will accept statements or briefs in support 
of an appeal by facsimile transmittal, provided they are no more than 10 
pages long.
    (e) The Board must submit the complaint file to the Office of 
Federal Operations within 30 days of initial notification that the 
complainant has filed an appeal or within 30 days of submission of an 
appeal by the Board.
    (f) Any statement or brief in opposition to an appeal must be 
submitted to the Commission and served on the opposing party within 30 
days of receipt of the statement or brief supporting the appeal, or, if 
no statement or brief supporting the appeal is filed, within 60 days of 
receipt of the appeal. The Office of Federal Operations will accept 
statements or briefs in opposition to an appeal by facsimile provided 
they are no more than 10 pages long.



Sec. 268.404  Appellate Procedure.

    (a) On behalf of the Commission, the Office of Federal Operations 
shall review the complaint file and all written statements and briefs 
from either party. The Commission may supplement the record by an 
exchange of letters or memoranda, investigation, remand to the Board or 
other procedures.
    (b) If the Office of Federal Operations requests information from 
one or both of the parties to supplement the record, each party 
providing information shall send a copy of the information to the other 
party.
    (c) When either party to an appeal fails without good cause shown to 
comply with the requirements of this section or to respond fully and in 
timely fashion to requests for information, the Office of Federal 
Operations shall, in appropriate circumstances:
    (1) Draw an adverse inference that the requested information would 
have reflected unfavorably on the party refusing to provide the 
requested information;
    (2) Consider the matters to which the requested information or 
testimony pertains to be established in favor of the opposing party;
    (3) Issue a decision fully or partially in favor of the opposing 
party; or
    (4) Take such other actions as appropriate.



Sec. 268.405  Decisions on appeals.

    (a) The Office of Federal Operations, on behalf of the Commission, 
shall issue a written decision setting forth its reasons for the 
decision. The Commission shall dismiss appeals in accordance with 
Secs. 268.106, 268.403(c) and

[[Page 587]]

268.408. The decision on an appeal from the Board's final action shall 
be based on a de novo review, except that the review of the factual 
findings in a decision by an administrative judge issued pursuant to 
Sec. 268.108(i) shall be based on a substantial evidence standard of 
review. If the decision contains a finding of discrimination, 
appropriate remedy(ies) shall be included and, where appropriate, the 
entitlement to interest, attorney's fees or costs shall be indicated. 
The decision shall reflect the date of its issuance, inform the 
complainant of his or her civil action rights, and be transmitted to the 
complainant and the Board by first class mail.
    (b) A decision issued under paragraph (a) of this section is final, 
subject to paragraph (c) of this section, within the meaning of 
Sec. 268.406 unless the Commission reconsiders the case. A party may 
request reconsideration within 30 days of receipt of a decision of the 
Commission, which the Commission in its discretion may grant, if the 
party demonstrates that:
    (1) The appellate decision involved a clearly erroneous 
interpretation of material fact or law; or
    (2) The decision will have a substantial impact on the policies, 
practices or operations of the Board.
    (c) The Board, within 30 days of receiving the decision of the 
Commission, shall issue a final decision based upon that decision.



Sec. 268.406  Civil action: title VII, Age Discrimination in Employment Act 
and Rehabilitation Act.

    A complainant who has filed an individual complaint, an agent who 
has filed a class complaint or a claimant who has filed a claim for 
individual relief pursuant to a class complaint is authorized under 
title VII, the ADEA and the Rehabilitation Act to file a civil action in 
an appropriate United States District Court:
    (a) Within 90 days of receipt of the final action on an individual 
or class complaint if no appeal has been filed;
    (b) After 180 days from the date of filing an individual or class 
complaint if an appeal has not been filed and final action has not been 
taken;
    (c) Within 90 days of receipt of the Commission's final decision on 
an appeal; or
    (d) After 180 days from the date of filing an appeal with the 
Commission if there has been no final decision by the Commission.



Sec. 268.407  Civil action: Equal Pay Act.

    A complainant is authorized under section 16(b) of the Fair Labor 
Standards Act (29 U.S.C. 216(b)) to file a civil action in a court of 
competent jurisdiction within two years or, if the violation is willful, 
three years of the date of the alleged violation of the Equal Pay Act 
regardless of whether he or she pursued any administrative complaint 
processing. Recovery of back wages is limited to two years prior to the 
date of filing suit, or to three years if the violation is deemed 
willful; liquidated damages in an equal amount may also be awarded. The 
filing of a complaint or appeal under this part shall not toll the time 
for filing a civil action.



Sec. 268.408  Effect of filing a civil action.

    Filing a civil action under Secs. 268.406 or 268.407 shall terminate 
Commission processing of the appeal. If private suit is filed subsequent 
to the filing of an appeal, the parties are requested to notify the 
Commission in writing.



                   Subpart F_Remedies and Enforcement



Sec. 268.501  Remedies and relief.

    (a) When the Board, or the Commission, in an individual case of 
discrimination, finds that an applicant or an employee has been 
discriminated against, the Board shall provide full relief which shall 
include the following elements in appropriate circumstances:
    (1) Notification to all employees of the Board in the affected 
facility of their right to be free of unlawful discrimination and 
assurance that the particular types of discrimination found will not 
recur;
    (2) Commitment that corrective, curative or preventive action will 
be taken, or measures adopted, to ensure that violations of the law 
similar to those found unlawful will not recur;

[[Page 588]]

    (3) An unconditional offer to each identified victim of 
discrimination of placement in the position the person would have 
occupied but for the discrimination suffered by that person, or a 
substantially equivalent position;
    (4) Payment to each identified victim of discrimination on a make 
whole basis for any loss of earnings the person may have suffered as a 
result of the discrimination; and
    (5) Commitment that the Board shall cease from engaging in the 
specific unlawful employment practice found in the case.
    (b) Relief for an applicant. (1)(i) When the Board, or the 
Commission, finds that an applicant for employment has been 
discriminated against, the Board shall offer the applicant the position 
that the applicant would have occupied absent discrimination or, if 
justified by the circumstances, a substantially equivalent position 
unless clear and convincing evidence indicates that the applicant would 
not have been selected even absent the discrimination. The offer shall 
be made in writing. The individual shall have 15 days from receipt of 
the offer within which to accept or decline the offer. Failure to accept 
the offer within the 15-day period will be considered a declination of 
the offer, unless the individual can show that circumstances beyond his 
or her control prevented a response within the time limit.
    (ii) If the offer is accepted, appointment shall be retroactive to 
the date the applicant would have been hired. Back pay, computed in the 
manner prescribed in 5 CFR 550.805, shall be awarded from the date the 
individual would have entered on duty until the date the individual 
actually enters on duty unless clear and convincing evidence indicates 
that the applicant would not have been selected even absent 
discrimination. Interest on back pay shall be included in the back pay 
computation where sovereign immunity has been waived. The individual 
shall be deemed to have performed service for the Board during this 
period for all purposes except for meeting service requirements for 
completion of a required probationary or trial period.
    (iii) If the offer of employment is declined, the Board shall award 
the individual a sum equal to the back pay he or she would have 
received, computed in the manner prescribed in 5 CFR 550.805, from the 
date he or she would have been appointed until the date the offer was 
declined, subject to the limitation of paragraph (b)(3) of this section. 
Interest on back pay shall be included in the back pay computation. The 
Board shall inform the applicant, in its offer of employment, of the 
right to this award in the event the offer is declined.
    (2) When the Board, or the Commission, finds that discrimination 
existed at the time the applicant was considered for employment but also 
finds by clear and convincing evidence that the applicant would not have 
been hired even absent discrimination, the Board shall nevertheless take 
all steps necessary to eliminate the discriminatory practice and ensure 
it does not recur.
    (3) Back pay under this paragraph (b) for complaints under title VII 
or the Rehabilitation Act may not extend from a date earlier than two 
years prior to the date on which the complaint was initially filed by 
the applicant.
    (c) Relief for an employee. When the Board, or the Commission, finds 
that an employee of the Board was discriminated against, the Board shall 
provide relief, which shall include, but need not be limited to, one or 
more of the following actions:
    (1) Nondiscriminatory placement, with back pay computed in the 
manner prescribed in 5 CFR 550.805, unless clear and convincing evidence 
contained in the record demonstrates that the personnel action would 
have been taken even absent the discrimination. Interest on back pay 
shall be included in the back pay computation where sovereign immunity 
has been waived. The back pay liability under title VII or the 
Rehabilitation Act is limited to two years prior to the date the 
discrimination complaint was filed.
    (2) If clear and convincing evidence indicates that, although 
discrimination existed at the time the personnel action was taken, the 
personnel action would have been taken even absent discrimination, the 
Board shall nevertheless eliminate any discriminatory practice and 
ensure it does not recur.

[[Page 589]]

    (3) Cancellation of an unwarranted personnel action and restoration 
of the employee.
    (4) Expunction from the Board's records of any adverse materials 
relating to the discriminatory employment practice.
    (5) Full opportunity to participate in the employee benefit denied 
(e.g., training, preferential work assignments, overtime scheduling).
    (d) The Board has the burden of proving by a preponderance of the 
evidence that the complainant has failed to mitigate his or her damages.
    (e) Attorney's fees or costs--(1) Awards of attorney's fees or 
costs. The provisions of this paragraph relating to the award of 
attorney's fees or costs shall apply to allegations of discrimination 
prohibited by title VII and the Rehabilitation Act. In a decision or 
final action, the Board, administrative judge, or Commission may award 
the applicant or employee or reasonable attorney's fees (including 
expert witness fees) and other costs incurred in the processing of the 
complaint.
    (i) A finding of discrimination raises a presumption of entitlement 
to an award of attorney's fees.
    (ii) Any award of attorney's fees or costs shall be paid by the 
Board.
    (iii) Attorney's fees are allowable only for the services of members 
of the Bar and law clerks, paralegals or law students under the 
supervision of members of the Bar, except that no award is allowable for 
the services of any employee of the Federal Government.
    (iv) Attorney's fees shall be paid for services performed by an 
attorney after the filing of a written complaint, provided that the 
attorney provides reasonable notice of representation to the Board, 
administrative judge or Commission, except that fees are allowable for a 
reasonable period of time prior to the notification of representation 
for any services performed in reaching a determination to represent the 
complainant. The Board is not required to pay attorney's fees for 
services performed during the pre-complaint process, except that fees 
are allowable when the Commission affirms on appeal an administrative 
judge's decision finding discrimination after the Board takes final 
action by not implementing an administrative judge's decision. Written 
submissions to the Board that are signed by the representative shall be 
deemed to constitute notice of representation.
    (2) Amount of awards. (i) When the Board, administrative judge or 
the Commission determines an entitlement to attorney's fees or costs, 
the complainant's attorney shall submit a verified statement of 
attorney's fees (including expert witness fees) and other costs, as 
appropriate, to the Board or administrative judge within 30 days of 
receipt of the decision and shall submit a copy of the statement to the 
Board. A statement of attorney's fees and costs shall be accompanied by 
an affidavit executed by the attorney of record itemizing the attorney's 
charges for legal services. The Board may respond to a statement of 
attorney's fees and costs within 30 days of its receipt. The verified 
statement, accompanying affidavit and any Board response shall be made a 
part of the complaint file.
    (ii)(A) The Board or administrative judge shall issue a decision 
determining the amount of attorney's fees or costs due within 60 days of 
receipt of the statement and affidavit. The decision shall include a 
notice of right to appeal to the EEOC along with EEOC Form 573, Notice 
of Appeal/Petition and shall include the specific reasons for 
determining the amount of the award.
    (B) The amount of attorney's fees shall be calculated using the 
following standards: The starting point shall be the number of hours 
reasonably expended multiplied by a reasonable hourly rate. There is a 
strong presumption that this amount represents the reasonable fee. In 
limited circumstances, this amount may be reduced or increased in 
consideration of the degree of success, quality of representation, and 
long delay caused by the Board.
    (C) The costs that may be awarded are those authorized by 28 U.S.C. 
1920 to include: Fees of the reporter for all or any of the stenographic 
transcript necessarily obtained for use in the

[[Page 590]]

case; fees and disbursements for printing and witnesses; and fees for 
exemplification and copies necessarily obtained for use in the case.
    (iii) Witness fees shall be awarded in accordance with the 
provisions of 28 U.S.C. 1821, except that no award shall be made for a 
Federal employee who is in a duty status when made available as a 
witness.



Sec. 268.502  Compliance with final Commission decisions.

    (a) Relief ordered in a final Commission decision, if accepted 
pursuant to Sec. 268.405(c) as a final decision, or not acted upon the 
Board within the time periods of Sec. 268.405(c), is mandatory and 
binding on the Board except as provided in this section. Failure to 
implement ordered relief shall be subject to judicial enforcement as 
specified in Sec. 268.503(f).
    (b) Notwithstanding paragraph (a) of this section, when the Board 
requests reconsideration and the case involves removal, separation, or a 
suspension continuing beyond the date of the request for 
reconsideration, and when the decision orders retroactive restoration, 
the Board shall comply with the decision to the extent of the temporary 
or conditional restoration of the employee to duty status in the 
position specified by the Commission, pending the outcome of the Board's 
request for reconsideration.
    (1) Service under the temporary or conditional restoration 
provisions of this paragraph (b) shall be credited toward the completion 
of a probationary or trial period or the completion of the service 
requirement for career tenure, if the Commission upholds its decision 
after reconsideration.
    (2) When the Board requests reconsideration, it may delay the 
payment of any amounts ordered to be paid to the complainant until after 
the request for reconsideration is resolved. If the Board delays payment 
of any amount pending the outcome of the request to reconsider and the 
resolution of the request requires the Board to make the payment, then 
the Board shall pay interest from the date of the original appellate 
decision until payment is made.
    (3) The Board shall notify the Commission and the employee in 
writing at the same time it requests reconsideration that the relief it 
provides is temporary or conditional and, if applicable, that it will 
delay the payment of any amounts owed but will pay interest as specified 
in paragraph (b)(2) of this section. Failure of the Board to provide 
notification will result in the dismissal of the Board's request.
    (c) When no request for reconsideration is filed or when a request 
for reconsideration is denied, the Board shall provide the relief 
ordered and there is no further right to delay implementation of the 
ordered relief. The relief shall be provided in full not later than 60 
days after receipt of the final decision unless otherwise ordered in the 
decision.



Sec. 268.503  Enforcement of final EEOC decisions.

    (a) Petition for enforcement. A complainant may petition the 
Commission for enforcement of a decision issued under the Commission's 
appellate jurisdiction. The petition shall be submitted to the Office of 
Federal Operations. The petition shall specifically set forth the 
reasons that lead the complainant to believe that the Board is not 
complying with the decision.
    (b) Compliance. On behalf of the Commission, the Office of Federal 
Operations shall take all necessary action to ascertain whether the 
Board is implementing the decision of the Commission. If the Board is 
found not to be in compliance with the decision, efforts shall be 
undertaken to obtain compliance.
    (c) Clarification. On behalf of the Commission, the Office of 
Federal Operations may, on its own motion or in response to a petition 
for enforcement or in connection with a timely request for 
reconsideration, issue a clarification of a prior decision. A 
clarification cannot change the result of a prior decision or enlarge or 
diminish the relief ordered but may further explain the meaning or 
intent of the prior decision.
    (d) Referral to the Commission. Where the Director, Office of 
Federal Operations, is unable to obtain satisfactory compliance with the 
final decision, the

[[Page 591]]

Director shall submit appropriate findings and recommendations for 
enforcement to the Commission, or, as directed by the Commission, refer 
the matter to another appropriate agency.
    (e) Commission notice to show cause. The Commission may issue a 
notice to the Chairman of the Board to show cause why there is 
noncompliance. Such notice may request the Chairman of the Board or a 
representative to appear before the Commission or to respond to the 
notice in writing with adequate evidence of compliance or with 
compelling reasons for noncompliance.
    (f) Notification to complainant of completion of administrative 
efforts. Where the Commission has determined that the Board is not 
complying with a prior decision, or where the Board has failed or 
refused to submit any required report of compliance, the Commission 
shall notify the complainant the right to file a civil action for 
enforcement of the decision pursuant to title VII, the ADEA, the Equal 
Pay Act or the Rehabilitation Act and to seek judicial review of the 
Board's refusal to implement the ordered relief pursuant to the 
Administrative Procedures Act, 5 U.S.C. 701 et seq., and the mandamus 
statute, 28 U.S.C. 1361, or to commence de novo proceedings pursuant to 
the appropriate statutes.



Sec. 268.504  Compliance with settlement agreements and final actions.

    (a) Any settlement agreement knowingly and voluntarily agreed to by 
the parties, reached at any stage of the complaint process, shall be 
binding on both parties. Final action that has not been the subject of 
an appeal or a civil action shall be binding on the Board. If the 
complainant believes that the Board has failed to comply with the terms 
of a settlement agreement or decision, the complainant shall notify the 
Board's EEO Programs Director, in writing, of the alleged noncompliance 
within 30 days of when the complainant knew or should have known of the 
alleged noncompliance. The complainant may request that the terms of the 
settlement agreement be specifically implemented or, alternatively, that 
the complaint be reinstated for further processing from the point 
processing ceased.
    (b) The Board shall resolve the matter and respond to the 
complainant, in writing. If the Board has not responded to the 
complainant, in writing, or if the complainant is not satisfied with the 
Board's attempt to resolve the matter, the complainant may appeal to the 
Commission for a determination as to whether the Board has complied with 
the terms of the settlement agreement or decision. The complainant may 
file such an appeal 35 days after he or she has served the Board with 
the allegations of noncompliance, but must file an appeal within 30 days 
of his or her receipt of the Board's determination. The complainant must 
serve a copy of the appeal on the Board and the Board may submit a 
response to the Commission within 30 days of receiving notice of the 
appeal.
    (c) Prior to rendering its determination, the Commission may request 
that the parties submit whatever additional information or documentation 
it deems necessary or may direct that an investigation or hearing on the 
matter be conducted. If the Commission determines that the Board is not 
in compliance and the noncompliance is not attributable to acts or 
conduct of the complainant, it may order such compliance or it may order 
that the complaint be reinstated for further processing from the point 
processing ceased. Allegations that subsequent acts of discrimination 
violate a settlement agreement shall be processed as separate complaints 
under Secs. 268.105 or 268.204, as appropriate, rather than under this 
section.



Sec. 268.505  Interim relief.

    (a)(1) When the Board appeals and the case involves removal, 
separation, or suspension continuing beyond the date of the appeal, and 
when the administrative judge orders retroactive restoration, the Board 
shall comply with the decision to the extent of the temporary or 
conditional restoration of the employee to duty status in the position 
specified in the decision, pending the outcome of the Board appeal. The 
employee may decline the offer of interim relief.

[[Page 592]]

    (2) Service under the temporary or conditional restoration 
provisions of paragraph (a)(1) of this section shall be credited toward 
the completion of a probationary or trial period, eligibility for a 
within-grade increase, or the completion of the service requirement for 
career tenure, if the Commission upholds the decision on appeal. Such 
service shall not be credited toward the completion of any applicable 
probationary or trial period or the completion of the service 
requirement for career tenure if the Commission reverses the decision on 
appeal.
    (3) When the Board appeals, it may delay the payment of any amount, 
other than prospective pay and benefits, ordered to be paid to the 
complainant until after the appeal is resolved. If the Board delays 
payment of any amount pending the outcome of the appeal and the 
resolution of the appeal requires the Board to make the payment, then 
the Board shall pay interest from the date of the original decision 
until payment is made.
    (4) The Board shall notify the Commission and the employee in 
writing at the same time it appeals that the relief it provides is 
temporary or conditional and, if applicable, that it will delay the 
payment of any amounts owed but will pay interest as specified in 
paragraph (b)(2) of this section. Failure of the Board to provide 
notification will result in the dismissal of the Board's appeal.
    (5) The Board may, by notice to the complainant, decline to return 
the complainant to his or her place of employment if it determines that 
the return or presence of the complainant will be unduly disruptive to 
the work environment. However, prospective pay and benefits must be 
provided. The determination not to return the complainant to his or her 
place of employment is not reviewable. A grant of interim relief does 
not insulate a complainant from subsequent disciplinary or adverse 
action.
    (b) If the Board files an appeal and has not provided required 
interim relief, the complainant may request dismissal of the Board's 
appeal. Any such request must be filed with the Office of Federal 
Operations within 25 days of the date of service of the Board's appeal. 
A copy of the request must be served on the Board at the same time it is 
filed with EEOC. The Board may respond with evidence and argument to the 
complainant's request to dismiss within 15 days of the date of service 
of the request.



               Subpart G_Matters of General Applicability



Sec. 268.601  EEO group statistics.

    (a) The Board shall establish a system to collect and maintain 
accurate employment information on the race, national origin, sex and 
disability(ies) of its employees.
    (b) Data on race, national origin and sex shall be collected by 
voluntary self-identification. If an employee does not voluntarily 
provide the requested information, the Board shall advise the employee 
of the importance of the data and of the Board's obligation to report 
it. If the employee still refuses to provide the information, the Board 
must make a visual identification and inform the employee of the data it 
will be reporting. If the Board believes that information provided by an 
employee is inaccurate, the Board shall advise the employee about the 
solely statistical purpose for which the data is being collected, the 
need for accuracy, the Board's recognition of the sensitivity of the 
information and the existence of procedures to prevent its unauthorized 
disclosure. If, thereafter, the employee declines to change the 
apparently inaccurate self identification, the Board must accept it.
    (c) Subject to applicable law, the information collected under 
paragraph (b) of this section shall be disclosed only in the form of 
gross statistics. The Board shall not collect or maintain any 
information on the race, national origin or sex of individual employees 
except in accordance with applicable law and when an automated data 
processing system is used in accordance with standards and requirements 
prescribed by the Commission to insure individual privacy and the 
separation of that information from personnel records.
    (d) The Board's system is subject to the following controls:

[[Page 593]]

    (1) Only those categories of race and national origin prescribed by 
the Commission may be used;
    (2) Only the specific procedures for the collection and maintenance 
of data that are prescribed or approved by the Commission may be used.
    (e) The Board may use the data only in studies and analyses which 
contribute affirmatively to achieving the objectives of the Board's 
equal employment opportunity program. The Board shall not establish a 
quota for the employment of persons on the basis of race, color, 
religion, sex, or national origin.
    (f) Data on disabilities shall also be collected by voluntary self-
identification. If an employee does not voluntarily provide the 
requested information, the Board shall advise the employee of the 
importance of the data and of the Board's obligation to report it. If an 
employee who has been appointed pursuant to a special Board program for 
hiring individuals with a disability still refuses to provide the 
requested information, the Board must identify the employee's disability 
based upon the records supporting the appointment. If any other employee 
still refuses to provide the requested information or provides 
information that the Board believes to be inaccurate, the Board should 
report the employee's disability status as unknown.
    (g) The Board shall report to the Commission on employment by race, 
national origin, sex and disability in the form and at such times as the 
Board and Commission shall agree.



Sec. 268.602  Reports to the Commission.

    (a) The Board shall report to the Commission information concerning 
pre-complaint counseling and the status, processing, and disposition of 
complaints under this part at such times and in such manner as the Board 
and Commission shall agree.
    (b) The Board shall advise the Commission whenever it is served with 
a Federal court complaint based upon a complaint that is pending on 
appeal at the Commission.
    (c) The Board shall submit annually for the review and approval of 
the Commission written equal employment opportunity plans of action. 
Plans shall be submitted in the format prescribed by the Commission and 
shall include, but not be limited to:
    (1) Provision for the establishment of training and education 
programs designed to provide maximum opportunity for employees to 
advance so as to perform at their highest potential;
    (2) Description of the qualifications, in terms of training and 
experience relating to equal employment opportunity, of the principal 
and operating officials concerned with administration of the Board's 
equal employment opportunity program; and
    (3) Description of the allocation of personnel and resources 
proposed by the Board to carry out its equal employment opportunity 
program.



Sec. 268.603  Voluntary settlement attempts.

    The Board shall make reasonable efforts to voluntarily settle 
complaints of discrimination as early as possible in, and throughout, 
the administrative processing of complaints, including the pre-complaint 
counseling stage. Any settlement reached shall be in writing and signed 
by both parties and shall identify the claims resolved.



Sec. 268.604  Filing and computation of time.

    (a) All time periods in this part that are stated in terms of days 
are calendar days unless otherwise stated.
    (b) A document shall be deemed timely if it is received or 
postmarked before the expiration of the applicable filing period, or, in 
the absence of a legible postmark, if it is received by mail within five 
days of the expiration of the applicable filing period.
    (c) The time limits in this part are subject to waiver, estoppel and 
equitable tolling.
    (d) The first day counted shall be the day after the event from 
which the time period begins to run and the last day of the period shall 
be included, unless it falls on a Saturday, Sunday or Federal holiday, 
in which case the period shall be extended to include the next business 
day.

[[Page 594]]



Sec. 268.605  Representation and official time.

    (a) At any stage in the processing of a complaint, including the 
counseling stage under Sec. 268.104, the complainant shall have the 
right to be accompanied, represented, and advised by a representative of 
complainant's choice.
    (b) If the complainant is an employee of the Board, he or she shall 
have a reasonable amount of official time, if otherwise on duty, to 
prepare the complaint and to respond to Board and EEOC requests for 
information. If the complainant is an employee of the Board and he 
designates another employee of the Board as his or her representative, 
the representative shall have a reasonable amount of official time, if 
otherwise on duty, to prepare the complaint and respond to Board and 
EEOC requests for information. The Board is not obligated to change work 
schedules, incur overtime wages, or pay travel expenses to facilitate 
the choice of a specific representative or to allow the complainant and 
representative to confer. The complainant and the representative, if 
employed by the Board and otherwise in a pay status, shall be on 
official time, regardless of their tour of duty, when their presence is 
authorized or required by the Board or the Commission during the 
investigation, informal adjustment, or hearing on the complaint.
    (c) In cases where the representation of a complainant or the Board 
would conflict with the official or collateral duties of the 
representative, the Commission or the Board may, after giving the 
representative an opportunity to respond, disqualify the representative.
    (d) Unless the complainant states otherwise in writing, after the 
Board has received written notice of the name, address and telephone 
number of a representative for the complainant, all official 
correspondence shall be with the representative with copies to the 
complainant. When the complainant designates an attorney as 
representative, service of all official correspondence shall be made on 
the attorney and the complainant, but time frames for receipt of 
material shall be computed from the time of receipt by the attorney. The 
complainant must serve all official correspondence on the designated 
representative of the Board.
    (e) The complainant shall at all times be responsible for proceeding 
with the complaint whether or not he or she has designated a 
representative.
    (f) Witnesses who are Board employees shall be in a duty status when 
their presence is authorized or required by Commission or Board 
officials in connection with a complaint.



Sec. 268.606  Joint processing and consolidation of complaints.

    Complaints of discrimination filed by two or more complainants 
consisting of substantially similar allegations of discrimination or 
relating to the same matter may be consolidated by the Board or the 
Commission for joint processing after appropriate notification to the 
parties. Two or more complaints of discrimination filed by the same 
complainant shall be consolidated by the Board for joint processing 
after appropriate notification to the complainant. When a complaint has 
been consolidated with one or more earlier filed complaints, the Board 
shall complete its investigation within the earlier of 180 days after 
the filing of the last complaint or 360 days after the filing of the 
original complaint, except that the complainant may request a hearing 
from an administrative judge on the consolidated complaints any time 
after 180 days from the date of the first filed complaint. 
Administrative judges or the Commission may, in their discretion, 
consolidate two or more complaints of discrimination filed by the same 
complainant.



Sec. 268.607  Delegation of authority.

    The Board of Governors may delegate authority under this part, to 
one or more designees.



   Subpart H_Prohibition Against Discrimination in Board Programs and 
           Activities Because of Physical or Mental Disability



Sec. 268.701  Purpose and application.

    (a) Purpose. The purpose of this subpart H is to prohibit 
discrimination on

[[Page 595]]

the basis of a disability in programs or activities conducted by the 
Board.
    (b) Application. (1) This subpart H applies to all programs and 
activities conducted by the Board. Such programs and activities include:
    (i) Holding open meetings of the Board or other meetings or public 
hearings at the Board's office in Washington, DC;
    (ii) Responding to inquiries, filing complaints, or applying for 
employment at the Board's office;
    (iii) Making available the Board's library facilities; and
    (iv) Any other lawful interaction with the Board or its staff in any 
official matter with people who are not employees of the Board.
    (2) This subpart H does not apply to Federal Reserve Banks or to 
financial institutions or other companies supervised or regulated by the 
Board.



Sec. 268.702  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Auxiliary aids means services or devices that enable persons 
with impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the Board. For example, auxiliary aids useful 
for persons with impaired vision include readers, Brailled materials, 
audio recordings, telecommunications devices and other similar services 
and devices. Auxiliary aids useful for persons with impaired hearing 
include telephone handset amplifiers, telephones compatible with hearing 
aids, telecommunication devices for deaf persons (TDD's), interpreters, 
notetakers, written materials, and other similar services and devices.
    (b) Complete complaint means a written statement that contains the 
complainant's name and address and describes the Board's alleged 
discriminatory action in sufficient detail to inform the Board of the 
nature and date of the alleged violation. It shall be signed by the 
complainant or by someone authorized to do so on his or her behalf. 
Complaints filed on behalf of classes or third parties shall describe or 
identify (by name, if possible) the alleged victims of discrimination.
    (c) Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    (d) Person with a disability means any person who has a physical or 
mental impairment that substantially limits one or more major life 
activities, has a record of such an impairment, or is regarded as having 
such an impairment. As used in this definition, the phrase:
    (1) Physical or mental impairment includes--
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one of more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term physical or mental impairment 
includes, but is not limited to, such diseases and conditions as 
orthopedic, visual, speech, and hearing impairments, cerebral palsy, 
epilepsy, muscular dystrophy, multiple sclerosis, cancer, heart disease, 
diabetes, mental retardation, emotional illness, and drug addiction and 
alcoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the Board as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major

[[Page 596]]

life activities only as a result of the attitudes of others toward such 
impairment; or
    (iii) Has none of the impairments defined in paragraph (d)(1) of 
this section but is treated by Board as having such an impairment.
    (e) Qualified person with a disability means--
    (1) With respect to any Board program or activity under which a 
person is required to perform services or to achieve a level of 
accomplishment, a person with a disability who meets the essential 
eligibility requirements and who can achieve the purpose of the program 
or activity without modifications in the program or activity that the 
Board can demonstrate would result in a fundamental alteration in its 
nature; or
    (2) With respect to any other program or activity, a person with a 
disability who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity.
    (3) Qualified individual with a disability is defined for purposes 
of employment in Sec. 268.203 of this part, which is made applicable to 
this subpart by Sec. 268.705.



Sec. 268.703  Notice.

    The Board shall make available to employees, applicants for 
employment, participants, beneficiaries, and other interested persons 
information regarding the provisions of this subpart and its 
applicability to the programs and activities conducted by the Board, and 
make this information available to them in such manner as the Board 
finds necessary to apprise such persons of the protections against 
discrimination assured them by this subpart.



Sec. 268.704  General prohibitions against discrimination.

    (a) No qualified individual with a disability shall, on the basis of 
a disability, be excluded from participation in, be denied the benefits 
of, or otherwise be subjected to discrimination in any program or 
activity conducted by the Board.
    (b)(1) The Board, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of a disability:
    (i) Deny a qualified individual with a disability the opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that provided to others;
    (ii) Afford a qualified individual with a disability an opportunity 
to participate in or benefit from the aid, benefit, or service that is 
not equal to that afforded others;
    (iii) Provide a qualified individual with a disability with an aid, 
benefit, or service that is not as effective in affording equal 
opportunity to obtain the same result, to gain the same benefit, or to 
reach the same level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
individuals with a disability or to any class of individuals with a 
disability than is provided to others unless such action is necessary to 
provide qualified individuals with a disability with aid, benefits, or 
services that are as effective as those provided to others;
    (v) Deny a qualified individual with a disability the opportunity to 
participate as a member of planning or advisory boards; or
    (vi) Otherwise limit a qualified individual with a disability in the 
enjoyment of any right, privilege, advantage, or opportunity enjoyed by 
others receiving the aid, benefit, or service.
    (2) The Board may not deny a qualified individual with a disability 
the opportunity to participate in programs or activities that are not 
separate or different, despite the existence of permissibly separate or 
different programs or activities.
    (3) The Board may not, directly or through contractual or other 
arrangements, utilize criteria or methods of administration, the purpose 
or effect of which would:
    (i) Subject qualified individuals with a disability to 
discrimination on the basis of a disability; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program or activity with respect to individuals with a disability.

[[Page 597]]

    (4) The Board may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would:
    (i) Exclude individuals with a disability from, deny them the 
benefits of, or otherwise subject them to discrimination under any 
program or activity conducted by the Board; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives or a program or activity with respect to individuals with a 
disability.
    (5) The Board, in the selection of procurement contractors, may not 
use criteria that subject qualified individuals with a disability to 
discrimination on the basis of a disability.
    (6) The Board may not administer a licensing or certification 
program in a manner that subjects qualified individuals with a 
disability to discrimination on the basis of a disability, nor may the 
Board establish requirements for the programs and activities of 
licensees or certified entities that subject qualified individuals with 
a disability to discrimination on the basis of a disability. However, 
the programs and activities of entities that are licensed or certified 
by the Board are not, themselves, covered by this subpart.
    (c) The exclusion of individuals who do not have a disability from 
the benefits of a program limited by Federal statute or Board order to 
individuals with a disability or the exclusion of a specific class of 
individuals with a disability from a program limited by Federal statute 
or Board order to a different class of individuals with a disability is 
not prohibited by this subpart.
    (d) The Board shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified individuals 
with a disability.



Sec. 268.705  Employment.

    No qualified individual with a disability shall, on the basis of a 
disability, be subjected to discrimination in employment under any 
program or activity conducted by the Board. The definitions, 
requirements and procedures of Sec. 268.203 of this part shall apply to 
discrimination in employment in federally conducted programs or 
activities.



Sec. 268.706  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 268.707 of this subpart, no 
qualified individual with a disability shall, because the Board's 
facilities are inaccessible to or unusable by individuals with a 
disability, be denied the benefits of, be excluded from participation 
in, or otherwise be subjected to discrimination under any program or 
activity conducted by the Board.



Sec. 268.707  Program accessibility: Existing facilities.

    (a) General. The Board shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by individuals with a disability. This 
paragraph (a) does not:
    (1) Necessarily require the Board to make each of its existing 
facilities accessible to and usable by individuals with a disability; or
    (2) Require the Board to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where the Board believes that the proposed action would 
fundamentally alter the program or activity or would result in undue 
financial and administrative burdens, the Board has the burden of 
proving that compliance with this paragraph (a) would result in such 
alterations or burdens. The decision that compliance would result in 
such alterations or burdens shall be made by the Board of Governors or 
their designee after considering all Board resources available for use 
in the funding and operation of the conducted program or activity, and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. If an action would result in such an alteration or such 
burdens, the Board shall take any other action that would not result in 
such an alteration or such burdens but would nevertheless ensure that 
individuals with a disability receive the benefits and services of the 
program or activity.

[[Page 598]]

    (b) Methods. The Board may comply with the requirements of this 
subpart H through such means as redesign of equipment, reassignment of 
services to accessible buildings, assignment of aides to individuals 
with a disability, home visits, delivery of service at alternate 
accessible sites, alteration of existing facilities and construction of 
new facilities, use of accessible rolling stock, or any other methods 
that result in making its programs or activities readily accessible to 
and usable by individuals with a disability. The Board is not required 
to make structural changes in existing facilities where other methods 
are effective in achieving compliance with this section. In choosing 
among available methods for meeting the requirements of this section, 
the Board shall give priority to those methods that offer programs and 
activities to qualified individuals with a disability in the most 
integrated setting appropriate.
    (c) Time period for compliance. The Board shall comply with any 
obligations established under this section as expeditiously as possible.



Sec. 268.708  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the Board shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
individuals with a disability.



Sec. 268.709  Communications.

    (a) The Board shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The Board shall furnish appropriate auxiliary aids where 
necessary to afford an individual with a disability an equal opportunity 
to participate in, and enjoy the benefits of, a program or activity 
conducted by the Board.
    (i) In determining what type of auxiliary aid is necessary, the 
Board shall give primary consideration to the requests of the individual 
with a disability.
    (ii) The Board need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the Board communicates with employees and others by 
telephone, telecommunication devices for deaf persons (TDD's) or equally 
effective telecommunication systems shall be used.
    (b) The Board shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The Board shall provide signage at a primary entrance to each of 
its inaccessible facilities, directing users to a location at which they 
can obtain information about accessible facilities. The international 
symbol for accessibility shall be used at each primary entrance of an 
accessible facility.
    (d) This section does not require the Board to take any action that 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where the Board believes that the proposed action would 
fundamentally alter the program or activity or would result in undue 
financial and administrative burdens, the Board has the burden of 
proving that compliance with section 268.709 would result in such 
alterations or burdens. The determination that compliance would result 
in such alteration or burdens must be made by the Board of Governors or 
their designee after considering all Board resources available for use 
in the funding and operation of the conducted program or activity, and 
must be accompanied by a written statement of the reasons for reaching 
that conclusion. If an action required to comply with this section would 
result in such an alteration or such burdens, the Board shall take any 
other action that would not result in such an alteration or such burdens 
but would nevertheless ensure that, to the maximum extent possible, 
individuals with a disability receive the benefits and services of the 
program or activity.



Sec. 268.710  Compliance procedures.

    (a) Applicability. Except as provided in paragraph (b) of this 
section, this section, rather than subpart B and

[[Page 599]]

Sec. 268.203 of this part, applies to all allegations of discrimination 
on the basis of a disability in programs or activities conducted by the 
Board.
    (b) Employment complaints. The Board shall process complaints 
alleging discrimination in employment on the basis of a disability in 
accordance with subparts A through G of this part.
    (c) Responsible official. The EEO Programs Director shall be 
responsible for coordinating implementation of this section.
    (d) Filing the complaint--(1) Who may file. Any person who believes 
that he or she has been subjected to discrimination prohibited by this 
subpart may, personally or by his or her authorized representative, file 
a complaint of discrimination with the EEO Programs Director.
    (2) Confidentiality. The EEO Programs Director shall not reveal the 
identity of any person submitting a complaint, except when authorized to 
do so in writing by the complainant, and except to the extent necessary 
to carry out the purposes of this subpart , including the conduct of any 
investigation, hearing, or proceeding under this subpart.
    (3) When to file. Complaints shall be filed within 180 days of the 
alleged act of discrimination. The EEO Programs Director may extend this 
time limit for good cause shown. For the purpose of determining when a 
complaint is timely filed under this paragraph (d), a complaint mailed 
to the Board shall be deemed filed on the date it is postmarked. Any 
other complaint shall be deemed filed on the date it is received by the 
Board.
    (4) How to file. Complaints may be delivered or mailed to the 
Administrative Governor, the Staff Director for Management, the EEO 
Programs Director, the Federal Women's Program Manager, the Hispanic 
Employment Program Coordinator, or the People with Disabilities Program 
Coordinator. Complaints should be sent to the EEO Programs Director, 
Board of Governors of the Federal Reserve System, 20th and C Street NW., 
Washington, DC 20551. If any Board official other than the EEO Programs 
Director receives a complaint, he or she shall forward the complaint to 
the EEO Programs Director.
    (e) Acceptance of complaint. (1) The EEO Programs Director shall 
accept a complete complaint that is filed in accordance with paragraph 
(d) of this section and over which the Board has jurisdiction. The EEO 
Programs Director shall notify the complainant of receipt and acceptance 
of the complaint.
    (2) If the EEO Programs Director receives a complaint that is not 
complete, he or she shall notify the complainant, within 30 days of 
receipt of the incomplete complaint, that additional information is 
needed. If the complainant fails to complete the complaint within 30 
days of receipt of this notice, the EEO Programs Director shall dismiss 
the complaint without prejudice.
    (3) If the EEO Programs Director receives a complaint over which the 
Board does not have jurisdiction, the EEO Programs Director shall notify 
the complainant and shall make reasonable efforts to refer the complaint 
to the appropriate government entity.
    (f) Investigation/conciliation. (1) Within 180 days of the receipt 
of a complete complaint, the EEO Programs Director shall complete the 
investigation of the complaint, attempt informal resolution of the 
complaint, and if no informal resolution is achieved, the EEO Programs 
Director shall forward the investigative report to the Staff Director 
for Management.
    (2) The EEO Programs Director may request Board employees to 
cooperate in the investigation and attempted resolution of complaints. 
Employees who are requested by the EEO Programs Director to participate 
in any investigation under this section shall do so as part of their 
official duties and during the course of regular duty hours.
    (3) The EEO Programs Director shall furnish the complainant with a 
copy of the investigative report promptly after completion of the 
investigation and provide the complainant with an opportunity for 
informal resolution of the complaint.
    (4) If a complaint is resolved informally, the terms of the 
agreement shall be reduced to writing and made a part of the complaint 
file, with a copy of the agreement provided to the complainant. The 
written agreement may

[[Page 600]]

include a finding on the issue of discrimination and shall describe any 
corrective action to which the complainant has agreed.
    (g) Letter of findings. (1) If an informal resolution of the 
complaint is not reached, the EEO Programs Director shall transmit the 
complaint file to the Staff Director for Management. The Staff Director 
for Management shall, within 180 days of the receipt of the complete 
complaint by the EEO Programs Director, notify the complainant of the 
results of the investigation in a letter sent by certified mail, return 
receipt requested, containing:
    (i) Findings of fact and conclusions of law;
    (ii) A description of a remedy for each violation found;
    (iii) A notice of right of the complainant to appeal the letter of 
findings under paragraph (k) of this section; and
    (iv) A notice of right of the complainant to request a hearing.
    (2) If the complainant does not file a notice of appeal or does not 
request a hearing within the times prescribed in paragraph (h)(1) and 
(j)(1) of this section, the EEO Programs Director shall certify that the 
letter of findings under this paragraph (g) is the final decision of the 
Board at the expiration of those times.
    (h) Filing an appeal. (1) Notice of appeal, with or without a 
request for hearing, shall be filed by the complainant with the EEO 
Programs Director within 30 days of receipt from the Staff Director for 
Management of the letter of findings required by paragraph (g) of this 
section.
    (2) If the complainant does not request a hearing, the EEO Programs 
Director shall notify the Board of Governors of the appeal by the 
complainant and that a decision must be made under paragraph (k) of this 
section.
    (i) Acceptance of appeal. The EEO Programs Director shall accept and 
process any timely appeal. A complainant may appeal to the 
Administrative Governor from a decision by the EEO Programs Director 
that an appeal is untimely. This appeal shall be filed within 15 
calendar days of receipt of the decision from the EEO Programs Director.
    (j) Hearing. (1) Notice of a request for a hearing, with or without 
a request for an appeal, shall be filed by the complainant with the EEO 
Programs Director within 30 days of receipt from the Staff Director for 
Management of the letter of findings required by paragraph (g) of this 
section. Upon a timely request for a hearing, the EEO Programs Director 
shall request that the Board of Governors, or its designee, appoint an 
administrative law judge to conduct the hearing. The administrative law 
judge shall issue a notice to the complainant and the Board specifying 
the date, time, and place of the scheduled hearing. The hearing shall be 
commenced no earlier than 15 calendar days after the notice is issued 
and no later than 60 days after the request for a hearing is filed, 
unless all parties agree to a different date.
    (2) The hearing, decision, and any administrative review thereof 
shall be conducted in conformity with 5 U.S.C. 554-557. The 
administrative law judge shall have the duty to conduct a fair hearing, 
to take all necessary actions to avoid delay, and to maintain order. He 
or she shall have all powers necessary to these ends, including (but not 
limited to) the power to:
    (i) Arrange and change the dates, times, and places of hearings and 
prehearing conferences and to issue notice thereof;
    (ii) Hold conferences to settle, simplify, or determine the issues 
in a hearing, or to consider other matters that may aid in the 
expeditious disposition of the hearing;
    (iii) Require parties to state their positions in writing with 
respect to the various issues in the hearing and to exchange such 
statements with all other parties;
    (iv) Examine witnesses and direct witnesses to testify;
    (v) Receive, rule on, exclude, or limit evidence;
    (vi) Rule on procedural items pending before him or her; and
    (vii) Take any action permitted to the administrative law judge as 
authorized by this subpart G or by the provisions of the Administrative 
Procedures Act (5 U.S.C. 554-557).

[[Page 601]]

    (3) Technical rules of evidence shall not apply to hearings 
conducted pursuant to this paragraph (j), but rules or principles 
designed to assure production of credible evidence and to subject 
testimony to cross-examination shall be applied by the administrative 
law judge wherever reasonably necessary. The administrative law judge 
may exclude irrelevant, immaterial, or unduly repetitious evidence. All 
documents and other evidence offered or taken for the record shall be 
open to examination by the parties, and opportunity shall be given to 
refute facts and arguments advanced on either side of the issues. A 
transcript shall be made of the oral evidence except to the extent the 
substance thereof is stipulated for the record. All decisions shall be 
based upon the hearing record.
    (4) The costs and expenses for the conduct of a hearing shall be 
allocated as follows:
    (i) Employees of the Board shall, upon the request of the 
administrative law judge, be made available to participate in the 
hearing and shall be on official duty status for this purpose. They 
shall not receive witness fees.
    (ii) Employees of other Federal agencies called to testify at a 
hearing, at the request of the administrative law judge and with the 
approval of the employing agency, shall be on official duty status 
during any absence from normal duties caused by their testimony, and 
shall not receive witness fees.
    (iii) The fees and expenses of other persons called to testify at a 
hearing shall be paid by the party requesting their appearance.
    (iv) The administrative law judge may require the Board to pay 
travel expenses necessary for the complainant to attend the hearing.
    (v) The Board shall pay the required expenses and charges for the 
administrative law judge and court reporter.
    (vi) All other expenses shall be paid by the parties incurring them.
    (5) The administrative law judge shall submit in writing recommended 
findings of fact, conclusions of law, and remedies to the complainant 
and the EEO Programs Director within 30 days, after the receipt of the 
hearing transcripts, or within 30 days after the conclusion of the 
hearing if no transcripts are made. This time limit may be extended with 
the permission of the EEO Programs Director.
    (6) Within 15 calendar days after receipt of the recommended 
decision of the administrative law judge, the complainant may file 
exceptions to the recommended decision with the EEO Programs Director. 
On behalf of the Board, the EEO Programs Director may, within 15 
calendar days after receipt of the recommended decision of the 
administrative law judge, take exception to the recommended decision of 
the administrative law judge and shall notify the complainant in writing 
of the Board's exception. Thereafter, the complainant shall have 10 
calendar days to file reply exceptions with the EEO Programs Director. 
The EEO Programs Director shall retain copies of the exceptions and 
replies to the Board's exception for consideration by the Board. After 
the expiration of the time to reply, the recommended decision shall be 
ripe for a decision under paragraph (k) of this section.
    (k) Decision. (1) The EEO Programs Director shall notify the Board 
of Governors when a complaint is ripe for decision under this paragraph 
(k). At the request of any member of the Board of Governors made within 
3 business days of such notice, the Board of Governors shall make the 
decision on the complaint. If no such request is made, the 
Administrative Governor, or the Staff Director for Management if he or 
she is delegated the authority to do so, shall make the decision on the 
complaint. The decision shall be made based on information in the 
investigative record and, if a hearing is held, on the hearing record. 
The decision shall be made within 60 days of the receipt by the EEO 
Programs Director of the notice of appeal and investigative record 
pursuant to paragraph (h)(1) of this section or 60 days following the 
end of the period for filing reply exceptions set forth in paragraph 
(j)(6) of this section, whichever is applicable. If the decision-maker 
under this paragraph (k) determines that additional information is 
needed from any party, the decision-maker shall request the information 
and provide the other party or parties

[[Page 602]]

an opportunity to respond to that information. The decision-maker shall 
have 60 days from receipt of the additional information to render the 
decision on the appeal. The decision-maker shall transmit the decision 
by letter to all parties. The decision shall set forth the findings, any 
remedial actions required, and the reasons for the decision. If the 
decision is based on a hearing record, the decision-maker shall consider 
the recommended decision of the administrative law judge and render a 
final decision based on the entire record. The decision-maker may also 
remand the hearing record to the administrative law judge for a fuller 
development of the record.
    (2) The Board shall take any action required under the terms of the 
decision promptly. The decision-maker may require periodic compliance 
reports specifying:
    (i) The manner in which compliance with the provisions of the 
decision has been achieved;
    (ii) The reasons any action required by the final Board decision has 
not been taken; and
    (iii) The steps being taken to ensure full compliance.
    (3) The decision-maker may retain responsibility for resolving 
disputes that arise between parties over interpretation of the final 
Board decision, or for specific adjudicatory decisions arising out of 
implementation.



PART 269_POLICY ON LABOR RELATIONS FOR THE FEDERAL RESERVE 
BANKS--Table of Contents



Sec.
269.1  Definition of a labor organization.
269.2  Membership in a labor organization.
269.3  Recognition of a labor organization and its relationship to a 
          Federal Reserve Bank.
269.4  Determination of appropriate bargaining unit.
269.5  Elections.
269.6  Unfair labor practices.
269.7  Approval of agreement and required contents.
269.8  Grievance procedures.
269.9  Mediation of negotiation impasses.
269.10  Time for internal labor organization business, consultations and 
          negotiations.
269.11  Federal Reserve System Labor Relations Panel.
269.12  Amendment.

    Authority: Sec. 11, 38 Stat. 261; 12 U.S.C. 248.

    Source: 48 FR 32331, July 15, 1983, unless otherwise noted.



Sec. 269.1  Definition of a labor organization.

    When used in this part, the term labor organization means any lawful 
organization of any kind, or any employee representation group, which 
exists for the purpose, in whole or in part, of dealing with any Federal 
Reserve Bank concerning grievances, personnel policies and practices, or 
other matters affecting the working conditions of its employees, but the 
term shall not include any organization:
    (a) Which asserts the right to strike against the government of the 
United States, the Board of Governors of the Federal Reserve System, or 
any Federal Reserve Bank, or to assist or participate in any such 
strike, or which imposes a duty or obligation to conduct, assist or 
participate in any such strike; or
    (b) Which fails to agree to refrain from seeking or accepting 
support from any organization which employs coercive tactics affecting 
any Federal Reserve Bank's operations; or
    (c) Which advocates the overthrow of the constitutional form of the 
government of the United States; or
    (d) Which discriminates with regard to the terms or conditions of 
membership because of race, color, sex, creed, age or national origin.



Sec. 269.2  Membership in a labor organization.

    (a) Any employee of a Federal Reserve Bank (hereinafter referred to 
as ``Bank'') is free to join and assist any existing labor organization 
or to participate in the formation of a new labor organization, or to 
refrain from any such activities except that officers and their 
administrative or confidential assistants, managers and other 
supervisory personnel, secretaries to all such persons and all employees 
engaged in Bank personnel work shall not be represented by any labor 
organization.
    (b) The rights described in paragraph (a) of this section for 
employees do not

[[Page 603]]

extend to participation in the management of a labor organization, or 
acting as a representative of any such organization, where such 
participation or activity would conflict with law or the duties of an 
employee.
    (c) Notwithstanding anything stated in paragraph (a) of this 
section, professional employees of a Bank shall not be represented by a 
labor organization which represents other employees of the Bank unless a 
majority of the professional employees eligible to vote specifically 
elect to be represented by such labor organization. However, the 
professional employees of a Bank may, if they so choose, be represented 
by a separate labor organization of their own, or by no labor 
organization at all.
    (d) Notwithstanding anything stated in paragraph (a) of this 
section, the guards of a Bank shall not be members of a labor 
organization which represents other categories of employees of the Bank. 
However, the guards of a Bank may, if they so choose, be represented by 
a separate labor organization of their own, or by no labor organization 
at all.



Sec. 269.3  Recognition of a labor organization and its relationship 
to a Federal Reserve Bank.

    (a) Any labor organization shall be recognized as the exclusive 
bargaining representative of the employees in an appropriate unit of a 
Bank when that organization has been selected by the employees in said 
unit pursuant to the procedure set forth in Sec. 269.5. A unit may be 
established in a Bank on any basis which will ensure a clear and 
identifiable community of interest among the employees concerned, and 
will promote effective relationships and the efficiency of the Bank's 
operations, but no unit shall be established solely on the basis of the 
extent to which a labor organization or employees in the proposed unit 
may have sought organization.
    (b) When a labor organization has been recognized as the exclusive 
representative of employees in an appropriate unit, it shall be entitled 
to act for and to negotiate agreements in good faith covering all 
employees in the unit, and it shall be responsible for representing the 
interests of all such employees without discrimination and without 
regard to whether they are members of that labor organization or not, 
provided that nothing in this Policy shall prevent an employee from 
adjusting his or her grievance without the intervention of the 
recognized labor organization. The labor organization shall be given 
notice of the adjustment and a reasonable opportunity to object on the 
sole ground that it is in conflict with the terms of the collective 
bargaining agreement.
    (c) A Bank, through appropriate officials, shall have the obligation 
to meet at reasonable times with representatives of a recognized labor 
organization to negotiate, in good faith, with respect to personnel 
policies and practices affecting working conditions for employees, 
provided that they do not involve matters in any of the following areas:
    (1) The purposes and functions of the Bank; the compensation of and 
hours worked by employees; any classification system used to evaluate 
positions; the budget of the Bank; the retirement system; any insurance 
or other benefit plans; internal security operations; maintenance of the 
efficiency of Bank operations including the determination of work 
methods; the right to contract out; the determination as to manpower 
requirements; use of technology and organization of work; and action to 
meet emergency situations;
    (2) Management rights as to the direction of employees, including 
hiring, promotion, transfer, classification, assignment, layoffs, 
retention, suspension, demotion, discipline and discharge, provided that 
on matters involving the procedures to be followed by a Bank for the 
exercise of its rights under this subparagraph, a Bank shall, upon 
request, discuss such procedures with a recognized labor organization, 
but shall not be required to negotiate for an agreement as to them;
    (3) All Bank matters specifically governed by applicable laws or 
regulations.

The obligation under this paragraph to negotiate with regard to certain 
matters shall include the execution of a written contract incorporating 
any

[[Page 604]]

agreement reached, but does not compel either a Bank or a labor 
organization to agree to a particular proposal or to make any concession 
during such negotiations.
    (d) At the time it requests an election to be held, any labor 
organization seeking recognition shall submit to a Bank a roster of its 
officers and representatives, a copy of its constitution and bylaws, and 
a statement of its objectives.
    (e) Subject to the provisions of Sec. 269.8, the exclusive 
recognition of a labor organization shall not preclude any employee, 
regardless of labor organization membership, from bringing matters of 
personal concern not governed by a collective bargaining agreement to 
the attention of appropriate officers, managers or supervisory personnel 
in accordance with applicable law, rule, regulation, or established Bank 
policy, or from choosing his or her own representative in such matters.



Sec. 269.4  Determination of appropriate bargaining unit.

    (a) If a labor organization asserts in writing to a Bank that it 
holds cards requesting a representation election signed by at least 
thirty percent (30%) of the employees in a unit which that organization 
considers to be an appropriate bargaining unit, the labor organization 
and the Bank shall each designate a representative who together shall 
request the American Arbitration Association (hereinafter referred to as 
``Association'') to submit to them from its National Panel of 
Professional Labor Arbitrators a list of seven (7) impartial, qualified 
professional arbitrators. The two designated representatives shall meet 
promptly and, by alternately striking names from the list, arrive at the 
remaining person who, together with the two representatives, shall 
constitute a Special Tribunal to rule on the labor organization's 
request for an election. The impartial arbitrator shall always act as 
the Chairperson of any Special Tribunal duly constituted under this 
section.
    (b) In the absence of an agreement between the labor organization 
and the Bank on the appropriate unit, the Tribunal shall investigate the 
facts, hold hearings if necessary, and issue a decision as to the 
appropriateness of the unit for the purposes of conducting a 
representation election for exclusive recognition and as to related 
issues submitted for consideration. The expenses for this proceeding, 
including the fees of the association and of the arbitrator, shall be 
borne equally by the labor organization and the Bank. If either the Bank 
or the labor organization should disagree with the Special Tribunal's 
decision, the party in disagreement may appeal within thirty (30) 
calendar days to the Federal Reserve System Labor Relations Panel 
referred to in Sec. 269.11, and the decision of the System Panel shall 
be final and binding on the parties.
    (c) If there is any dispute as to whether a labor organization holds 
cards signed by at least thirty percent (30%) of the employees in a unit 
claimed by a labor organization as appropriate or subsequently 
determined by the Special Tribunal as appropriate, the dispute shall be 
resolved by the Chairperson of the Special Tribunal, acting as a single 
impartial arbitrator. The expenses of such procedure, including the 
impartial arbitrator's fee, shall be borne equally by the labor 
organization and the Bank. The decision of the Chairperson of the 
Special Tribunal shall be final and binding and shall not be subject to 
appeal to the Federal Reserve System Labor Relations Panel.



Sec. 269.5  Elections.

    (a) Once there has been a final determination of the existence of an 
appropriate bargaining unit under the procedure in Sec. 269.4, and a 
showing by a labor organization that it has cards signed by at least 
thirty percent (30%) of the employees in such unit requesting a 
representation election, an election shall be ordered by the Special 
Tribunal. A labor organization shall be recognized as the exclusive 
bargaining representative of the unit if it is selected by a majority of 
the employees in the unit actually voting.
    (b) The election shall be held under the auspices of the Association 
and shall be subject to its election rules and regulations. However, if 
there should be any conflict between such rules and regulations and the 
provisions of this Policy, the latter shall

[[Page 605]]

prevail. The fees charged by the Association for its election service 
shall be borne equally by the labor organization and the Bank.
    (c) An election to determine whether a labor organization should 
continue as the exclusive bargaining representative of a particular unit 
shall be held when requested by a petition or other bona fide showing by 
at least thirty percent (30%) of the employees of that unit. Any dispute 
as to whether thirty percent (30%) of the employees requested such an 
election shall be resolved by the same procedure as that set forth in 
Sec. 269.4(b). The election shall be held under the auspices of the 
Association in the same manner described in paragraph (b) of this 
section. The recognition of a labor organization as the exclusive 
bargaining representative of a unit shall be revoked if a majority of 
the employees in the unit who actually vote signify approval of such 
revocation.
    (d) Only one election may be held in any unit in a twelve (12) month 
period to determine whether a labor organization should become, or 
continue to be recognized as, the exclusive representative of the 
employees in that unit.
    (e) Upon receipt of a request for an election from a labor 
organization under Sec. 269.4(a), it shall be incumbent on the Bank, 
labor organization and all others to refrain from any conduct, action or 
policy that interferes with or restrains employees from making a fair 
and free choice in selecting or rejecting a bargaining representative 
consistent with the right of the Bank, labor organization or employees 
to exercise privileges of free speech in the expression of any views, 
argument or opinion, or the dissemination thereof, whether in oral, 
written, printed, graphic or visual form.
    (f) The Special Tribunal shall hear and decide any post-election 
objections of a Bank or labor organization filed with it claiming that a 
violation of paragraph (e) of this section has improperly affected the 
outcome of the election. Such objections must be filed with the Special 
Tribunal no later than five (5) business days after the date of 
election. In the event of such violation by a Bank, labor organization 
or other individuals or organizations which the Special Tribunal finds 
sufficient to have prejudiced the outcome of an election, appropriate 
remedial action shall be taken in the form of setting aside the election 
results and ordering a new election, provided, however, that an appeal 
from the order of the Special Tribunal may be taken within thirty (30) 
calendar days to the Federal Reserve System Labor Relations Panel by 
either the affected Bank or labor organization. The ruling of the System 
Panel shall be final and binding. Neither the Special Tribunal nor the 
Federal Reserve System Labor Relations Panel shall have the authority to 
direct a Bank to recognize a labor organization as the exclusive 
collective bargaining representative without a valid election being held 
in which a majority of the employees actually voting have so designated 
such labor organization.
    (g) The Special Tribunal and the Federal Reserve System Labor 
Relations Panel will adhere to any rules and regulations promulgated by 
the Board of Governors for the administration of the provisions of 
paragraphs (e) and (f) of this section.



Sec. 269.6  Unfair labor practices.

    (a) It shall be an unfair labor practice for a Bank to: (1) 
Interfere with, restrain, or coerce employees in the exercise of the 
rights guaranteed in Sec. 269.2(a); (2) dominate or interfere with the 
formation or administration of any labor organization, or to contribute 
financial or other support to it; (3) encourage or discourage membership 
in any labor organization by discrimination in regard to hire or tenure 
of employment or any term or condition of employment; (4) refuse to 
bargain collectively with the representatives of its employees subject 
to the provisions of Sec. 269.3 (b) and (c).
    (b) It shall be an unfair labor practice for a labor organization, 
its agents or representatives to: (1) Restrain or coerce employees in 
the exercise of the rights guaranteed in Sec. 269.2(a); (2) cause or 
attempt to cause a Bank to Discriminate against an employee in violation 
of paragraph (a)(3) of this section; (3) refuse to bargain collectively 
with a Bank, provided the labor organization is the exclusive 
representative of a unit of employees.

[[Page 606]]

    (c) Notwithstanding anything previously stated in this section, the 
expression of any view, argument or opinion, or the dissemination 
thereof, whether in oral, written, printed, graphic or visual form, 
shall not constitute or be evidence of an unfair labor practice, if such 
expression contains no threat of reprisal or force, or promise of 
benefit.
    (d) The Federal Reserve System Labor Relations Panel will adhere to 
the rules and regulations promulgated by the Board of Governors for the 
prevention and remedy of the unfair labor practices listed herein.



Sec. 269.7  Approval of agreement and required contents.

    Any agreement entered into with a labor organization as the 
exclusive representative of employees in a unit must be approved by the 
President of the Bank or a designated officer representative. All 
agreements with labor organizations shall also be subject to the 
requirement that the administration of all matters covered by the 
agreement shall be governed by the provisions of applicable laws and 
Federal Reserve System rules and regulations, and the agreement shall at 
all times be applied subject to such laws and regulations.



Sec. 269.8  Grievance procedures.

    (a) Subject to the provisions of Sec. 269.3(b), an agreement entered 
into with a labor organization as the exclusive representative of 
employees in a unit may contain a grievance procedure, applicable only 
to employees in such unit and which shall be the exclusive means for a 
labor organization and/or an employee to obtain resolution of a 
grievance arising under such agreement.
    (b) Grievance procedures established by a labor agreement may also 
include provisions for arbitration of unresolved grievances by a 
tripartite panel under the Voluntary Labor Arbitration Rules of the 
Association with the impartial arbitrator selected by the Bank and labor 
organization representatives on the arbitration panel to be the 
Chairperson. In such event, arbitration shall extend only to grievances 
which involve the interpretation and application of specific provisions 
of a labor agreement and not to any other matters or to changes in or 
proposed changes in the agreement. Arbitration may only be invoked by 
labor organization on behalf of individual employees with their 
concurrence.



Sec. 269.9  Mediation of negotiation impasses.

    In the event of an impasse in negotiations between the parties for a 
collective bargaining agreement, either the labor organization or the 
Bank may request the appointment of a qualified neutral person as a 
mediator to assist the parties in attempting to resolve the impasse. The 
parties will meet promptly with the mediator, and all matters discussed, 
as well as any documents submitted, shall not be publicly divulged for 
any reason. The cost of the mediator shall be borne equally by the 
parties.



Sec. 269.10  Time for internal labor organization business, 
consultations and negotiations.

    Solicitation of memberships, dues or other internal labor 
organization business shall be conducted during the nonduty hours of the 
employees concerned. Officially requested or approved consultation 
between management executives and representatives of a labor 
organization shall, whenever practicable, be conducted on official time, 
but the President or a duly authorized officer of a Bank may require 
that negotiations with a labor organization be conducted during the 
nonduty hours of the Bank.



Sec. 269.11  Federal Reserve System Labor Relations Panel.

    There shall be established a Federal Reserve System Labor Relations 
Panel, which shall consist of three members: one member of the Board of 
Governors of the Federal Reserve System, who shall be Chairperson of the 
Panel, and two public members. Each member shall be selected by the 
Board of Governors; provided, however, that the public members shall not 
have any present or past affiliation with the Federal Reserve System. 
Initially, one of the two public members shall be appointed for a term 
of two years, and

[[Page 607]]

the other for a term of three years. Thereafter, each public member 
shall be appointed for a term of three years, except that in the case of 
an unexpired term of a former member, the successor shall be appointed 
to fill such unexpired term. Upon the expiration of their term of 
office, public members may continue to serve until their successors are 
appointed and have qualified. A public member may be removed by the 
Board only upon notice and hearing, and only for neglect of duty or 
malfeasance in office. The Panel shall be responsible for the duties 
assigned to it as set forth in this Policy.



Sec. 269.12  Amendment.

    This policy may be amended upon appropriate legal notice to all 
Federal Reserve Banks and labor organizations recognized, or seeking 
recognition, at any such Bank under this Policy. In no instance shall an 
amendment be applied retroactively.



PART 269a_DEFINITIONS--Table of Contents



Sec.
269a.1  Party.
269a.2  Party in interest.
269a.3  Intervenor.
269a.4  Investigator.
269a.5  Hearing officer.

    Authority: Sec. 11, 38 Stat. 261 (12 U.S.C. 248).

    Source: 35 FR 8919, June 10, 1970, unless otherwise noted. 
Redesignated at 48 FR 32334, July 15, 1983.



Sec. 269a.1  Party.

    The term Party means any person, employee, group of employees, labor 
organization, or bank as defined in Sec. 269.2 of this chapter (a) 
filing a charge, petition, application, or rquest pursuant to these 
rules and regulations, (b) named as a party in a charge, complaint, 
petition, application, or request, or (c) whose intervention has been 
permitted or directed by the investigator, the hearing officer, or the 
panel, as the case may be, but nothing shall be construed to prevent the 
panel, or any officer designated by it, from limiting any party's 
participation in the proceedings to the extent of his interest as 
determined by the investigator, hearing officer, or panel.



Sec. 269a.2  Party in interest.

    The term party in interest means any person, employee, group of 
employees, labor organization, or bank that will be or is directly 
affected by the resolution of any charge, complaint, petition, 
application, or request presented to or being considered by the panel or 
its designated officers. Any (a) labor organization (not a charging 
party nor a charged party) attempting to organize the employees of a 
bank or that is or was recently a party to a collective bargaining 
agreement with a bank named as a party in a charge, complaint, petition, 
application, or a request, or (b) bank (not a charging party nor a 
charged party) that acts as the employer of any person named in a 
charge, complaint, petition, or request shall be deemed to be also a 
party in interest and shall be entitled to notification and service of 
all relevant procedures and documents.



Sec. 269a.3  Intervenor.

    The term intervenor means the party in a proceeding whose 
intervention has been permitted or directed by the panel or its 
designated officer.



Sec. 269a.4  Investigator.

    The term investigator means the officer designated by the panel to 
investigate and determine whether or not a complainant has established a 
prima facie case, as defined in Sec. 269b.210 of this subchapter.

[35 FR 8919, June 10, 1970. Redesignated at 48 FR 32334, July 15, 1983, 
as amended at 65 FR 2530, Jan. 18, 2000]



Sec. 269a.5  Hearing officer.

    The term hearing officer means the officer designated by the panel 
to conduct hearings pursuant to Sec. 269b.420 et seq. of this subchapter 
and whose duties and power are enumerated in Sec. 269b.442 of this 
subchapter.

[35 FR 8919, June 10, 1970. Redesignated at 48 FR 32334, July 15, 1983, 
as amended at 65 FR 2530, Jan. 18, 2000]

[[Page 608]]



PART 269b_CHARGES OF UNFAIR LABOR PRACTICES--Table of Contents



           Charges of Violations of Sec. 269.6 (of the Policy)

Sec.
269b.110  Charges.
269b.111  Filing of charges.
269b.112  Contents of the charge.
269b.113  Withdrawal or settlement.
269b.120  Answer to a charge.
269b.121  Contents of answer.

                        Preliminary Investigation

269b.210  Referral to National Center for Dispute Settlement.
269b.220  Priority; acceleration of proceedings.
269b.230  Assessment of costs; posting of bond.
269b.240  The investigation.

                 Appeal From the Center's Determination

269b.310  Appeal rights.
269b.320  Proceedings before the panel.

                           Formal Proceedings

269b.410  Notice of hearing.
269b.420  Designation of hearing officer.
269b.430  Contents of notice of hearing.
269b.440  Conduct of hearing.
269b.441  Rights of parties.
269b.442  Duties and powers of the hearing officer.
269b.443  Motions before or after a hearing.
269b.444  Objection to conduct of hearing; other motions during hearing.
269b.450  Submission of hearing officer's report to the panel.

    Panel Review of Hearing Officer's Report and Recommended Decision

269b.510  Review by panel.
269b.520  Exceptions to hearing officer's report.
269b.530  Briefs in support of the hearing officer's report.
269b.540  Action by the panel.

                               Compliance

269b.610  Procedures.
269b.620  Action by panel.

                              General Rules

269b.710  Rules to be liberally construed.
269b.720  Computation of time for filing papers.
269b.730  Number of copies; form.
269b.731  Signature.
269b.740  Service of pleading and other paper; statement of service.
269b.750  Requests for appearance of witnesses and production of 
          documents.

    Authority: Sec. 11, 38 Stat. 261 (12 U.S.C. 248).

    Source: 35 FR 8920, June 10, 1970, unless otherwise noted. 
Redesignated at 48 FR 32334, July 15, 1983.

           Charges of Violations of Sec. 269.6 (of the Policy)



Sec. 269b.110  Charges.

    A charge that any bank or labor organization, or agents or 
representatives of a bank or labor organization, has engaged in or is 
engaging in any act prohibited under Sec. 269.6 of the policy or has 
failed to take any action required by Sec. 269.6 of the policy may be 
filed by any party in interest, or its representative, within 60 days 
after the alleged violations or within 60 days after the charging party 
has become or should have become aware of the alleged violation.



Sec. 269b.111  Filing of charges.

    Any charge pursuant to Sec. 269b.110 shall be in writing and signed. 
An original and three copies of such charge, together with one copy for 
each charged party named, shall be transmitted to the Secretary of the 
Federal Reserve System Labor Relations Panel, 20th Street and 
Constitution Avenue NW., Washington, DC 20551. Within 5 days after 
receipt of a properly filed charge that meets the formal requirements 
set forth in Sec. 269b.112, the Secretary will cause a copy of such 
charge to be served on each party against whom the charge is made and 
upon all other potential parties in interest.



Sec. 269b.112  Contents of the charge.

    A charge shall contain the following:
    (a) The full name, address, and telephone number of the person, 
bank, or labor organization making the charge (hereinafter referred to 
as the charging party) and of the person signing the charge who shall 
state also his relation to or his capacity with the complainant. Where 
discrimination is alleged, all known discriminatees shall be named;
    (b) The name, address, and telephone number of the bank or labor 
organization against whom the charge is made (hereinafter referred to as 
the respondent) and of any parties in interest;

[[Page 609]]

    (c) A clear and concise statement of the facts constituting the 
alleged unfair labor practice, including the time and place of 
occurrence of the particular acts, and a statement of the portion or 
portions of the policy alleged to have been violated. A charge shall not 
incorporate by reference affidavits or other documents submitted in 
support of the charge;
    (d) A statement of the relief sought;
    (e) A statement of any other remedies invoked for the redress of the 
alleged violations of the policy and the results, if any, of their 
invocation. If the issue in such charge is subject to an established 
grievance procedure, the complainant must irrevocably elect, prior to 
the completion of the first applicable step of the grievance procedure, 
whether he will invoke the grievance procedure or whether he will invoke 
the unfair labor practice procedures of the panel. A charge which is 
withdrawn or rejected by the panel as defective prior to the institution 
of any formal proceedings by the panel shall not prejudice the filing of 
a grievance on the same matter, unless the parties otherwise so provide;
    (f) A declaration by the person signing the charge, that its 
contents are true and correct to the best of his knowledge and belief, 
such declaration to be subject to applicable provisions of the Federal 
Criminal Code (18 U.S.C. 1001).



Sec. 269b.113  Withdrawal or settlement.

    A charge may be withdrawn or settlement of the matter may be reached 
without consent of the panel at any time. In connection with any such 
settlement the parties in interest shall prepare and sign a settlement 
agreement which shall record that the settlement is mutually 
satisfactory, shall stipulate any occurrences which constituted unfair 
labor practices and shall set forth the terms of the settlement.



Sec. 269b.120  Answer to a charge.

    The respondent shall file an answer to the charge with the Secretary 
of the panel within 15 days after service of the charge. Upon 
application and for good cause shown, the panel may extend the time 
within which the answer shall be filed. One copy of the answer shall be 
served on each party with proof of service furnished to the Secretary, 
and the original, which shall be signed, and four copies shall be filed 
with the Secretary.



Sec. 269b.121  Contents of answer.

    The answer shall contain:
    (a) A specific admission or denial, and where appropriate, 
explanation thereof; or if the respondent is without knowledge of the 
allegation, he shall so state and such statement shall operate as a 
denial. Admissions or denials may be to all or part of an allegation but 
shall be responsive to the substance of the allegation;
    (b) A specified, detailed statement of any affirmative defense;
    (c) A clear and concise statement of the facts and matters of law 
relied upon constituting the grounds of defense.

Any allegation of the charge not denied in the answer may be deemed 
admitted and may be so found by the panel.

                        Preliminary Investigation



Sec. 269b.210  Referral to National Center for Dispute Settlement.

    (a) Within 5 days after the answer to the charge has been or should 
have been filed, the panel may refer the matter, accompanied by a 
general or particularized request, to the National Center for Dispute 
Settlement of the American Arbitration Association (hereinafter referred 
to as the Center) to make an investigation and to determine whether the 
charging party has established a prima facie case.
    (b) For the purposes of this part, a prima facie case means a case 
where allegations of an unfair labor practice that have been presented 
give reasonable cause to believe that such practice may have occurred, 
but where evidentiary proceedings are necessary for determination of 
whether the allegations are substantiated.
    (c) The Center may use its own personnel or may hire individuals on 
a contract basis to conduct such investigations. The panel may 
consolidate or sever proceedings conducted pursuant to this part.

[[Page 610]]

    (d) Any party may request the Center or other appointing authority 
to withdraw appointment of the investigator within 3 days after 
designation on the basis of previously demonstrated personal bias, 
conflict of interest, or prejudice. Such a request shall set forth in 
detail the matter alleged to constitute grounds for disqualification. 
Denial of a request by the Center or other appointing authority shall be 
substantiated in writing and transmitted to the requesting party, and 
shall be submitted to the panel together with the complete report of the 
investigator required in Sec. 269b.240(b).



Sec. 269b.220  Priority; acceleration of proceedings.

    (a) A charge of ``refusal to bargain'' or a charge that, if 
sustained, would require the setting aside of an election or the conduct 
of a new election shall be given priority.
    (b) The parties, individually or jointly, may petition the panel at 
any time to invoke immediately the formal hearing procedures set forth 
in Sec. 269b.410. They may also petition the panel to entertain the 
matter itself without prior investigation and/or without the formal 
hearing procedure set forth in Sec. 269b.410. The panel is empowered 
also on its own motion to so accelerate disposition of the case.
    (c) Before accelerating a case the panel may utilize whatever 
proceedings it may deem appropriate and timely to allow parties in 
interest to comment on the proposed course of action.



Sec. 269b.230  Assessment of costs; posting of bond.

    (a) The panel shall normally bear the costs of an investigation 
conducted pursuant to Sec. 269b.210, but the panel may require that the 
charging party, the respondent, and/or other parties in interest or 
intervenors, or several of them, shall bear a portion or all of the 
costs therefor. With respect to each case where an investigation is 
directed by the panel, the charging party may, in the discretion of the 
panel, be required to file a cost bond, or equivalent security, of $500, 
unless the panel fixes a different amount.
    (b) Among the circumstances that may be the basis for payment of 
costs by other than the panel are cases where a clearly spurious charge 
has been filed or where the filing of a charge was necessary to redress 
the respondent's flagrant misconduct.
    (c) The bond or equivalent security shall be to secure the payment 
of the costs of the investigation as may be assessed by the panel. In 
those cases where the panel does not assess such costs, the bond posted 
and the cost thereof shall be reimbursed to the charging party. The 
panel may require also the posting of a cost bond by the respondent or 
other party to the proceeding, who shall be entitled to reimbursement of 
the cost of the bond in the event that no costs of investigation are 
assessed upon such party by the panel.
    (d) Notification of the panel's decision that a bond shall be 
required shall be effected by registered mail, such notice to advise of 
the amount of the bond required and the period by which it shall be 
posted.
    (e) Absent good cause shown, failure of a party to file timely such 
cost bond or equivalent security may be ground for dismissal or other 
administrative sanctions deemed appropriate by the Panel.



Sec. 269b.240  The investigation.

    (a) The purpose of the investigation is (1) to ascertain, analyze, 
and apply the relevant facts in order to determine whether or not formal 
proceedings are warranted and (2) to assist, by mediation and other 
appropriate means, the parties to reach a mutually satisfactory 
resolution of the issues as an alternative to the hearing process. In so 
doing, the investigator is not limited to the allegations set forth in 
the charge and may advise the charging party to amend his charge. In 
addition, he should adduce facts pertaining to the remedy as well as to 
the alleged violation. Investigation should also adduce facts pertaining 
to the jurisdiction of the panel and the timeliness of the charge. If 
the charge is untimely on its face, no investigation shall be required 
except to determine whether or not attending circumstances warrant 
waiving the time requirements, set forth in Sec. 269b.110.

[[Page 611]]

The investigator may request the appearance of parties and witnesses, 
may cause, the production of relevant document, and may take or cause 
depositions to be taken.
    (b) When the investigation has been completed, the Center shall 
issue a written determination whether the charging party has established 
a prima facie case, whether the charge was timely filed, and whether the 
charge is within the jurisdiction of the panel, and reasons therefor. 
This determination shall be served upon the panel and all parties. The 
panel shall receive also the complete report of the investigator.

                 Appeal From the Center's Determination



Sec. 269b.310  Appeal rights.

    Where the investigator has found that a prima facie case does not 
exist, a party, including an intervenor but excluding the respondent or 
other parties having the same interest as the respondent, within 5 days 
after receiving the Center's determination may petition the panel to set 
aside the determination and to cause formal proceedings, set forth in 
Sec. 269b.410, to be invoked. The panel may grant such petition only on 
grounds that the Center or its agents were arbitrary, capricious, or 
acted contrary to law or the policy, or that the investigator's 
determination is clearly erroneous. The filing requirements for such a 
petition shall be the same as that for the filing of a charge, as set 
forth in Sec. 269b.111.



Sec. 269b.320  Proceedings before the panel.

    The panel shall issue its decision within 15 days after the receipt 
of the petition provided for in Sec. 269b.310 or by the end of that 
period shall announce that it will require briefs by the parties. Such 
announcement shall specify the requirements as to contents of the 
briefs, and the time for submission, which shall vary to meet the 
circumstances of the matter appealed. The panel, at such time, may also 
require oral argument or the production of evidence or may so order oral 
argument and/or the production of evidence after examination of the 
briefs. The panel shall issue its final decision within 20 days after 
briefs have been filed, evidence has been produced, or oral argument has 
been conducted.

                           Formal Proceedings



Sec. 269b.410  Notice of hearing.

    If formal proceedings are found to be needed under the above 
procedures, and if no satisfactory settlement has been reached within 5 
days after finding that a prima facie case exists, the Secretary of the 
panel, unless there is cause for granting an extension of time, shall 
issue and cause to be served upon the parties a notice of hearing. The 
panel shall appoint, pursuant to Sec. 269b.420, a hearing officer to 
hold a hearing and issue a report to the panel containing findings of 
fact, conclusions of law, and recommendations including, where 
appropriate, remedial action to be taken and notices to be posted. The 
Secretary shall furnish to the hearing officer the investigator's report 
and all other relevant information in the panel's possession.



Sec. 269b.420  Designation of hearing officer.

    (a) The panel, absent special circumstances, shall employ the center 
to select the hearing officer to conduct the hearing at a site most 
convenient to the parties and witnesses. The individual who performed 
the investigation, pursuant to Sec. 269b.210, shall be barred from 
acting as a hearing officer on the same matter, unless all parties in 
interest agree to his participation. The selection of the hearing 
officer, to the extent practicable, shall be done with the concurrence 
of the parties.
    (b) Any party may request the hearing officer, at any time following 
his designation and before the filing of his decision, to withdraw on 
grounds of previously demonstrated personal bias, conflict of interest, 
or prejudice by filing with him promptly upon the discovery of the 
alleged facts a timely affidavit setting forth in detail the matters 
alleged to constitute grounds for disqualification. If, in the opinion 
of the hearing officer, such affidavit is filed with due diligence and 
is sufficient on its face, he shall forthwith disqualify himself and 
withdraw from the

[[Page 612]]

proceeding. If he does not so withdraw, he shall so rule upon the 
record, stating the grounds for his ruling and proceed with the hearing, 
or, if the hearing has closed, he shall proceed with the issuance of his 
decision, and his ruling shall be subject to the same review by the 
panel that is given to the rest of his decision.
    (c) The costs of conducting the hearing and of the hearing officer 
shall be borne by the panel. Witness fees and expenses shall be paid by 
the party at whose instance the witnesses appear.



Sec. 269b.430  Contents of notice of hearing.

    The notice of hearing shall include:
    (a) A copy of the charge;
    (b) A statement of the time of the hearing which shall be not less 
than 10 days after service of the notice of hearing, except in 
extraordinary circumstances. All charges involving a ``refusal to 
bargain'' allegation and all charges, if sustained, that would require 
the setting aside of an election, or the conducting of a new election 
shall be given first priority;
    (c) A statement of the place and nature of hearing;
    (d) A statement of the legal authority and jurisdiction under which 
the hearing is to be held;
    (e) A reference to the particular section of the policy and rules 
and regulations of this chapter involved;
    (f) A copy of the determination, if any, made causing the invocation 
of these formal proceedings.



Sec. 269b.440  Conduct of hearing.

    (a) Hearing shall be public unless otherwise ordered by the hearing 
officer or the panel. An official reporter shall make the only official 
transcript of such proceedings.
    (b) Copies of the official transcript will not be provided to the 
parties, but may be purchased by arrangement with the official reporter 
or with such costs as the panel may otherwise assess, or may be examined 
in the offices of the panel and/or the hearing officer subject to such 
conditions as the panel may prescribe.
    (c) A charging party in asserting that an unfair labor practice has 
been committed within the meaning of the policy, shall have the burden 
of proving the allegations of the charge, or the amended charge, by a 
preponderance of the evidence.
    (d) The parties shall not be bound by the technical rules of 
evidence, but the hearing officer, may, in his discretion, exclude any 
evidence or offer of proof if he finds that its probative value is 
substantially outweighed by the risk that its admission will either 
necessitate undue consumption of time or create substantial danger of 
undue prejudice or confusion.



Sec. 269b.441  Rights of parties.

    (a) Any party shall have the right to appear at such hearing in 
person, by counsel, or by other representative, to call, examine, and 
cross-examine witnesses as may be required for a full and true 
disclosure of the facts, and to introduce into the record documentary or 
other relevant evidence, except that the participation of any party 
shall be limited to the extent permitted by the hearing officer. Five 
copies of such documentary evidence shall be submitted unless the 
hearing officer permits a reduced number for good cause shown.
    (b) Any party shall be entitled, upon request, to a reasonable 
period at the close of the hearing for oral argument, which shall be 
included in the stenographic report of the hearing.
    (c) Any party shall be entitled to file a brief to the hearing 
officer within 10 days after the close of the hearing, but no reply 
brief may be filed except upon special permission of the hearing 
officer. A party filing a brief must file the original and one copy with 
the hearing officer along with proof of service of a copy of such brief 
to all parties. Requests for extension of time to file briefs must be 
made to the hearing officer who must receive the request at least 3 days 
prior to the expiration of time fixed for filing of briefs and notice of 
the request shall be served simultaneously on all other parties, and 
proof of service shall be furnished. If a request for extension of time 
is based on the need for a copy of the transcript prior to filing a 
brief, such request must be made to the hearing officer before the 
hearing is closed and must be ruled on prior to the close of the 
hearing.

[[Page 613]]



Sec. 269b.442  Duties and powers of the hearing officer.

    The hearing officer shall inquire fully into the facts as to whether 
the respondent has engaged or is engaging in an unfair labor practice as 
set forth in the charge or the amended charge. The hearing officer shall 
have authority, with respect to cases assigned to him, between the time 
he is designated and transfer of the case to the panel, subject to the 
rules and regulations in this subchapter, to:
    (a) Grant requests for attendance of witnesses and production of 
documents;
    (b) Rule upon petitions to quash requests made pursuant to paragraph 
(a) of this section;
    (c) Call, examine, and cross-examine parties and witnesses as may be 
required for a full and true disclosure of the facts and to introduce 
into the record documentary or other evidence;
    (d) Rule upon offers of proof and receive relevant evidence;
    (e) Take or cause depositions to be taken whenever the ends of 
justice would be served thereby;
    (f) Limit lines of questioning or testimony which are repetitive, 
cumulative, or irrelevant;
    (g) Regulate the course of the hearing and, if appropriate or 
necessary, exclude persons or counsel from the hearing for contemptuous 
conduct and strike all related testimony of witnesses refusing to answer 
any proper question;
    (h) Hold such prehearing conferences as may be necessary to expedite 
proceedings and hold such other conferences for the settlement or 
simplification of the issues by consent of the parties or upon his own 
motion;
    (i) Dispose of procedural requests, motions, or similar matters 
which shall be made part of the record of the proceeding, including 
motions referred to the hearing officer by the panel, and motions to 
amend pleadings, also to recommend dismissal of cases or portions 
thereof, and to order hearings reopened or, upon motion, consolidated 
prior to issuance of the hearing officer's report and recommendations;
    (j) Request the parties at any time during the hearing to state 
their respective positions concerning any issue in the case or theory in 
support thereof;
    (k) Require the parties, if necessary, to file written briefs in 
support of their positions;
    (l) Take any other action necessary under the foregoing and 
authorized by the rules and regulations in this subchapter.

In the event the hearing officer designated to conduct the hearing 
becomes unavailable, the panel may designate another hearing officer for 
the purpose of further hearing or issuance of a report and 
recommendation on the record as made, or both.



Sec. 269b.443  Motions before or after a hearing.

    All motions (including motions for intervention), other than those 
made during a hearing, shall be made in writing to the Secretary of the 
panel, shall briefly state the relief sought, shall set forth the 
grounds for such motion, and shall be accompanied 3 days thereafter by 
proof of service on all parties. Answering statements, if any, must be 
served on all parties and the original thereof, together with two copies 
and statement of service, shall be filed with the Secretary within 5 
days after service of the moving papers, unless the Secretary directs 
otherwise. Motions may be referred to the hearing officer whose ruling 
shall be made upon the record or the motion may be stayed until such 
time as the panel reviews the hearing officer's report and 
recommendations.



Sec. 269b.444  Objection to conduct of hearing; other motions during hearing.

    Any objection with respect to the conduct of the hearing, including 
any objection to the introduction of evidence, or any other motion 
during the course of the hearing, including a request to allow 
intervention, may be stated orally or in writing accompanied by a short 
statement of the grounds for such objection, and included in the record. 
No such objection shall be deemed waived by further participation in the 
hearing and such objection shall not stay the conduct of the hearing. 
Automatic exceptions will be allowed to all adverse rulings and

[[Page 614]]

shall be considered by the panel upon its review of the hearing 
officer's report and recommendations, if exception to the ruling is 
included in a statement of exceptions submitted to the panel after the 
close of the hearing, subject to the requirements of Sec. 269b.520.



Sec. 269b.450  Submission of hearing officer's report to the panel.

    After the close of the hearing, and the receipt of briefs, if any, 
the hearing officer shall prepare a report and recommendations, 
containing findings of fact, conclusions of law, including judgments as 
to the credibility of witnesses where appropriate, and the reasons or 
basis therefor, and recommendations as to the disposition of the case, 
and, where appropriate, including the remedial action and notices to be 
posted. After he has caused his report and recommendations to be served 
promptly on all parties to the proceeding, he shall transfer the case to 
the panel including his report and recommendations and the complete 
record. Such submission shall be made within 20 days after the close of 
the hearing and the receipt of briefs, if any, unless otherwise extended 
by the panel. The record shall include the charge, notice of hearing, 
service sheet, motions, rulings, orders, official transcript of the 
hearing, stipulations, objections, depositions, documentary evidence, 
exhibits, and any briefs or other documents submitted to the parties.

    Panel Review of Hearing Officer's Report and Recommended Decision



Sec. 269b.510  Review by panel.

    The panel shall review the report and recommendations of each 
hearing officer, the record of the hearing, and such other documents as 
enumerated in Sec. 269b.450, whether or not any party files an appeal, 
unless the parties file with the panel a settlement agreement within 10 
days after service of the hearing officer's report upon them. In the 
course of such review, the panel may require oral argument or written 
briefs on any relevant issue within such time limits as the panel may 
prescribe, and may reopen the record in any case and receive further 
evidence.



Sec. 269b.520  Exceptions to hearing officer's report.

    (a) Any party may file with the panel exceptions to the hearing 
officer's report and recommendations, and any ruling contained therein, 
if made within 10 days after service of the report and recommendations. 
The Panel may, for good cause shown, extend the time for filing such 
exceptions upon written request, with copies served simultaneously on 
the other parties, received not later than 3 days before the date 
exceptions are due. Requests for oral argument will not be considered 
unless filed with exceptions.
    (b) Any exception to a ruling, finding, conclusion, or 
recommendation which is not specifically urged shall be deemed to have 
been waived, although the panel may on its own motion rule upon any 
matter in the report and recommendations.
    (c) Any exception which fails to comply with the following 
requirements may be disregarded:
    (1) The exceptions shall set forth specifically the questions of 
procedure, fact, law, or policy to which exceptions are taken;
    (2) The exceptions shall identify the part of the hearing officer's 
report to which objection is made;
    (3) The exceptions shall designate by precise citation of page the 
portions of the record relied on, shall state the grounds for the 
exceptions, and shall include the citation of authorities unless set 
forth in a supporting brief.
    (d) Any brief in support of exceptions shall contain no matter not 
included within the scope of the exceptions and shall contain in the 
order indicated, the following:
    (1) A concise statement of the case containing all that is material 
to the consideration of the questions presented;
    (2) A specification of the questions involved and to be argued;
    (3) The argument, presenting clearly the points of fact and law 
relied on in support of the position taken on each question, with 
specific page reference to the transcript and the legal or other 
material relied on.
    (e) Answering briefs to the exceptions, and cross-exceptions and 
supporting briefs will not be permitted

[[Page 615]]

without special leave of the panel. Requests for oral argument will not 
be considered unless accompanying such petition for special leave.
    (f) Five copies of exceptions and briefs must be filed with the 
panel along with a statement of service of copies of the exceptions and 
supporting briefs upon all parties.



Sec. 269b.530  Briefs in support of the hearing officer's report.

    Any party may file a brief in support of the hearing officer's 
report and recommendations subject to the same time limits and rules 
pertaining to filing exceptions and briefs in support thereof, as set 
forth in Sec. 269b.520.



Sec. 269b.540  Action by the panel.

    After considering the hearing officer's report and recommendations, 
the record, any other documents, any exceptions filed, and any oral 
argument permitted, the panel shall issue its written decision. Upon 
finding that the respondent is engaging in or has engaged in an unfair 
labor practice, the panel shall order the respondent to cease and desist 
from such conduct and may require the respondent to take such 
affirmative corrective action as the panel deems appropriate to 
effectuate the Policy. Such action by the panel may include, but shall 
not be limited to, orders to provide back pay, provide reinstatement, 
set aside an election, bargain, and award recognition. Upon finding no 
violation of the policy, the panel shall dismiss the case. The panel's 
decision and order setting forth the remedial action, if any, required 
shall be conspicuously posted by the parties.

                               Compliance



Sec. 269b.610  Procedures.

    Where remedial action is ordered or provided for in a settlement 
agreement, a report to the panel that such action has been taken and 
that compliance with the decision and orders of the panel has been 
effected shall be submitted within the period of time specified in the 
panel's decision. The panel is empowered to utilize whatever 
administrative procedures it deems necessary to ascertain compliance.



Sec. 269b.620  Action by panel.

    In any case where it is found, after a hearing, that the respondent 
has failed to comply with the final decision and order of the panel, the 
panel shall be empowered to take whatever action may be appropriate and 
shall expect the full cooperation of the Board of Governors of the 
Federal Reserve System in obtaining such compliance. Among the actions 
that may be taken by the panel against a noncomplying respondent labor 
organization, after a show cause hearing, may be suspension of that 
labor organization's checkoff privileges or recognition as exclusive 
bargaining representative for such period of time as determined by the 
panel.

                              General Rules



Sec. 269b.710  Rules to be liberally construed.

    (a) Whenever the panel finds that unusual circumstances or good 
cause exist and that strict compliance with the terms of the rules and 
regulations in this subchapter will work an injustice or unfairness, it 
shall construe the rules and regulations in this subchapter liberally to 
prevent injustices and to effectuate the purposes of the policy.
    (b) When an act is required or allowed to be done at or within a 
specified time, the panel may at any time, in its discretion, order the 
period altered where it shall be manifest that strict adherence will 
work surprise or injustice or interfere with the proper effectuation of 
the policy.



Sec. 269b.720  Computation of time for filing papers.

    In computing any period of time prescribed by or allowed by the 
panel, the day of the act, event, or default after which the designated 
period of time begins to run, shall not be included. The last day of the 
period so computed is to be included, unless it is a Saturday, Sunday, 
or the applicable local legal holiday in which event the period shall 
run until the end of the next day which is neither a Saturday, Sunday, 
or legal holiday. When the period of time prescribed, or allowed, is 
seven days or less, intermediate Saturdays, Sundays,

[[Page 616]]

and legal holidays shall be excluded from the computations. When the 
rules and regulations in this subchapter require the filing of any 
paper, such document must be received by the panel or the officer or 
agent designated by it to receive such matter before the close of 
business of the last day of the time limit, if any, for such filing or 
extension of the time that may have been granted.



Sec. 269b.730  Number of copies; form.

    Except as otherwise provided in the regulations in this subchapter, 
any documents or papers shall be filed with four copies in addition to 
the original. All matters filed shall be printed, typed, or otherwise 
legibly duplicated; carbon copies of typewritten matter will be accepted 
if they are clearly legible.



Sec. 269b.731  Signature.

    The original of each document filed shall be signed by the party or 
by an attorney or representative of record for the party, or by an 
officer of the party and shall contain the address and telephone number 
of the person signing it.



Sec. 269b.740  Service of pleading and other paper; statement of service.

    (a) Method of service. Notices of hearings, decisions, orders, and 
other papers may be served personally or by registered or certified mail 
or by telegraph.
    (b) Upon whom served. Unless otherwise provided in the rules and 
regulations in this subchapter, all papers except complaints, petitions, 
and papers relating to requests for appearance or production of 
documents, shall be served upon all counsel of record and upon parties 
not represented by counsel or by their agents designated by them or by 
law and upon the panel, or its designated officers or agents, where 
appropriate. Service upon such counsel or representative shall 
constitute service upon the party, but a copy also shall be transmitted 
to the party.
    (c) Proof of service. The party or person serving the papers or 
process shall submit simultaneously to the panel or its designated 
representative, or the individual conducting the proceeding, a written 
statement of such service. Failure to file a statement of service shall 
not affect the validity of the service. Proof of service, except where 
otherwise provided, shall be required only if subsequent to the receipt 
of a statement of service a question is raised with respect to proper 
service.



Sec. 269b.750  Requests for appearance of witnesses and production 
of documents.

    Parties may request appearance of witnesses and production of 
documents by filing application therefor, depending upon the stage of 
the proceedings at which the request is made, with the officer 
conducting the investigation or hearing, or with the panel. Such 
application shall name and identify the witnesses or documents sought 
and shall briefly state the need for such appearance or production. The 
officer with whom such request is filed shall rule upon each such 
request and the record of the proceeding shall contain a record of that 
ruling and the basis therefor. The record shall also contain a statement 
of reasons for any request for the appearance of witnesses or production 
of documents initiated by a presiding officer.

[[Page 617]]



               SUBCHAPTER B_FEDERAL OPEN MARKET COMMITTEE





PART 270_OPEN MARKET OPERATIONS OF FEDERAL RESERVE BANKS--Table of Contents



 Regulations Relating to Open Market Operations of Federal Reserve Banks

Sec.
270.1  Authority.
270.2  Definitions.
270.3  Governing principles.
270.4  Transactions in obligations.

    Authority: Sec. 8, 48 Stat. 168, as amended (12 U.S.C. 263).

    Source: 38 FR 2753, Jan. 30, 1973, unless otherwise noted.

 Regulations Relating to Open Market Operations of Federal Reserve Banks



Sec. 270.1  Authority.

    This part is issued by the Federal Open Market Committee (the 
``Committee'') pursuant to authority conferred upon it by sections 12A 
and 14 of the Federal Reserve Act (12 U.S.C. 263, 355).



Sec. 270.2  Definitions.

    (a) The term obligations means Government securities, U.S. agency 
securities, bankers' acceptances, bills of exchange, cable transfers, 
bonds, notes, warrants, debentures, and other obligations that Federal 
Reserve banks are authorized by law to purchase and sell.
    (b) The term Government securities means direct obligations of the 
United States (i.e., U.S. bonds, notes, certificates of indebtedness, 
and Treasury bills) and obligations fully guaranteed as to principal and 
interest by the United States.
    (c) The term U.S. agency securities means obligations that are 
direct obligations of, or are fully guaranteed as to principal and 
interest by, any agency of the United States.
    (d) The term System Open Market Account means the obligations 
acquired pursuant to authorizations and directives issued by the 
Committee and held on behalf of all Federal Reserve banks.



Sec. 270.3  Governing principles.

    As required by section 12A of the Federal Reserve Act, the time, 
character, and volume of all purchases and sales of obligations in the 
open market by Federal Reserve banks are governed with a view to 
accommodating commerce and business and with regard to their bearing 
upon the general credit situation of the country.



Sec. 270.4  Transactions in obligations.

    (a) Each Federal Reserve bank shall engage in open market operations 
under section 14 of the Federal Reserve Act only in accordance with this 
part and with the authorizations and directives issued by the Committee 
from time to time, and no Reserve bank shall decline to engage in open 
market operations as directed by the Committee.
    (b) Transactions for the System Open Market Account shall be 
executed by a Federal Reserve bank selected by the Committee. The 
participations of the several Federal Reserve banks in such account and 
in the profits and losses on transactions for the account shall be 
allocated in accordance with principles determined by the Committee from 
time to time.
    (c) In accordance with such limitations, terms, and conditions as 
are prescribed by law and in authorizations and directives issued by the 
Committee, the Reserve bank selected by the Committee is authorized and 
directed--
    (1) To buy and sell Government securities and U.S. agency securities 
in the open market for the System Open Market Account, and to exchange 
maturing securities with the issuer;
    (2) To buy and sell banker's acceptances in the open market for its 
own account;
    (3) To buy Government securities, U.S. agency securities, and 
banker's acceptances of the kinds described above, under agreements for 
repurchase of such obligations, in the open market for its own account; 
and
    (4) To buy and sell foreign currencies in the form of cable 
transfers in the

[[Page 618]]

open market for the System Open Market Account and to maintain for such 
account reciprocal currency arrangements with foreign banks among those 
designated by the Board of Governors of the Federal Reserve System under 
Sec. 214.5 of this chapter (Regulation N).
    (d) The Federal Reserve banks are authorized and directed to engage 
in such other operations as the Committee may from time to time 
determine to be reasonably necessary to the effective conduct of open 
market operations and the effectuation of open market policies.

[38 FR 2753, Jan. 30, 1973, as amended at 39 FR 11873, Apr. 1, 1974; 48 
FR 32336, July 15, 1983]



PART 271_RULES REGARDING AVAILABILITY OF INFORMATION--Table of Contents



Sec.
271.1  Authority and purpose.
271.2  Definitions.
271.3  Published information.
271.4  Records available for public inspection.
271.5  Records available to the public on request.
271.6  Processing requests.
271.7  Exemptions from disclosure.
271.8  Subpoenas.
271.9  Fee schedules; waiver of fees.

    Authority: 5 U.S.C. 552; 12 U.S.C. 263.

    Source: 62 FR 61218, Nov. 17, 1997, unless otherwise noted.



Sec. 271.1  Authority and purpose.

    (a) Authority. This part is issued by the Federal Open Market 
Committee (the Committee) pursuant to the Freedom of Information Act, 5 
U.S.C. 552, and also pursuant to the Committee's authority under section 
12A of the Federal Reserve Act, 12 U.S.C. 263, to issue regulations 
governing the conduct of its business.
    (b) Purpose. This part sets forth the categories of information made 
available to the public and the procedures for obtaining documents and 
records.



Sec. 271.2  Definitions.

    (a) Board means the Board of Governors of the Federal Reserve System 
established by the Federal Reserve Act of 1913 (38 Stat. 251).
    (b) Commercial use request refers to a request from or on behalf of 
one who seeks information for a use or purpose that furthers the 
commercial, trade, or profit interests of the requester or the person on 
whose behalf the request is made.
    (c) Direct costs mean those expenditures that the Committee actually 
incurs in searching for, reviewing, and duplicating documents in 
response to a request made under Sec. 271.5.
    (d) Duplication refers to the process of making a copy of a document 
in response to a request for disclosure of records or for inspection of 
original records that contain exempt material or that otherwise cannot 
be inspected directly. Among others, such copies may take the form of 
paper, microform, audiovisual materials, or machine-readable 
documentation (e.g., magnetic tape or disk).
    (e) Educational institution refers to a preschool, a public or 
private elementary or secondary school, or an institution of 
undergraduate higher education, graduate higher education, professional 
education, or an institution of vocational education that operates a 
program of scholarly research.
    (f) Federal Reserve Bank means one of the district Banks authorized 
by the Federal Reserve Act, 12 U.S.C. 222, including any branch of any 
such Bank.
    (g) Information of the Committee means all information coming into 
the possession of the Committee or of any member thereof or of any 
officer, employee, or agent of the Committee, the Board, or any Federal 
Reserve Bank, in the performance of duties for, or pursuant to the 
direction of, the Committee.
    (h) Noncommercial scientific institution refers to an institution 
that is not operated on a ``commercial'' basis (as that term is used in 
this section) and which is operated solely for the purpose of conducting 
scientific research, the results of which are not intended to promote 
any particular product or industry.
    (i) Records of the Committee includes rules, statements, decisions, 
minutes, memoranda, letters, reports, transcripts, accounts, charts, and 
other written material, as well as any materials in machine readable 
form that

[[Page 619]]

constitute a part of the Committee's official files.
    (j) Representative of the news media refers to any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public.
    (1) The term ``news'' means information about current events or that 
would be of current interest to the public.
    (2) Examples of news media entities include, but are not limited to, 
television or radio stations broadcasting to the public at large, and 
publishers of newspapers and other periodicals (but only in those 
instances when they can qualify as disseminators of ``news'') who make 
their products available for purchase or subscription by the general 
public.
    (3) ``Freelance'' journalists may be regarded as working for a news 
organization if they can demonstrate a solid basis for expecting 
publication through that organization, even though not actually employed 
by it.
    (k)(1) Review refers to the process of examining documents, located 
in response to a request for access, to determine whether any portion of 
a document is exempt information. It includes doing all that is 
necessary to excise the documents and otherwise to prepare them for 
release.
    (2) Review does not include time spent resolving general legal or 
policy issues regarding the application of exemptions.
    (l)(1) Search means a reasonable search, by manual or automated 
means, of the Committee's official files and any other files containing 
records of the Committee as seem reasonably likely in the particular 
circumstances to contain documents of the kind requested. For purposes 
of computing fees under Sec. 271.9, search time includes all time spent 
looking for material that is responsive to a request, including line-by-
line identification of material within documents. Such activity is 
distinct from ``review'' of material to determine whether the material 
is exempt from disclosure.
    (2) Search does not mean or include research, creation of any 
document, or extensive modification of an existing program or system 
that would significantly interfere with the operation of the Committee's 
automated information system.



Sec. 271.3  Published information.

    (a) Federal Register. The Committee publishes in the Federal 
Register, in addition to this part:
    (1) A description of its organization;
    (2) Statements of the general course and method by which its 
functions are channeled and determined;
    (3) Rules of procedure;
    (4) Substantive rules of general applicability, and statements of 
general policy and interpretations of general applicability formulated 
and adopted by the Committee;
    (5) Every amendment, revision, or repeal of the foregoing; and
    (6) General notices of proposed rulemaking.
    (b) Annual Report to Congress. Each annual report made to Congress 
by the Board includes a complete record of the actions taken by the 
Committee during the preceding year upon all matters of policy relating 
to open market operations, showing the reasons underlying the actions, 
and the votes taken.
    (c) Other published information. Other information relating to the 
Committee, including its open market operations, is made publicly 
available on the Web sites of the Board and the Federal Reserve Banks.

[62 FR 61218, Nov. 17, 1997, as amended at 70 FR 7840, Feb. 16, 2005; 81 
FR 94936, Dec. 27, 2016]



Sec. 271.4  Records available for public inspection.

    (a) Types of records made available. Unless they were published 
promptly and made available for sale or without charge, records 
described in 5 U.S.C. 552(a)(2) shall be made available for inspection 
in an electronic format by the Committee.
    (b) Reading room procedures. (1) Information described in 5 U.S.C. 
552(a)(2), such as statements of policy and records requested three or 
more times under Sec. 271.5, is made available for public inspection in 
the Committee's electronic reading room at https://
www.federalreserve.gov/foia/fomc/

[[Page 620]]

readingrooms.htmrr1, in its conventional reading room located in the 
Freedom of Information Office of the Board of Governors of the Federal 
Reserve System, or both. For security reasons, the Board requires that 
visitors make an appointment to inspect documents. You may do so by 
calling the Board's Freedom of Information Office at (202) 452-3684.
    (2) The Committee may determine that certain classes of publicly 
available filings shall be made available for inspection in electronic 
format only by the Federal Reserve Bank where those records are 
maintained.
    (c) [Reserved]
    (d) Privacy protection. The Committee may delete identifying details 
from any record to prevent a clearly unwarranted invasion of personal 
privacy.

[62 FR 61218, Nov. 17, 1997, as amended at 70 FR 7840, Feb. 16, 2005; 81 
FR 94936, Dec. 27, 2016]



Sec. 271.5  Records available to the public on request.

    (a) Types of records made available. All records of the Committee 
that are not available under Secs. 271.3 and 271.4 shall be made 
available upon request, pursuant to the procedures in this section and 
the exceptions in Sec. 271.7.
    (b) Procedures for requesting records. (1) A request for 
identifiable records shall reasonably describe the records in a way that 
enables the Committee's staff to identify and produce the records with 
reasonable effort and without unduly burdening or significantly 
interfering with any of the Committee's operations.
    (2) The request shall be submitted in writing to the Secretary of 
the Committee, Federal Open Market Committee, 20th & C Streets NW., 
Washington, DC 20551; or sent by facsimile to the Secretary of the 
Committee, (202) 452-2921; or sent electronically using the online 
request form located at www.federalreserve.gov/forms/FOMCForm.aspx. The 
request shall be clearly marked FREEDOM OF INFORMATION ACT REQUEST.
    (c) Contents of request. The request shall contain the following 
information:
    (1) The name and address of the requester, and the telephone number 
at which the requester can be reached during normal business hours;
    (2) Whether the requested information is intended for commercial 
use, and whether the requester represents an educational or 
noncommercial scientific institution, or news media;
    (3) A statement agreeing to pay the applicable fees, or a statement 
identifying any fee limitation desired, or a request for a waiver or 
reduction of fees that satisfies Sec. 271.9(f).
    (d) Defective requests. The Committee need not accept or process a 
request that does not reasonably describe the records requested or that 
does not otherwise comply with the requirements of this section. The 
Committee may return a defective request, specifying the deficiency. The 
requester may submit a corrected request, which will be treated as a new 
request.

[62 FR 61218, Nov. 17, 1997, as amended at 81 FR 94936, Dec. 27, 2016]



Sec. 271.6  Processing requests.

    (a) Receipt of requests. The date of receipt for any request, 
including one that is addressed incorrectly or that is referred to the 
Committee by another agency or by a Federal Reserve Bank, is the date 
the Secretary of the Committee actually receives the request.
    (b) Priority of responses. The Committee shall normally process 
requests in the order they are received. However, in the Secretary's 
discretion, or upon a court order in a matter to which the Committee is 
a party, a particular request may be processed out of turn.
    (c) Expedited processing. Where a person requesting expedited access 
to records has demonstrated a compelling need for the records, or where 
the Committee has determined to expedite the response, the Committee 
shall process the request as soon as practicable.
    (1) To demonstrate a compelling need for expedited processing, the 
requester shall provide a certified statement, a sample of which may be 
obtained from the Board's Freedom of Information Office. The statement, 
certified to be true and correct to the best of the requester's 
knowledge and belief, shall demonstrate that:
    (i) The failure to obtain the records on an expedited basis could 
reasonably

[[Page 621]]

be expected to pose an imminent threat to the life or physical safety of 
an individual; or
    (ii) The requester is a representative of the news media, as defined 
in Sec. 271.2, and there is urgency to inform the public concerning 
actual or alleged Committee activity.
    (2) In response to a request for expedited processing, the Secretary 
of the Committee shall notify a requester of the determination within 
ten working days of receipt of the request. In exceptional situations, 
the Secretary of the Committee has the discretion to waive the formality 
of certification. If the Secretary of the Committee denies a request for 
expedited processing, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (h) of this section, and the Committee 
shall respond to the appeal within ten working days after the appeal was 
received by the Committee.
    (d) Time limits. The time for response to requests shall be 20 
working days, except:
    (1) In the case of expedited treatment under paragraph (c) of this 
section;
    (2) Where the running of such time is suspended for payment of fees 
pursuant to Sec. 271.9(b)(2);
    (3) In unusual circumstances, as defined in 5 U.S.C. 552(a)(6)(B), 
the Committee may:
    (i) Extend the 20-day time limit for a period of time not to exceed 
10 working days, where the Committee has provided written notice to the 
requester, setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; and
    (ii) Extend the 20-day time limit for a period of more than 10 
working days where the Committee has provided the requester with an 
opportunity to limit the scope of the request so that it may be 
processed within that time frame or with an opportunity to arrange an 
alternative time frame for processing the original request or a modified 
request, and has notified the requester that the Committee's FOIA Public 
Liaison is available to assist the requester for this purpose and in the 
resolution of any disputes between the requester and the Committee and 
of the requester's right to seek dispute resolution services from the 
Office of Government Information Services.
    (e) Response to request. In response to a request that satisfies 
Sec. 271.5, an appropriate search shall be conducted of records of the 
Committee in existence on the date of receipt of the request, and a 
review made of any responsive information located. The Secretary shall 
notify the requester of:
    (1) The Committee's determination of the request;
    (2) The reasons for the determination;
    (3) The amount of information withheld;
    (4) The right of the requester to seek assistance from the 
Committee's FOIA Public Liaison; and
    (5) When an adverse determination is made (including determinations 
that the requested record is exempt, in whole or in part; the request 
does not reasonably describe the records sought; the information 
requested is not a record subject to the FOIA; the requested record does 
not exist, cannot be located, or has been destroyed; the requested 
record is not readily reproducible in the form or format sought by the 
requester; to deny a fee waiver request or other fee categorization 
matter; and to deny a request for expedited processing), the Secretary 
will advise the requester in writing of that determination and will 
further advise the requester of:
    (i) The right to appeal to the Committee any adverse determination, 
as specified in paragraph (h) of this section;
    (ii) The right to seek dispute resolution services from the 
Committee's FOIA Public Liaison or from the Office of Government 
Information Services; and
    (iii) The name and title or position of the person responsible for 
the adverse determination.
    (f) Referral to another agency. To the extent a request covers 
documents that were created by, obtained from, or classified by another 
agency, the Committee may refer the request to that agency for a 
response and inform the requester promptly of the referral.
    (g) Providing responsive records. (1) Copies of requested records 
shall be sent to the requester by regular U.S.

[[Page 622]]

mail to the address indicated in the request, or sent in electronic 
format to the email address indicated in the request, unless the 
requester elects to take delivery of the documents at the Board's 
Freedom of Information Office or makes other acceptable arrangements, or 
the Committee deems it appropriate to send the documents by another 
means.
    (2) The Committee shall provide a copy of the record in any form or 
format requested if the record is readily reproducible by the Committee 
in that form or format, but the Committee need not provide more than one 
copy of any record to a requester.
    (h) Appeal of an adverse determination. A requester may appeal an 
adverse determination by filing a written appeal with the Committee, as 
follows:
    (1) The appeal shall prominently display the phrase FREEDOM OF 
INFORMATION ACT APPEAL on the first page, and shall be addressed to the 
Secretary of the Committee, Federal Open Market Committee, 20th and C 
Streets NW., Washington, DC 20551; or sent by facsimile to the Secretary 
of the Committee, (202) 452-2921; or sent by email to the Secretary of 
the Committee at [email protected].
    (2) An initial request for records may not be combined in the same 
letter with an appeal.
    (3) The Committee, or such member of the Committee as is delegated 
the authority, shall make a determination regarding any appeal within 20 
working days of actual receipt of the appeal by the Secretary, and the 
determination letter shall notify the appealing party of the right to 
seek judicial review of such denial.

[62 FR 61218, Nov. 17, 1997, as amended at 81 FR 94936, Dec. 27, 2016]



Sec. 271.7  Exemptions from disclosure.

    (a) Types of records exempt from disclosure. Pursuant to 5 U.S.C. 
552(b), the following records of the Committee are exempt from 
disclosure under this part. The Committee will withhold records or 
information only when it reasonably foresees that disclosure would harm 
an interest protected by an exemption described in 5 U.S.C. 552(b) and 
in this paragraph (a), or when disclosure is prohibited by law. In 
applying the exemption in paragraph (a)(5) of this section, the 
Committee will not withhold records based on the deliberative process 
privilege if the records were created 25 years or more before the date 
on which the records were requested.
    (b) Segregation of nonexempt information. The Committee shall 
provide any reasonably segregable portion of a record that is requested 
after deleting those portions that are exempt under this section.
    (c) Discretionary release. Except where disclosure is expressly 
prohibited by statute, regulation, or order, the Committee may authorize 
the release of records that are exempt from mandatory disclosure 
whenever the Committee or designated Committee members determines that 
such disclosure would be in the public interest.
    (d) Delayed release. Publication in the Federal Register or 
availability to the public of certain information may be delayed if 
immediate disclosure would likely:
    (1) Interfere with accomplishing the objectives of the Committee in 
the discharge of its statutory functions;
    (2) Interfere with the orderly conduct of the foreign affairs of the 
United States;
    (3) Permit speculators or others to gain unfair profits or other 
unfair advantages by speculative trading in securities or otherwise;
    (4) Result in unnecessary or unwarranted disturbances in the 
securities markets;
    (5) Interfere with the orderly execution of the objectives or 
policies of other government agencies; or
    (6) Impair the ability to negotiate any contract or otherwise harm 
the commercial or financial interest of the United States, the 
Committee, the Board, any Federal Reserve Bank, or any department or 
agency of the United States.
    (e) Prohibition against disclosure. Except as provided in this part, 
no officer, employee, or agent of the Committee or any Federal Reserve 
Bank shall disclose or permit the disclosure of any unpublished 
information of the Committee to any person (other than Committee 
officers, employees, or agents

[[Page 623]]

properly entitled to such information for the performance of official 
duties).

[62 FR 61218, Nov. 17, 1997, as amended at 81 FR 94937, Dec. 27, 2016]



Sec. 271.8  Subpoenas.

    (a) Advice by person served. If any person, whether or not an 
officer or employee of the Committee, of the Board of Governors of the 
Federal Reserve System, or of a Federal Reserve Bank, has information of 
the Committee that may not be disclosed by reason of Sec. 271.7 and in 
connection therewith is served with a subpoena, order, or other process 
requiring the person's personal attendance as a witness or the 
production of documents or information upon any proceeding, the person 
should promptly inform the Secretary of the Committee of such service 
and of all relevant facts, including the documents and information 
requested and any facts that may be of assistance in determining whether 
such documents or information should be made available; and the person 
should take action at the appropriate time to inform the court or 
tribunal that issued the process, and the attorney for the party at 
whose instance the process was issued, if known, of the substance of 
this part.
    (b) Appearance by person served. Except as disclosure of the 
relevant information is authorized pursuant to this part, any person who 
has information of the Committee and is required to respond to a 
subpoena or other legal process shall attend at the time and place 
therein mentioned and decline to disclose such information or give any 
testimony with respect thereto, basing such refusal upon this part. If, 
notwithstanding, the court or other body orders the disclosure of such 
information, or the giving of such testimony, the person having such 
information of the Committee shall continue to decline to disclose such 
information and shall promptly report the facts to the Committee for 
such action as the Committee may deem appropriate.

[62 FR 61218, Nov. 17, 1997, as amended at 70 FR 7840, Feb. 16, 2005]



Sec. 271.9  Fee schedules; waiver of fees.

    (a) Fee schedules. The fees applicable to a request for records 
pursuant to Secs. 271.4 and 271.5 are set forth in appendix A to this 
section. These fees cover only the full allowable direct costs of 
search, duplication, and review. No fees will be charged where the 
average cost of collecting the fee (calculated at $5.00) exceeds the 
amount of the fee.
    (b) Payment procedures. The Secretary may assume that a person 
requesting records pursuant to Sec. 271.5 will pay the applicable fees, 
unless the request includes a limitation on fees to be paid or seeks a 
waiver or reduction of fees pursuant to paragraph (f) of this section.
    (1) Advance notification of fees. If the estimated charges are 
likely to exceed $100, the Secretary of the Committee shall notify the 
requester of the estimated amount, unless the requester has indicated a 
willingness to pay fees as high as those anticipated. Upon receipt of 
such notice, the requester may confer with the Secretary to reformulate 
the request to lower the costs.
    (2) Advance payment. The Secretary may require advance payment of 
any fee estimated to exceed $250. The Secretary may also require full 
payment in advance where a requester has previously failed to pay a fee 
in a timely fashion. The time period for responding to requests under 
Sec. 271.6(d), and the processing of the request shall be suspended 
until the Secretary receives the required payment.
    (3) Late charges. The Secretary may assess interest charges when fee 
payment is not made within 30 days of the date on which the billing was 
sent. Interest is at the rate prescribed in 31 U.S.C. 3717 and accrues 
from the date of the billing.
    (c) Categories of uses. The fees assessed depend upon the intended 
use for the records requested. In determining which category is 
appropriate, the Secretary shall look to the intended use set forth in 
the request for records. Where a requester's description of the use is 
insufficient to make a determination, the Secretary may seek additional 
clarification before categorizing the request.
    (1) Commercial use. The fees for search, duplication, and review 
apply when records are requested for commercial use.
    (2) Educational, research, or media use. The fees for duplication 
apply when

[[Page 624]]

records are not sought for commercial use, and the requester is a 
representative of the news media or an educational or noncommercial 
scientific institution, whose purpose is scholarly or scientific 
research. The first 100 pages of duplication, however, will be provided 
free.
    (3) All other uses. For all other requests, the fees for document 
search and duplication apply. The first two hours of search time and the 
first 100 pages of duplication, however, will be provided free.
    (d) Nonproductive search. Fees for search and review may be charged 
even if no responsive documents are located or if the request is denied.
    (e) Aggregated requests. A requester may not file multiple requests 
at the same time, solely in order to avoid payment of fees. If the 
Secretary reasonably believes that a requester is separating a request 
into a series of requests for the purpose of evading the assessment of 
fees, the Secretary may aggregate any such requests and charge 
accordingly. It is considered reasonable for the Secretary to presume 
that multiple requests of this type made within a 30-day period have 
been made to avoid fees.
    (f) Waiver or reduction of fees. A request for a waiver or reduction 
of the fees, and the justification for the waiver, shall be included 
with the request for records to which it pertains. If a waiver is 
requested and the requester has not indicated in writing an agreement to 
pay the applicable fees if the waiver request is denied, the time for 
response to the request for documents, as set forth in Sec. 271.6(d), 
shall not begin until a determination has been made on the request for a 
waiver or reduction of fees.
    (1) Standards for determining waiver or reduction. The Secretary 
shall grant a waiver or reduction of fees where it is determined both 
that disclosure of the information is in the public interest because it 
is likely to contribute significantly to public understanding of the 
operation or activities of the government, and that the disclosure of 
information is not primarily in the commercial interest of the 
requester. In making this determination, the following factors shall be 
considered:
    (i) Whether the subject of the records concerns the operations or 
activities of the government;
    (ii) Whether disclosure of the information is likely to contribute 
significantly to public understanding of government operations or 
activities;
    (iii) Whether the requester has the intention and ability to 
disseminate the information to the public;
    (iv) Whether the information is already in the public domain;
    (v) Whether the requester has a commercial interest that would be 
furthered by the disclosure; and, if so,
    (vi) Whether the magnitude of the identified commercial interest of 
the requester is sufficiently large, in comparison with the public 
interest in disclosure, that disclosure is primarily in the commercial 
interest of the requester.
    (2) Contents of request for waiver. A request for a waiver or 
reduction of fees shall include:
    (i) A clear statement of the requester's interest in the documents;
    (ii) The use proposed for the documents and whether the requester 
will derive income or other benefit for such use;
    (iii) A statement of how the public will benefit from such use and 
from the Committee's release of the documents;
    (iv) A description of the method by which the information will be 
disseminated to the public; and
    (v) If specialized use of the information is contemplated, a 
statement of the requester's qualifications that are relevant to that 
use.
    (3) Burden of proof. The burden shall be on the requester to present 
evidence or information in support of a request for a waiver or 
reduction of fees.
    (4) Determination by Secretary. The Secretary shall make a 
determination on the request for a waiver or reduction of fees and shall 
notify the requester accordingly. A denial may be appealed to the 
Committee in accordance with Sec. 271.6(h).
    (g) Employee requests. In connection with any request by an 
employee, former employee, or applicant for employment, for records for 
use in prosecuting a grievance or complaint of discrimination against 
the Committee, fees shall be waived where the total

[[Page 625]]

charges (including charges for information provided under the Privacy 
Act of 1974 (5 U.S.C. 552a) are $50 or less; but the Secretary may waive 
fees in excess of that amount.
    (h) Special services The Secretary may agree to provide, and set 
fees to recover the costs of, special services not covered by the 
Freedom of Information Act, such as certifying records or information 
and sending records by special methods such as express mail or overnight 
delivery.
    (i) Restrictions on charging fees. (1) If the Committee fails to 
comply with the time limits specified in the FOIA in which to respond to 
a request, the Committee will not charge search fees, or, in the case of 
requests from requesters described in paragraph (c)(2) of this section, 
will not charge duplication fees, except as permitted under paragraphs 
(i)(2) through (i)(4) of this section.
    (2) If the Committee has determined that unusual circumstances 
exist, as described in 5 U.S.C. 552(a)(6)(B), and has provided timely 
written notice to the requester and subsequently responds within the 
additional 10 days provided in Sec. 271.6(d)(3), the Board may charge 
search fees, or in the case of requesters described in paragraph (c)(2) 
of this section, may charge duplication fees.
    (3) If the Committee has determined that unusual circumstances 
exist, as described in 5 U.S.C. 552(a)(6)(B), and more than 5,000 pages 
are necessary to respond to the request, the Committee may charge search 
fees, or, in the case of requesters described in paragraph (c)(2) of 
this section, may charge duplication fees, if the Committee has:
    (i) Provided timely written notice of unusual circumstances to the 
requester in accordance with the FOIA; and
    (ii) Discussed with the requester via written mail, email, or 
telephone (or made not less than three good-faith attempts to do so) how 
the requester could effectively limit the scope of the request in 
accordance with 5 U.S.C. 552(a)(6)(B)(ii).
    (4) If a court has determined that exceptional circumstances exist, 
as defined by the FOIA, a failure to comply with the time limits shall 
be excused for the length of time provided by the court order.

     Appendix A to Sec.  271.9--Freedom of Information Fee Schedule
Duplication:
    Photocopy, per standard page...........................         $.10
    Paper copies of microfiche, per frame..................          .10
    Duplicate microfiche, per microfiche...................          .35
Search and review:
    Clerical/Technical, hourly rate........................        20.00
    Professional/Supervisory, hourly rate..................        38.00
    Manager/Senior Professional, hourly rate...............        65.00
Computer search and production:
    Computer operator search, hourly rate..................        32.00
    Tapes (cassette), per tape.............................         6.00
    Tapes (cartridge), per tape............................         9.00
    Tapes (reel), per tape.................................        18.00
    Diskettes (3\1/2\"), per diskette......................         4.00
    Diskettes (5\1/4\"), per diskette......................         5.00
    Computer Output (PC), per minute.......................          .10
    Computer Output (mainframe)............................  actual cost
 


[62 FR 61218, Nov. 17, 1997, as amended at 81 FR 94937, Dec. 27, 2016]



PART 272_RULES OF PROCEDURE--Table of Contents



Sec.
272.1  Authority.
272.2  Functions of the Committee.
272.3  Meetings.
272.4  Committee actions.
272.5  Notice and public procedure.

    Authority: 5 U.S.C. 552.

    Source: 38 FR 2754, Jan. 30, 1973, unless otherwise noted.

[[Page 626]]



Sec. 272.1  Authority.

    This part is issued by the Federal Open Market Committee (the 
Committee) pursuant to the requirement of section 552 of title 5 of the 
United States Code that every agency shall publish in the Federal 
Register its rules of procedure.



Sec. 272.2  Functions of the Committee.

    The procedures followed by the Committee are designed to facilitate 
the effective performance of the Committee's statutory functions with 
respect to the regulation and direction of open market operations 
conducted by the Federal Reserve banks and with respect to certain 
direct transactions between the Reserve banks and the United States. In 
determining the policies to be followed in such operations, the 
Committee considers information regarding business and credit conditions 
and domestic and international economic and financial developments, and 
other pertinent information gathered and submitted by its staff and the 
staffs of the Board of Governors of the Federal Reserve System (the 
Board) and the Federal Reserve banks. Against the background of such 
information, the Committee takes actions from time-to-time to regulate 
and direct the open market operations of the Reserve banks. Such policy 
actions ordinarily are taken through the adoption and transmission to 
the Federal Reserve banks of regulations, authorizations, and 
directives.



Sec. 272.3  Meetings.

    (a) Place and frequency. The Committee meets in Washington, DC, at 
least four times each year and oftener if deemed necessary. Meetings are 
held upon the call of the Chairman of the Board or at the request of any 
three members of the Committee. Notices of calls by the Chairman of the 
Board to other members are given by the Secretary of the Committee in 
writing, by telephone, or electronic means. Requests of any three 
members for the calling of a meeting shall state the time therefor and 
shall be filed in writing, by telephone, or electronic means with the 
Secretary who shall forthwith notify all members of the Committee in 
writing, by telephone, or electronic means. When the Secretary has sent 
notices to all members of the Committee that a meeting has been 
requested by three members and of the time therefor, a meeting is deemed 
to have been called. If, in the judgment of the Chairman, circumstances 
require that a meeting be called at such short notice that one or more 
members cannot be present in person, such members may participate in the 
meeting by telephone conference arrangements or by electronic means.
    (b) Alternates. Whenever any member of the Committee representing 
Federal Reserve banks shall find that the member will be unable to 
attend a meeting of the Committee, the member shall promptly notify the 
member's alternate and the Secretary of the Committee in writing, by 
telephone, or electronic means, and upon receipt of such notice such 
alternate shall advise the Secretary whether the alternate will attend 
such meeting.
    (c) Quorum. Seven members, at least one of whom represents a Federal 
Reserve Bank, constitute a quorum of the Committee for purposes of 
transacting business except that, if there are fewer than seven members 
in office, then the number of members in office constitute a quorum. For 
purposes of this paragraph (c), members of the Committee include 
alternates acting in the absence of members. Less than a quorum may 
adjourn a meeting of the Committee from time to time until a quorum is 
in attendance.
    (d) Attendance at meetings. Attendance at Committee meetings is 
restricted to members and alternate members of the Committee, the 
Presidents of Federal Reserve Banks who are not at the time members or 
alternates, staff officers of the Committee, the Manager, and such other 
advisers as the Committee may invite from time to time.
    (e) Meeting agendas. The Secretary, in consultation with the 
Chairman, prepares an agenda of matters to be discussed at each meeting 
and the Secretary transmits the agenda to the members of the Committee 
within a reasonable time in advance of such meeting. In general, the 
agendas include reports by the Manager on open market operations since 
the previous

[[Page 627]]

meeting, and ratification by the Committee of such operations; reports 
by Economists on, and Committee discussion of, the economic and 
financial situation and outlook; Committee discussion of monetary policy 
and action with respect thereto; and such other matters as may be 
considered necessary.

[38 FR 2754, Jan. 30, 1973, as amended at 44 FR 52823, Sept. 11, 1979; 
65 FR 6320, Feb. 9, 2000; 68 FR 6061, Feb. 6, 2003; 70 FR 7840, Feb. 16, 
2005; 78 FR 19981, Apr. 3, 2013]



Sec. 272.4  Committee actions.

    (a) Actions at meetings. Actions are taken at meetings of the 
Committee except as described below.
    (b) Actions between meetings. Special circumstances may make it 
desirable in the public interest for Committee members to consider an 
action to modify an outstanding Committee authorization or directive at 
a time when it is not feasible to call a meeting. Whenever, in the 
judgment of the Chairman, such circumstances have arisen, the relevant 
information and recommendations for action are transmitted to the 
members by the Secretary, and the members communicate their votes to the 
Secretary. If the action is approved by a majority of the members, 
advice to that effect is promptly given by the Secretary to the members 
of the Committee and to the Reserve bank selected to execute 
transactions for the System Open Market Account. All communications of 
recommended actions and votes under this paragraph shall be in writing, 
by telephone, or electronic means; if the communication is made orally, 
the Secretary shall cause a written record to be made without delay. An 
action taken between meetings has the force and effect of an action at a 
meeting: Provided, however, That if a meeting is held before the 
execution of any operations pursuant to the action, the action is null 
and void unless it is ratified and confirmed by the Committee at such 
meeting.
    (c) Delegations of authority. In special circumstances, the 
Committee may delegate authority to take an action, subject to such 
instructions or guidelines as the Committee deems proper. Such 
delegations of authority may be made to the Chairman; to a subcommittee 
consisting of the Chairman and the Vice Chairman of the Committee and 
the Vice Chairman of the Board (or in the absence of the Chairman or of 
the Vice Chairman of the Board the members of the Board designated by 
the Chairman as alternates, and in the absence of the Vice Chairman of 
the Committee the alternate for the Vice Chairman); or to any other 
member or members of the Committee. An action taken pursuant to such a 
delegation of authority has the force and effect of an action taken by 
the Committee.
    (d) Technical changes to Committee rules. The Secretary of the 
Committee (or the acting secretary) is authorized to make technical 
corrections, such as spelling, grammar, construction, and organization 
(including removal of obsolete provisions and references), to the 
Committee's rules, regulations, and orders and other records of 
Committee action but only with the concurrence of the Committee's 
General Counsel.
    (e) Effective date. Committee action ordinarily is made effective as 
of the time it is taken because the nature of the subject matter and the 
action taken is such that the public interest and the proper discharge 
of the Committee's responsibilities so require. Occasionally, however, 
the Committee may specify that an action is to be effective at some 
different time.

[38 FR 2754, Jan. 30, 1973, as amended at 65 FR 6320, Feb. 9, 2000; 70 
FR 7841, Feb. 16, 2005]



Sec. 272.5  Notice and public procedure.

    There ordinarily is no published notice of proposed action by the 
Committee or public procedure thereon, as described in section 553 of 
title 5 of the United States Code, because such notice and procedure are 
impracticable, unnecessary, or contrary to the public interest.



PART 281_STATEMENTS OF POLICY--Table of Contents





Sec. 281.1  Policy regarding the Government in the Sunshine Act.

    On September 13, 1976, there was enacted into law the Government in 
the Sunshine Act, Pub. L. No. 94-409, 90 Stat. 1241 (``Sunshine Act''), 
established for the purpose of

[[Page 628]]

providing the public with the ``fullest practicable information 
regarding the decisionmaking processes of the Federal Government * * * 
while protecting the rights of individuals and the ability of the 
Government to carry out its responsibilities.'' \1\ The Sunshine Act 
applies only to those Federal agencies that are defined in section 
552(e) of title 5 of the United States Code and ``headed by a collegial 
body composed of two or more individual members, a majority of whom are 
appointed to such position by the President with the advice and consent 
of the Senate, and any subdivision thereof authorized to act on behalf 
of the agency.'' \2\
---------------------------------------------------------------------------

    \1\ Government in the Sunshine Act, Pub. L. 94-409, sec. 2, 90 Stat. 
1241 (1976).
    \2\ Government in the Sunshine Act, Pub. L. 94-409, sec. 3(a), 90 
Stat. 1241 (1976).
---------------------------------------------------------------------------

    The Federal Open Market Committee (``FOMC'') is a separate and 
independent statutory body within the Federal Reserve System. In no 
respect is it an agent or ``subdivision'' of the Board of Governors of 
the Federal Reserve System (``Board of Governors''). It was originally 
established by the Banking Act of 1933 and restructured in its present 
form by the Banking Act of 1935 and subsequent legislation in 1942 
(generally see 12 U.S.C. 263(a)). The FOMC's membership is composed of 
the seven members of the Board of Governors and five representatives of 
the Federal Reserve Banks who are selected annually in accordance with 
the procedures set forth in Section 12A of the Federal Reserve Act, 12 
U.S.C. 263(a). Members of the Board of Governors serve in an ex officio 
capacity on the FOMC by reason of their appointment as Members of the 
Board of Governors, not as a result of an appointment ``to such 
position'' (the FOMC) by the President. Representatives of the Reserve 
Banks serve on the FOMC not as a result of an appointment ``to such 
position'' by the President, but rather by virtue of their positions 
with the Reserve Banks and their selection pursuant to Section 12A of 
the Federal Reserve Act. It is clear therefore that the FOMC does not 
fall within the scope of an ``agency'' or ``subdivision'' as defined in 
the Sunshine Act and consequently is not subject to the provisions of 
that Act.
    As explained below, the Act would not require the FOMC to hold its 
meetings in open session even if the FOMC were covered by the Act. 
However, despite the conclusion reached that the Sunshine Act does not 
apply to the FOMC, the FOMC has determined that its procedures and 
timing of public disclosure already are conducted in accordance with the 
spirit of the Sunshine Act, as that Act would apply to deliberations of 
the nature engaged in by the FOMC.
    In the foregoing regard, the FOMC has noted that while the Act calls 
generally for open meetings of multi-member Federal agencies, 10 
specific exemptions from the open meeting requirement are provided to 
assure the ability of the Government to carry out its responsibilities. 
Among the exemptions provided is that which authorizes any agency 
operating under the Act to conduct closed meetings where the subject of 
a meeting involves information ``the premature disclosure of which 
would--in the case of an agency which regulates currencies, securities, 
commodities, or financial institutions, be likely to lead to significant 
financial speculation in currencies, securities, or commodities.'' \3\
---------------------------------------------------------------------------

    \3\ Government in the Sunshine Act, Pub. L. 94-409, sec. 3(a), 90 
Stat. 1242 (1976).
---------------------------------------------------------------------------

    As to meetings closed under such exemption, the Act requires the 
maintenance of either a transcript, electronic recording or minutes and 
sets forth specified, detailed requirements as to the contents and 
timing of disclosure of certain portions or all of such minutes. The Act 
permits the withholding from the public of the minutes where disclosure 
would be likely to produce adverse consequences of the nature described 
in the relevant exemptions.
    The FOMC has reviewed the agenda of its monthly meetings for the 
past three years and has determined that all such meetings could have 
been closed pursuant to the exemption dealing with finanical speculation 
or other exemptions set forth in the Sunshine Act. The FOMC has further 
determined that virtually all of its substantive deliberations could 
have been preserved pursuant to the Act's minutes requirements and that 
such minutes could similarly have been protected against premature 
disclosure under the provisions of the Act.
    The FOMC's deliberations are currently reported by means of a 
document entitled ``Record of Policy Actions'' which is released to the 
public approximately one month after the meeting to which it relates. 
The Record of Policy Actions complies with the Act's minutes 
requirements in that it contains a full and accurate report of all 
matters of policy discussed and views presented, clearly sets forth all 
policy actions taken by the FOMC and the reasons therefor, and includes 
the votes by individual members on each policy action. The timing of 
release of the Record of Policy Actions is fully consistent with the 
Act's provisions assuring against premature release of any item of 
discussion in an agency's minutes that contains information of a 
sensitive financial nature. In fact, by releasing the comprehensive 
Record of Policy Actions to the public approximately a month after each 
meeting, the FOMC exceeds the publication requirements that would be 
mandated by the letter of the Sunshine Act.

[[Page 629]]

    Recognizing the Congressional purpose underlying the enactment of 
the Sunshine Act, the FOMC has determined to continue its current 
practice and timing of public disclosures in the conviction that its 
operations thus conducted are consistent with the intent and spirit of 
the Sunshine Act.

(12 U.S.C. 263; 5 U.S.C. 552)

[42 FR 13300, Mar. 10, 1977. Redesignated at 70 FR 7841, Feb. 16, 2005]

[[Page 630]]



        SUBCHAPTER C_FEDERAL RESERVE SYSTEM LABOR RELATIONS PANEL



                        PARTS 290	299 [RESERVED]

[[Page 631]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 633]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2017)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)

[[Page 634]]

    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600--3699)
    XXVIII  Department of Justice (Parts 3800--3899)

[[Page 635]]

      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)

[[Page 636]]

     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Partys 10000--10049)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)

[[Page 637]]

        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)

[[Page 638]]

         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1300--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)

[[Page 639]]

        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--1199)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)

[[Page 640]]

       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)

[[Page 641]]

         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millennium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)

[[Page 642]]

       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 643]]

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--End)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)

[[Page 644]]

        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)

[[Page 645]]

      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)

[[Page 646]]

        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  [Reserved]
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

[[Page 647]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)

[[Page 648]]

       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--599)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)

[[Page 649]]

        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
        IX  Denali Commission (Parts 900--999)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, Department 
                of Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)

[[Page 650]]

         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Health and Human Services (Parts 300--399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)

[[Page 651]]

        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 653]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2017)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII

[[Page 654]]

Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX
Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase from People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Career, Technical and Adult Education, Office of  34, IV
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazardous Investigation       40, VI
     Board
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I

[[Page 655]]

Defense Department                                2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
Denali Commission                                 45, IX
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical and Adult Education, Office   34, IV
       of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Career, Technical, and Adult Education, Office  34, IV
       of
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 5, XXIII; 10, II, 
                                                  III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99

[[Page 656]]

  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       5, XXXVII; 11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV

[[Page 657]]

Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI

[[Page 658]]

Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department                               2, XIV
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVIII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  2, XXIX; 5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI

[[Page 659]]

  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   2, XXII; 45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    5, C; 34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III

[[Page 660]]

National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
Saint Lawrence Seaway Development Corporation     33, IV

[[Page 661]]

Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               2, X;5, XXI; 12, XV; 17, 
                                                  IV; 31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection                   19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
   Commission
[[Page 662]]

Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 663]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2012 are enumerated in the following list. Entries indicate the 
nature of the changes effected. Page numbers refer to Federal Register 
pages. The user should consult the entries for chapters, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.fdsys.gov. For changes to this volume of the CFR 
prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 1964-
1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. The 
``List of CFR Sections Affected 1986-2000'' is available at 
www.fdsys.gov.

                                  2012

12 CFR
                                                                   77 FR
                                                                    Page
Chapter II
235.4  Revised.....................................................46280
235  Appendix A amended............................................46280
241  Added.........................................................32884
252  Added.........................................................62391
252.151--252.157 (Subpart H)  Added................................62406
263.65  Revised....................................................68681

                                  2013

12 CFR
                                                                   78 FR
                                                                    Page
Chapter I
234.1  (b) revised; eff. 2-18-14...................................76979
234.6  Added; eff. 2-18-14.........................................76979
234.7  Added; eff. 2-18-14.........................................76979
237  Added; interim................................................34549
240  Added.........................................................21027
242  Added.........................................................20776
246  Added.........................................................52402
252.131--252.137 (Subpart F)  Revised; interim.....................59786
252.141--252.148 (Subpart G)  Revised; interim.....................59788
252.151--252.157 (Subpart H)  Revised; interim.....................59794
252  Appendix A added..............................................71441
261.2  (c)(1)(ii)(A) and (B) reinstated............................34874
272.3  (c) revised.................................................19981

                                  2014

12 CFR
                                                                   79 FR
                                                                    Page
Chapter II
230  Removed.......................................................30713
234.2  Revised.....................................................65557
234.3  (a) revised.................................................65558
234.4  Removed; redesignated from 234.5............................65562
234.5  Redesignated as 234.4; redesignated from 234.6; (b)(3)(iv) 
        redesignated as (b)(3)(iii)................................65562
234.6  Redesignated as 234.5; redesignated from 234.7..............65562
234.7  Redesignated as 234.6.......................................65562
237.20--237.22 (Subpart B)  Revised..................................343
244  Part added; authority citation added; heading revised; eff. 
        2-23-15....................................................77764
244.1  Added; eff. 2-23-15.........................................77764
248  Added; nomenclature change.....................................5804
248.1  Revised......................................................5804
248.16  Added; interim..............................................5228
249  Heading revised; authority citation added; nomenclature 
        changes....................................................61539
249.1  (b)(1)(i), (2)(iii) and (5) revised; (b)(1)(iii) amended; 
        (b)(1)(iv) redesignated as (b)(1)(vi); new (b)(1)(iv), (v) 
        and (c) added..............................................61539
249.3  Amended.....................................................61539
    Amended; interim...............................................78296
249.22  (b)(3) revised.............................................61539

[[Page 664]]

249.40  (b)(1) revised.............................................61540
249.60--249.63 (Subpart G)  Added..................................61540
251  Added.........................................................68104
252  Policy statement..............................................14153
    Authority citation revised..............................17315, 64045
252.1--252.4 (Subpart A)  Added....................................17315
252.10--252.17 (Subpart B)  Added..................................13506
    Revised........................................................64045
252.20--252.22 (Subpart C)  Added..................................17316
252.30--252.35 (Subpart D)  Added..................................17317
252.40--252.47 (Subpart E)  Added..................................13510
    Revised........................................................64049
252.50--252.58 (Subpart F)  Revised................................13512
    Revised........................................................64051
252.120--252.122 (Subpart L)  Added................................17322
252.130--252.132 (Subpart M)  Added................................17323
252.140--252.146 (Subpart N)  Added................................17324
252.141--252.148 (Subpart G)  Removed..............................13515
252.150--252.158 (Subpart O)  Added................................17326
252.151--252.157 (Subpart H)  Removed..............................13515
252.153  (e) revised...............................................64055
252.220--252.221 (Subpart U)  Added................................17337
252  Appendix A amended............................................64055
261.20  (d)(1) and (2) added........................................6077
267  Removed.......................................................64504

                                  2015

12 CFR
                                                                   80 FR
                                                                    Page
Chapter II
235  Clarification.................................................48684
237  Heading and authority citation revised; eff. 4-1-16...........74911
237.1--237.12 (Subpart A)  Added; heading revised; nomenclature 
        changes; eff. 4-1-16.......................................74911
237.1  (a), (b) and (c) added; eff. 4-1-16.........................74911
    (d) added and amended; interim; eff. 4-1-16;...................74923
237.2  Amended; eff. 4-1-16........................................74911
237.6  Amended; eff. 4-1-16........................................74912
237.12  Added; eff. 4-1-16.........................................74912
238.9  Added.......................................................20158
252.12  (n) revised................................................75425
252.13  (b)(2) and (3) revised.....................................75425
252.15  (b)(2) revised.............................................75425
252.42  (m) revised; (r) removed...................................75425
252.43  (c) revised................................................75425
252.44  (a)(2) revised.............................................75425
252.45  (b)(2) revised.............................................75426
252.52  (n) revised; (t) removed...................................75426
252.53  (b)(3) revised.............................................75426
252.56  (a)(2), (b)(2)(i) and (iv) revised.........................75426
252.58  (b)(3)(v), (4) and (c)(2) revised..........................75426
252.153  (e)(2) through (5) correctly added........................70673

                                  2016

12 CFR
                                                                   81 FR
                                                                    Page
Chapter II
237.1  Regulation at 80 FR 74923 confirmed.........................50613
249.3  Amended.....................................................21232
249.20  (c)(2) redesignated as (c)(3); new (c)(2) added............21232
249.21  (f) through (i) redesignated as (g) through (j); (b)(4), 
        (c)(3), new (f), (g)(4), (h)(3) and (k) added; (c)(2) and 
        new (h)(2) amended.........................................21232
249.22  (c) redesignated as (d); new (c) added.....................21232
249.60  (c)(2) revised; eff. 4-1-17................................94929
249.64  Added; eff. 4-1-17.........................................94929
249.90--249.91 (Subpart J)  Added; eff. 4-1-17.....................94929
261.10  (e) and (f) revised; interim...............................94933
261.11  Heading, (a) introductory text, (4), (b)(1) and (c) 
        revised; interim...........................................94933
261.12  (b)(2) revised; interim....................................94933
261.13  (e)(3), (f)(4), (5), (i) introductory text, (1) and (3) 
        revised; interim...........................................94933
261.14  (a) introductory text revised; interim.....................94934
261.17  (i) added; interim.........................................94934
263  Authority citation revised....................................47007
263.65  Revised; interim...........................................47007
271.3  (c) revised; interim........................................94936
271.4  Heading, (a) and (b) revised; (c) removed; interim..........94936
271.5  (b)(2) revised; interim.....................................94936

[[Page 665]]

271.6  (c)(2), (d)(3), (e)(4), (5), (g)(1), (h) introductory text 
        and (1) revised; interim...................................94936
271.7  (a) revised; interim........................................94937
271.9  (i) added; interim..........................................94937


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