[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2020 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 12
Banks and Banking
________________________
Parts 347 to 599
Revised as of January 1, 2020
Containing a codification of documents of general
applicability and future effect
As of January 1, 2020
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
U.S. GOVERNMENT OFFICIAL EDITION NOTICE
Legal Status and Use of Seals and Logos
The seal of the National Archives and Records Administration
(NARA) authenticates the Code of Federal Regulations (CFR) as
the official codification of Federal regulations established
under the Federal Register Act. Under the provisions of 44
U.S.C. 1507, the contents of the CFR, a special edition of the
Federal Register, shall be judicially noticed. The CFR is
prima facie evidence of the original documents published in
the Federal Register (44 U.S.C. 1510).
It is prohibited to use NARA's official seal and the stylized Code
of Federal Regulations logo on any republication of this
material without the express, written permission of the
Archivist of the United States or the Archivist's designee.
Any person using NARA's official seals and logos in a manner
inconsistent with the provisions of 36 CFR part 1200 is
subject to the penalties specified in 18 U.S.C. 506, 701, and
1017.
Use of ISBN Prefix
This is the Official U.S. Government edition of this publication
and is herein identified to certify its authenticity. Use of
the 0-16 ISBN prefix is for U.S. Government Publishing Office
Official Editions only. The Superintendent of Documents of the
U.S. Government Publishing Office requests that any reprinted
edition clearly be labeled as a copy of the authentic work
with a new ISBN.
U . S . G O V E R N M E N T P U B L I S H I N G O F F I C E
------------------------------------------------------------------
U.S. Superintendent of Documents Washington, DC
20402-0001
http://bookstore.gpo.gov
Phone: toll-free (866) 512-1800; DC area (202) 512-1800
[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 12:
Chapter III--Federal Deposit Insurance Corporation
(Continued) 3
Chapter IV--Export-Import Bank of the United States 507
Chapter V [Reserved]
Finding Aids:
Table of CFR Titles and Chapters........................ 565
Alphabetical List of Agencies Appearing in the CFR...... 585
List of CFR Sections Affected........................... 595
[[Page iv]]
----------------------------
Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 12 CFR 347.101
refers to title 12, part
347, section 101.
----------------------------
[[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, 2020), 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
(LSA). For the convenience of the reader, a ``List of CFR Sections
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 dropped in error.
INCORPORATION BY REFERENCE
What is incorporation by reference? Incorporation by reference was
established by statute and allows Federal agencies to meet the
requirement to publish regulations in the Federal Register by referring
to materials already published elsewhere. For an incorporation to be
valid, the Director of the Federal Register must approve it. The legal
effect of incorporation by reference is that the material is treated as
if it were published in full in the Federal Register (5 U.S.C. 552(a)).
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.
What if the material incorporated by reference cannot be found? If
you have any problem locating or obtaining a copy of material listed as
an approved incorporation by reference, please contact the agency that
issued the regulation containing that incorporation. If, after
contacting the agency, you find the material is not available, please
notify the Director of the Federal Register, National Archives and
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001,
or call 202-741-6010.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Authorities
and Rules. A list of CFR titles, chapters, subchapters, and parts and an
alphabetical list of agencies publishing in the CFR are also included in
this volume.
An index to the text of ``Title 3--The President'' is carried within
that volume.
[[Page vii]]
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ``Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of material appearing
in the Code of Federal Regulations.
INQUIRIES
For a legal interpretation or explanation of any regulation in this
volume, contact the issuing agency. The issuing agency's name appears at
the top of odd-numbered pages.
For inquiries concerning CFR reference assistance, call 202-741-6000
or write to the Director, Office of the Federal Register, National
Archives and Records Administration, 8601 Adelphi Road, College Park, MD
20740-6001 or e-mail [email protected].
SALES
The Government Publishing Office (GPO) processes all sales and
distribution of the CFR. For payment by credit card, call toll-free,
866-512-1800, or DC area, 202-512-1800, M-F 8 a.m. to 4 p.m. e.s.t. or
fax your order to 202-512-2104, 24 hours a day. For payment by check,
write to: US Government Publishing Office - New Orders, P.O. Box 979050,
St. Louis, MO 63197-9000.
ELECTRONIC SERVICES
The full text of the Code of Federal Regulations, the LSA (List of
CFR Sections Affected), The United States Government Manual, the Federal
Register, Public Laws, Public Papers of the Presidents of the United
States, Compilation of Presidential Documents and the Privacy Act
Compilation are available in electronic format via www.govinfo.gov. For
more information, contact the GPO Customer Contact Center, U.S.
Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-
free). E-mail, [email protected].
The Office of the Federal Register also offers a free service on the
National Archives and Records Administration's (NARA) website for public
law numbers, Federal Register finding aids, and related information.
Connect to NARA's website at www.archives.gov/federal-register.
The e-CFR is a regularly updated, unofficial editorial compilation
of CFR material and Federal Register amendments, produced by the Office
of the Federal Register and the Government Publishing Office. It is
available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register
January 1, 2020
[[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, 300-346, 347-599, 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, 2020.
For this volume, Gabrielle E. Burns 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 347 to 599)
--------------------------------------------------------------------
Part
chapter iii--Federal Deposit Insurance Corporation
(Continued)............................................... 347
chapter iv--Export-Import Bank of the United States......... 400
chapter v [Reserved]
[[Page 3]]
CHAPTER III--FEDERAL DEPOSIT INSURANCE CORPORATION (CONTINUED)
--------------------------------------------------------------------
SUBCHAPTER B--REGULATIONS AND STATEMENTS OF GENERAL POLICY (CONTINUED)
Part Page
347 International banking....................... 5
348 Management official interlocks.............. 30
349 Derivatives................................. 34
350
[Reserved]
351 Proprietary trading and certain interests in
and relationships with covered funds.... 70
352 Nondiscrimination on the basis of disability 147
353 Suspicious activity reports................. 151
357 Determination of economically depressed
regions................................. 154
359 Golden parachute and indemnification
payments................................ 154
360 Resolution and receivership rules........... 161
361 Minority and Women Outreach Program
contracting............................. 203
362 Activities of insured State banks and
insured savings associations............ 205
363 Annual independent audits and reporting
requirements............................ 227
364 Standards for safety and soundness.......... 254
365 Real estate lending standards............... 263
366 Minimum standards of integrity and fitness
for an FDIC contractor.................. 268
367 Suspension and exclusion of contractor and
termination of contracts................ 273
368 Government securities sales practices....... 281
369 Prohibition against use of interstate
branches primarily for deposit
production.............................. 284
370 Recordkeeping for timely deposit insurance
determination........................... 286
371 Recordkeeping requirements for qualified
financial contracts..................... 306
373 Credit risk retention....................... 334
380 Orderly liquidation authority............... 376
381 Resolution plans............................ 408
[[Page 4]]
382 Restrictions on qualified financial
contracts............................... 426
390 Regulations transferred from the Office of
Thrift Supervision...................... 436
391-399
[Reserved]
[[Page 5]]
SUBCHAPTER B_REGULATIONS AND STATEMENTS OF GENERAL POLICY (CONTINUED)
PART 347_INTERNATIONAL BANKING--Table of Contents
Subpart A_Foreign Banking and Investment by Insured State Nonmember
Banks
Sec.
347.101 Authority, purpose, and scope.
347.102 Definitions.
347.103 Effect of state law on actions taken under this subpart.
347.104 Insured state nonmember bank investment in foreign
organizations.
347.105 Permissible financial activities outside the United States.
347.106 Going concerns.
347.107 Joint ventures.
347.108 Portfolio investments.
347.109 Limitations on indirect investments in nonfinancial
organizations.
347.110 Affiliate holdings.
347.111 Underwriting and dealing limits applicable to foreign
organizations held by insured state nonmember banks.
347.112 Restrictions applicable to foreign organizations that act as
futures commission merchants.
347.113 Restrictions applicable to activities by a foreign organization
in the United States.
347.114 Extensions of credit to foreign organizations held by insured
state nonmember banks; shares of foreign organizations held in
connection with debts previously contracted.
347.115 Permissible activities for a foreign branch of an insured state
nonmember bank.
347.116 Recordkeeping and supervision of the foreign activities of
insured state nonmember banks.
347.117 General consent.
347.118 Expedited processing.
347.119 Specific consent.
347.120 Computation of investment amounts.
347.121 Requirements for insured state nonmember bank to close a foreign
branch.
347.122 Limitations applicable to the authority provided in this
subpart.
Subpart B_Foreign Banks
347.201 Authority, purpose, and scope.
347.202 Definitions.
347.203 Deposit insurance required for all branches of foreign banks
engaged in domestic retail deposit activity in the same state.
347.204 Commitment to be examined and provide information.
347.205 Record maintenance.
347.206 Domestic retail deposit activity requiring deposit insurance by
U.S. branch of a foreign bank.
347.207 Disclosure of supervisory information to foreign supervisors.
347.208 Assessment base deductions by insured branch.
347.209 Pledge of assets.
347.210 Asset maintenance.
347.211 Examination of branches of foreign banks.
347.212 FDIC approval to conduct activities that are not permissible for
federal branches.
347.213 Establishment or operation of noninsured foreign branch.
347.214 Branch established under section 5 of the International Banking
Act.
347.215 Exemptions from deposit insurance requirement.
347.216 Depositor notification.
Subpart C_International Lending
347.301 Purpose, authority, and scope.
347.302 Definitions.
347.303 Allocated transfer risk reserve.
347.304 Accounting for fees on international loans.
347.305 Reporting and disclosure of international assets.
Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 3104,
3105, 3108, 3109; Pub L. No. 111-203, section 939A, 124 Stat. 1376, 1887
(July 21, 2010) (codified 15 U.S.C. 78o-7 note).
Source: 70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005,
unless otherwise noted.
Sec. 347.101 Authority, purpose, and scope.
(a) This subpart is issued pursuant to section 18(d) and (l) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(d), 1828(l)).
(b) The rules in subpart A address the FDIC's requirements for
insured state nonmember bank investments in foreign organizations,
permissible foreign financial activities, loans or extensions of credit
to or for the account of foreign organizations, and the FDIC's
recordkeeping, supervision, and approval requirements. The rules also
address the permissible activities for foreign branches of insured state
nonmember
[[Page 6]]
banks, as well as the FDIC's requirements for establishing, operating,
relocating and closing of branches in foreign countries.
Sec. 347.102 Definitions.
For the purposes of this subpart:
(a) An affiliate of an insured state nonmember bank means:
(1) Any entity of which the insured state nonmember bank is a direct
or indirect subsidiary or which otherwise controls the insured state
nonmember bank;
(2) Any organization which is a direct or indirect subsidiary of
such entity or which is otherwise controlled by such entity; or
(3) Any other organization that is a direct or indirect subsidiary
of the insured state nonmember bank or is otherwise controlled by the
insured state nonmember bank.
(b) Control means the ability to control in any manner the election
of a majority of an organization's directors or trustees; or the ability
to exercise a controlling influence over the management and policies of
an organization. An insured state nonmember bank is deemed to control an
organization of which it is a general partner or its affiliate is a
general partner.
(c) Domestic means United States.
(d) Eligible insured state nonmember bank means an eligible
depository institution as defined in Sec. 303.2(r) of this chapter.
(e) Equity interest means any ownership interest or rights in an
organization, whether through an equity security, contribution to
capital, general or limited partnership interest, debt or warrants
convertible into ownership interests or rights, loans providing profit
participation, binding commitments to acquire any such items, or some
other form of business transaction.
(f) Equity security means voting or nonvoting shares, stock,
investment contracts, or other interests representing ownership or
participation in a company or similar enterprise, as well as any
instrument convertible to any such interest at the option of the holder
without payment of substantial additional consideration.
(g) FRB means the Board of Governors of the Federal Reserve System.
(h) Foreign bank means an organization that is organized under the
laws of a foreign country, a territory of the United States, Puerto
Rico, Guam, American Samoa, or the Virgin Islands that:
(1) Is recognized as a bank by the bank supervisory or monetary
authority of the country of its organization or the country in which its
principal banking operations are located;
(2) Receives deposits to a substantial extent in the regular course
of its business; and
(3) Has the power to accept demand deposits.
(i) Foreign banking organization means a foreign organization that
is formed for the sole purpose of either holding shares of a foreign
bank or performing nominee, fiduciary, or other banking services
incidental to the activities of a foreign branch or foreign bank
affiliate of the insured state nonmember bank.
(j) Foreign branch means an office or place of business located
outside the United States, its territories, Puerto Rico, Guam, American
Samoa, the Trust Territory of the Pacific Islands, or the Virgin
Islands, at which banking operations are conducted, but does not include
a representative office.
(k) Foreign country means any country other than the United States
and includes any territory, dependency, or possession of any such
country or of the United States.
(l) Foreign organization means an organization that is organized
under the laws of a foreign country.
(m) Insured state nonmember bank or bank means a state bank, as
defined by Sec. 3(a)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1813(a)(2)), whose deposits are insured by the FDIC and that is not a
member of the Federal Reserve System.
(n) Indirectly means investments held or activities conducted by a
subsidiary of an organization.
(o) Investment grade means a security issued by an entity that has
adequate capacity to meet financial commitments for the projected life
of the exposure. Such an entity has adequate
[[Page 7]]
capacity to meet financial commitments if the risk of its default is low
and the full and timely repayment of principal and interest is expected.
(p) Loan or extension of credit means all direct and indirect
advances of funds to a person, government, or entity made on the basis
of any obligation of that person, government, or entity to repay funds.
(q) Organization or entity means a corporation, partnership,
association, bank, or other similar entity.
(r) NRSRO means a nationally recognized statistical rating
organization as designated by the Securities and Exchange Commission.
(s) Representative office means an office that engages solely in
representative functions such as soliciting new business for its home
office or acting as liaison between the home office and local customers,
but which has no authority to make business or contracting decisions
other than those relating to the personnel and premises of the
representative office.
(t) Subsidiary means any organization more than 50 percent of the
voting equity interests of which are directly or indirectly held by
another organization.
(u) Tier 1 capital means Tier 1 capital as defined in Sec. 324.2 of
this chapter.
(v) Well capitalized means well capitalized as defined in Sec.
324.403 of this chapter.
[70 FR 17560, Apr. 6, 2005, as amended at 78 FR 55595, Sept. 10, 2013;
83 FR 9143, Mar. 5, 2018; 83 FR 17741, Apr. 24, 2018]
Sec. 347.103 Effect of state law on actions taken under this subpart.
A bank may acquire and retain equity interests in a foreign
organization or establish a foreign branch, subject to the requirements
of this subpart, if it is authorized to do so by the law of the state in
which the bank is chartered.
Sec. 347.104 Insured state nonmember bank investments in foreign
organizations.
(a) Investment in foreign banks or foreign banking organizations. A
bank may directly or indirectly acquire and retain equity interests in a
foreign bank or foreign banking organization.
(b) Investment in other foreign organizations. A bank may only:
(1) acquire and retain equity interests in foreign organizations,
other than foreign banks or foreign banking organizations in amounts of
50 percent or less of the foreign organization's voting equity
interests, if the equity interest is held through a domestic or foreign
subsidiary; and
(2) The bank meets its minimum capital requirements.
Sec. 347.105 Permissible financial activities outside the United States.
(a) Limitation on authorized activities. A bank may not directly or
indirectly acquire or hold equity interests in a foreign organization
that will result in the bank and its affiliates:
(1) Holding more than 50 percent, in the aggregate, of the voting
equity interest in such foreign organization; or
(2) Controlling such foreign organization, unless the activities of
a foreign organization are limited to those authorized under paragraph
(b) of this section.
(b) Authorized activities. The following financial activities are
authorized outside the United States:
(1) Commercial and other banking activities.
(2) Financing, including commercial financing, consumer financing,
mortgage banking, and factoring, subject to compliance with any
attendant restrictions contained in 12 CFR 225.28(b).
(3) Leasing real or personal property, acting as agent, broker or
advisor in leasing real or personal property, subject to compliance with
any attendant restrictions in 12 CFR 225.28(b).
(4) Acting as a fiduciary, subject to compliance with any attendant
restrictions in 12 CFR 225.28(b).
(5) Underwriting credit life, credit accident and credit health
insurance.
(6) Performing services for other direct or indirect operations of a
domestic banking organization, including representative functions, sale
of long-term debt, name saving, liquidating assets acquired to prevent
loss on a debt previously contracted in good faith, and other activities
that are permissible for a bank holding company under sections
4(a)(2)(A) and 4(c)(1)(C) of the Bank Holding Company Act.
[[Page 8]]
(7) Holding the premises of a branch of an Edge corporation or
insured state nonmember bank or the premises of a direct or indirect
subsidiary, or holding or leasing the residence of an officer or
employee of a branch or a subsidiary.
(8) Providing investment, financial, or economic services, subject
to compliance with any attendant restrictions in 12 CFR 225.28(b).
(9) General insurance agency and brokerage.
(10) Data processing.
(11) Organizing, sponsoring, and managing a mutual fund if the
fund's shares are not sold or distributed in the United States or to
U.S. residents and the fund does not exercise management control over
the firms in which it invests.
(12) Performing management consulting services, provided that such
services when rendered with respect to the domestic market must be
restricted to the initial entry.
(13) Underwriting, distributing, and dealing in debt securities
outside the United States.
(14) With the prior approval of the FDIC under section 347.119(d),
underwriting, distributing, and dealing in equity securities outside the
United States.
(15) Operating a travel agency in connection with financial services
offered outside the United States by the bank or others.
(16) Providing futures commission merchant services, subject to
compliance with any attendant restrictions in 12 CFR 225.28(b).
(17) Engaging in activities that the FRB has determined in
Regulation Y (12 CFR 225.28(b)) are closely related to banking under
section 4(c)(8) of the Bank Holding Company Act.
(18) Engaging in other activities, with the prior approval of the
FDIC.
(c) Limitation on activities authorized under Regulation Y. If a
bank relies solely on the cross-reference to Regulation Y contained in
paragraph (b)(17) of this section as authority to engage in an activity,
compliance with any attendant restrictions on the activity that are
contained in 12 CFR 225.28(b) is required.
(d) Approval of other activities. Activities that are not
specifically authorized by this section, but that are authorized by 12
CFR 211.10 or FRB interpretations of activities authorized by that
section, may be authorized by specific consent of the FDIC on an
individual basis and upon such terms and conditions as the FDIC may
consider appropriate. Activities that will be engaged in as principal
(defined by reference to section 362.1(b) of this chapter), and that are
not authorized by 12 CFR 211.10 or FRB interpretations of activities
authorized under that section, must satisfy the requirements of part 362
of this chapter and be approved by the FDIC under this part as well as
part 362 of this chapter.
Sec. 347.106 Going concerns.
Going concerns. If a bank acquires an equity interest in a foreign
organization that is a going concern, no more than 5 percent of either
the consolidated assets or revenues of the foreign organization may be
attributable to activities that are not permissible under Sec.
347.105(b).
Sec. 347.107 Joint ventures.
(a) Joint ventures. If a bank, directly or indirectly, acquires or
holds an equity interest in a foreign organization that is a joint
venture, and the bank or its affiliates do not control the foreign
organization, no more than 10 percent of either the consolidated assets
or revenues of the foreign organization may be attributable to
activities that are not permissible under Sec. 347.105(b).
(b) Joint venture defined. For purposes of this section, the term
``joint venture'' means any organization in which 20 percent or more but
not in excess of 50 percent of the voting equity interests, in the
aggregate, are directly or indirectly held by a bank or its affiliates.
Sec. 347.108 Portfolio investments.
(a) Portfolio investments. If a bank, directly or indirectly,
acquires or holds an equity interest in a foreign organization as a
portfolio investment and the foreign organization is not controlled,
directly or indirectly, by the bank or its affiliates:
(1) No more than 10 percent of either the consolidated assets or
revenues of
[[Page 9]]
the foreign organization may be attributable to activities that are not
permissible under Sec. 347.105(b); and
(2) Any loans or extensions of credit made by the bank and its
affiliates to the foreign organization must be on substantially the same
terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions between the bank or its
affiliates and nonaffiliated organizations.
(b) Portfolio investment defined. For purposes of this section, the
term ``portfolio investment'' means an investment in an organization in
which less than 20 percent of the voting equity interests, in the
aggregate, are directly or indirectly held by a bank or its affiliates.
Sec. 347.109 Limitations on indirect investments in nonfinancial
foreign organizations.
(a) A bank may, through a subsidiary authorized by Sec. Sec.
347.105 or 347.106, or an Edge corporation if also authorized by the
FRB, acquire and hold equity interests in foreign organizations that are
not foreign banks or foreign banking organizations and that engage
generally in activities beyond those listed in Sec. 347.105(b), subject
to the following:
(1) The amount of the investment does not exceed 15 percent of the
bank's Tier 1 capital;
(2) The aggregate holding of voting equity interests of one foreign
organization by the bank and its affiliates must be less than:
(i) 20 percent of the foreign organization's voting equity
interests; and
(ii) 40 percent of the foreign organization's voting and nonvoting
equity interests;
(b) The bank or its affiliates must not otherwise control the
foreign organization; and
(c) Loans or extensions of credit made by the bank and its
affiliates to the foreign organization must be on substantially the same
terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions between the bank or its
affiliates and nonaffiliated organizations.
Sec. 347.110 Affiliate holdings.
References in Sec. Sec. 347.107, 347.108, and 347.109 to equity
interests of foreign organizations held by an affiliate of a bank
include equity interests held in connection with an underwriting or for
distribution or dealing by an affiliate permitted to do so by Sec. Sec.
362.8 or 362.18 of this chapter or section 4(c)(8) of the Bank Holding
Company Act (12 U.S.C. 1843(c)(8)).
Sec. 347.111 Underwriting and dealing limits applicable to foreign
organizations held by insured state nonmember banks.
A bank that holds an equity interest in one or more foreign
organizations which underwrite, deal, or distribute equity securities
outside the United States as authorized by Sec. 347.105(b)(14) is
subject to the following limitations:
(a) Underwriting commitment limits. (1) The aggregate underwriting
commitments by the foreign organizations for the equity securities of a
single entity, taken together with underwriting commitments by any
affiliate of the bank under the authority of 12 CFR 211.10(b), may not
exceed the lesser of $60 million or 25 percent of the bank's Tier 1
capital, except as otherwise provided in this paragraph.
(2) Underwriting commitments in excess of this limit must be either:
(i) Covered by binding commitments from subunderwriters or
purchasers; or
(ii) Deducted from the capital of the bank, with at least 50 percent
of the deduction being taken from Tier 1 capital, with the bank
remaining well capitalized after this deduction.
(b) Distribution and dealing limits. The equity securities of any
single entity held for distribution or dealing by the foreign
organizations, taken together with equity securities held for
distribution or dealing by any affiliate of the bank under the authority
of 12 CFR 211.10:
(1) May not exceed the lesser of $30 million or 5 percent of the
bank's Tier 1 capital, subject to the following:
(i) Any equity securities acquired pursuant to any underwriting
commitment extending up to 90 days after the payment date for the
underwriting may be excluded from this limit;
[[Page 10]]
(ii) Any equity securities of the entity held under the authority of
Sec. Sec. 347.105 through 347.109 or 12 CFR 211.10 for purposes other
than distribution or dealing must be included in this limit; and
(iii) Up to 75 percent of the position in an equity security may be
reduced by netting long and short positions in the same security, or
offsetting cash positions against derivative instruments referenced to
the same security so long as the derivatives are part of a prudent
hedging strategy; and
(2) Must be included in calculating the general consent limits under
Sec. 347.117(b)(3) if the bank relies on the general consent provisions
as authority to acquire equity interests of the same foreign entity for
investment or trading.
(c) Additional distribution and dealing limits. With the exception
of equity securities acquired pursuant to any underwriting commitment
extending up to 90 days after the payment date for the underwriting,
equity securities of a single entity held for distribution or dealing by
all affiliates of the bank (this includes shares held in connection with
an underwriting or for distribution or dealing by an affiliate permitted
to do so by Sec. Sec. 362.8 or 362.18 of this chapter or section
4(c)(8) of the Bank Holding Company Act), combined with any equity
interests held for investment or trading purposes by all affiliates of
the bank, must conform to the limits of Sec. Sec. 347.105 through
347.109.
(d) Combined limits. The aggregate of the following may not exceed
25 percent of the bank's Tier 1 capital:
(1) All equity interests of foreign organizations held for
investment or trading under Sec. 347.109 or by an affiliate of the bank
under the corresponding paragraph of 12 CFR 211.10.
(2) All underwriting commitments under paragraph (a) of this
section, taken together with all underwriting commitments by any
affiliate of the bank under the authority of 12 CFR 211.10, after
excluding the amount of any underwriting commitment:
(i) Covered by binding commitments from subunderwriters or
purchasers under paragraph (a)(1) of this section or the comparable
provision of 12 CFR 211.10; or
(ii) Already deducted from the bank's capital under paragraph (a)(2)
of this section, or the appropriate affiliate's capital under the
comparable provisions of 12 CFR 211.10; and
(3) All equity securities held for distribution or dealing under
paragraph (b) of this section, taken together with all equity securities
held for distribution or dealing by any affiliate of the bank under the
authority of 12 CFR 211.10, after reducing by up to 75 percent the
position in any equity security by netting and offset, as permitted by
paragraph (b)(1)(iii) of this section or the comparable provision of 12
CFR 211.10.
Sec. 347.112 Restrictions applicable to foreign organizations that
act as futures commission merchants.
(a) If a bank acquires or retains an equity interest in a foreign
organization that acts as a futures commission merchant pursuant to
Sec. 347.105(b)(16), the foreign organization may not be a member of an
exchange or clearing association that requires members to guarantee or
otherwise contract to cover losses suffered by other members unless the:
(1) Foreign organization's liability does not exceed two percent of
the bank's Tier 1 capital, or
(2) Bank has obtained the prior approval of the FDIC under Sec.
347.120(d).
(b) [Reserved]
Sec. 347.113 Restrictions applicable to activities by a foreign
organization in the United States.
(a) A bank, acting under the authority provided in this subpart, may
not directly or indirectly hold:
(1) Equity interests of any foreign organization that engages in the
general business of buying or selling goods, wares, merchandise, or
commodities in the United States; or
(2) More than 5 percent of the equity interests of any foreign
organization that engages in activities in the United States unless any
activities in which the foreign organization engages in the United
States are incidental to its international or foreign business.
(b) For purposes of this section:
(1) A foreign organization is not engaged in any business or
activities in
[[Page 11]]
the United States unless it maintains an office in the United States
other than a representative office.
(2) The following activities are incidental to international or
foreign business:
(i) Activities that are permissible for an Edge corporation in the
United States under 12 CFR 211.6; or
(ii) Other activities approved by the FDIC.
Sec. 347.114 Extensions of credit to foreign organizations held by
insured state nonmember banks; shares of foreign organizations held
in connection with debts previously contracted.
(a) Loans or extensions of credit. A bank that directly or
indirectly holds equity interests in a foreign organization pursuant to
the authority of this subpart may make loans or extensions of credit to
or for the accounts of the organization without regard to the provisions
of section 18(j) of the FDI Act (12 U.S.C. 1828(j)).
(b) Debts previously contracted. Equity interests acquired to
prevent a loss upon a debt previously contracted in good faith are not
subject to the limitations or procedures of this subpart; however, they
must be disposed of promptly but in no event later than two years after
their acquisition, unless the FDIC authorizes retention for a longer
period.
Sec. 347.115 Permissible activities for a foreign branch of an insured
state nonmember bank.
In addition to its general banking powers and if permitted by the
law of the state in which the bank is chartered, a foreign branch of a
bank may conduct the following activities to the extent that they are
consistent with banking practices in a foreign country where the bank
maintains a branch:
(a) Guarantees. Guarantee debts, or otherwise agree to make payments
on the occurrence of readily ascertainable events including, without
limitation, nonpayment of taxes, rentals, customs duties, or costs of
transport and loss or nonconformance of shipping documents, if:
(1) The guarantee or agreement specifies a maximum monetary
liability; and
(2) To the extent the guarantee or agreement is not subject to a
separate amount limit under state or federal law, the amount of the
guarantee or agreement is combined with loans and other obligations for
purposes of applying any legal lending limits.
(b) Government obligations. Engage in the following types of
transactions with respect to the obligations of foreign countries, so
long as aggregate investments, securities held in connection with
distribution and dealing, and underwriting commitments do not exceed ten
percent of the bank's Tier 1 capital:
(1) Underwrite, distribute and deal, invest in, or trade obligations
of:
(i) The national government of the country in which the branch is
located or its political subdivisions; and
(ii) An agency or instrumentality of such national government if
supported by the taxing authority, guarantee, or full faith and credit
of the national government.
(2) Underwrite, distribute and deal, invest in or trade obligations
\1\ rated as investment grade of:
---------------------------------------------------------------------------
\1\ If the obligation is an equity interest, it must be held through
a subsidiary of the foreign branch and the insured state nonmember bank
must meet its minimum capital requirements.
---------------------------------------------------------------------------
(i) The national government of any foreign country or its political
subdivisions, to the extent permissible under the law of the issuing
foreign country; and
(ii) An agency or instrumentality of the national government of any
foreign country to the extent permissible under the law of the issuing
foreign country, if supported by the taxing authority, guarantee, or
full faith and credit of the national government.
(c) Local investments. (1) Acquire and hold local investments in:
(i) Equity securities of the central bank, clearinghouses,
governmental entities, and government sponsored development banks of the
country in which the branch is located;
(ii) Other debt securities eligible to meet local reserve or similar
requirements; and
[[Page 12]]
(iii) Shares of automated electronic payment networks, professional
societies, schools, and similar entities necessary to the business of
the branch.
(2) Aggregate local investments (other than those required by the
law of the foreign country or permissible under section 5136 of the
Revised Statutes (12 U.S.C. 24 (Seventh)) by all the bank's branches in
a single foreign country must not exceed 1 percent of the total deposits
in all the bank's branches in that country as reported in the preceding
year-end Report of Income and Condition (Call Report): \2\
---------------------------------------------------------------------------
\2\ If a branch has recently been acquired by the bank and the
branch was not previously required to file a Call Report, branch
deposits as of the acquisition date must be used.
---------------------------------------------------------------------------
(d) Insurance. Act as an insurance agent or broker.
(e) Employee benefits program. Pay to an employee of a branch, as
part of an employee benefits program, a greater rate of interest than
that paid to other depositors of the branch.
(f) Repurchase agreements. Engage in repurchase agreements involving
securities and commodities that are the functional equivalents of
extensions of credit.
(g) Other activities. Engage in other activities, with the prior
approval of the FDIC.
(h) Approval of other activities. Activities that are not
specifically authorized by this section, but that are authorized by 12
CFR 211.4 or FRB interpretations of activities authorized by that
section, may be authorized by specific consent of the FDIC on an
individual basis and upon such terms and conditions as the FDIC may
consider appropriate. Activities that will be engaged in as principal
(defined by reference to section 362.1(b) of this chapter), and that are
not authorized by 12 CFR 211.4 or FRB interpretations of activities
authorized under that section, must satisfy the requirements of part 362
of this chapter and be approved by the FDIC under this part as well as
part 362 of this chapter.
Sec. 347.116 Recordkeeping and supervision of foreign activities of
insured state nonmember banks.
(a) Records, controls and reports. A bank with any foreign branch,
any investment in a foreign organization of 20 percent or more of the
organization's voting equity interests, or control of a foreign
organization must maintain a system of records, controls and reports
that, at minimum, provide for the following:
(1) Risk assets. To permit assessment of exposure to loss,
information furnished or available to the main office should be
sufficient to permit periodic and systematic appraisals of the quality
of risk assets, including loans and other extensions of credit. Coverage
should extend to a substantial proportion of the risk assets in the
branch or foreign organization, and include the status of all large
credit lines and of credits to customers also borrowing from other
offices or affiliates of the bank. Appropriate information on risk
assets may include:
(i) A recent financial statement of the borrower or obligee and
current information on the borrower's or obligee's financial condition;
(ii) Terms, conditions, and collateral;
(iii) Data on any guarantors;
(iv) Payment history; and
(v) Status of corrective measures employed.
(2) Liquidity. To enable assessment of local management's ability to
meet its obligations from available resources, reports should identify
the general sources and character of the deposits, borrowing, and other
funding sources employed in the branch or foreign organization with
special reference to their terms and volatility. Information should be
available on sources of liquidity--cash, balances with banks, marketable
securities, and repayment flows--such as will reveal their accessibility
in time and any risk elements involved.
(3) Contingencies. Data on the volume and nature of contingent items
such as loan commitments and guarantees or their equivalents that permit
analysis of potential risk exposure and liquidity requirements.
(4) Controls. Reports on the internal and external audits of the
branch or foreign organization in sufficient detail to permit
determination of conformance to auditing guidelines. Appropriate audit
reports may include coverage of:
[[Page 13]]
(i) Verification and identification of entries on financial
statements;
(ii) Income and expense accounts, including descriptions of
significant chargeoffs and recoveries;
(iii) Operations and dual-control procedures and other internal
controls;
(iv) Conformance to head office guidelines on loans, deposits,
foreign exchange activities, accounting procedures in compliance with
applicable accounting standards, and discretionary authority of local
management;
(v) Compliance with local laws and regulations; and
(vi) Compliance with applicable U.S. laws and regulations.
(b) Availability of information to examiners; reports. (1)
Information about foreign branches or foreign organizations must be made
available to the FDIC by the bank for examination and other supervisory
purposes.
(2) The FDIC may from time to time require a bank to make and submit
such reports and information as may be necessary to implement and
enforce the provisions of this subpart, and the bank shall submit an
annual report of condition for each foreign branch pursuant to
instructions provided by the FDIC.
Sec. 347.117 General consent.
(a) General consent to establish or relocate a foreign branch.
General consent of the FDIC is granted, subject to the written
notification requirement contained in section 303.182(a) and consistent
with the requirements of this subpart, for an:
(1) Eligible bank to establish a foreign branch conducting
activities authorized by section 347.115 of this section in any foreign
country in which:
(i) The bank already operates one or more foreign branches or
foreign bank subsidiaries;
(ii) The bank's holding company operates a foreign bank subsidiary;
or
(iii) An affiliated bank or Edge or Agreement corporation operates
one or more foreign branches or foreign bank subsidiaries.
(2) Insured state nonmember bank to relocate an existing foreign
branch within a foreign country.
(b) General consent to invest in a foreign organization. General
consent of the FDIC is granted, subject to the written notification
requirement contained in section 303.183(a) (unless no notification is
required because the investment is acquired for trading purposes) and
consistent with the requirements of this subpart, for an eligible bank
to make investments in foreign organizations, directly or indirectly,
if:
(1) The bank operates at least one foreign bank subsidiary or
foreign branch, an affiliated bank or Edge or Agreement corporation
operates at least one foreign bank subsidiary or foreign branch, or the
bank's holding company operates at least one foreign bank subsidiary in
the country where the foreign organization will be located;
(2) In any instance where the bank and its affiliates will hold 20
percent or more of the foreign organization's voting equity interests or
control the foreign organization, at least one state nonmember bank has
a foreign bank subsidiary or foreign branch (other than a shell branch)
in the country where the foreign organization will be located; \3\ and
---------------------------------------------------------------------------
\3\ A list of these countries can be obtained from the FDIC's
Internet Web Site at http://www.fdic.gov.
---------------------------------------------------------------------------
(3) The investment is within one of the following limits:
(i) The investment is acquired at net asset value from an affiliate;
(ii) The investment is a reinvestment of cash dividends received
from the same foreign organization during the preceding 12 months; or
(iii) The total investment, directly or indirectly, in a single
foreign organization in any transaction or series of transactions during
a twelve-month period does not exceed 2 percent of the bank's Tier 1
capital, and such investments in all foreign organizations in the
aggregate do not exceed:
(A) 5 percent of the bank's Tier 1 capital during a 12-month period;
and
(B) Up to an additional 5 percent of the bank's Tier 1 capital if
the investments are acquired for trading purposes.
[[Page 14]]
Sec. 347.118 Expedited processing.
(a) Expedited processing of branch applications. An eligible bank
may establish a foreign branch conducting activities authorized by Sec.
347.115 in an additional foreign country, after complying with the
expedited processing requirements contained in Sec. 303.182(b) and
(c)(1), if any of the following are located in two or more foreign
countries:
(1) Foreign branches or foreign bank subsidiaries of the eligible
bank;
(2) Foreign branches or foreign bank subsidiaries of banks and Edge
or Agreement corporations affiliated with the eligible bank; and
(3) Foreign bank subsidiaries of the eligible bank's holding
company.
(b) Expedited processing of applications for investment in foreign
organizations. An investment that does not qualify for general consent
but is otherwise in conformity with the limits and requirements of this
subpart may be made 45 days after an eligible bank files a substantially
complete application with the FDIC in compliance with the expedited
processing requirements contained in Sec. 303.183(b) and (c)(1), or
within such earlier time as authorized by the FDIC.
Sec. 347.119 Specific consent.
General consent and expedited processing under this subpart do not
apply in the following circumstances:
(a) Limitation on access to supervisory information in foreign
country. (1) Applicable law or practice in the foreign country where the
foreign organization or foreign branch would be located would limit the
FDIC's access to information for supervisory purposes; and
(i) A bank would hold 20 percent or more of the voting equity
interests of a foreign organization or control such organization as a
result of a foreign investment; or
(ii) A bank would be establishing a foreign branch.
(b) World Heritage site. A foreign branch of a bank would be located
on a site on the World Heritage List or on the foreign country's
equivalent of the National Register of Historic Places, in accordance
with section 403 of the National Historic Preservation Act Amendments of
1980 (16 U.S.C. 470a-2).
(c) Modification or suspension of general consent or expedited
processing. The FDIC at any time notifies the bank that the FDIC is
modifying or suspending its general consent or expedited processing
procedure.
(d) Specific consent. Direct or indirect investments in or
activities of foreign organizations by banks, the establishment of
foreign branches or issues regarding the types or amounts of activity
that can be engaged in by foreign branches, which are not authorized
under Sec. Sec. 347.117 or 347.118 require prior review and specific
consent of the FDIC.
Sec. 347.120 Computation of investment amounts.
In computing the amount that may be invested in any foreign
organization under Sec. Sec. 347.117 through 347.119, any investments
held by an affiliate of a bank must be included.
Sec. 347.121 Requirements for insured state nonmember bank to close
a foreign branch.
A bank must comply with the written notification requirement
contained in Sec. 303.182(d) when it closes a foreign branch.
Sec. 347.122 Limitations applicable to the authority provided in
this subpart.
The FDIC may impose such conditions on authority granted in this
subpart as it considers appropriate. If a bank is unable or fails to
comply with the requirements of this subpart or any conditions imposed
by the FDIC regarding transactions under this subpart, the FDIC may
require termination of any activities or divestiture of investments
permitted under this subpart after giving the bank notice and a
reasonable opportunity to be heard on the matter.
Subpart B_Foreign Banks
Sec. 347.201 Authority, purpose, and scope.
(a) This subpart is issued pursuant to sections 5(c) and 10(b)(4) of
the Federal Deposit Insurance Act (FDI Act)(12 U.S.C. 1815(c) and
1820(b)(4)) and sections 6, 7, and 15 of the International
[[Page 15]]
Banking Act of 1978 (IBA)(12 U.S.C. 3104, 3105, and 3109).
(b) This subpart implements the insured branch asset pledge and
examination commitment requirement for foreign banks in the FDI Act. It
also implements the deposit insurance, permissible activity, and cross-
border cooperation provisions of the IBA regarding the FDIC. Sections
347.203-347.211 apply to state and federal branches whose deposits are
insured. Sections 347.204 and 347.207 are applicable to depository
institution subsidiaries of a foreign bank. Section 347.212 applies to
insured state branches and Sec. Sec. 347.213-347.216 apply to state
branches whose deposits are not insured by the FDIC.
Sec. 347.202 Definitions.
For the purposes of this subpart:
(a) Affiliate means any entity that controls, is controlled by, or
is under common control with another entity. An entity shall be deemed
to ``control'' another entity if the entity directly or indirectly owns,
controls, or has the power to vote 25 percent or more of any class of
voting securities of the other entity or controls in any manner the
election of a majority of the directors or trustees of the other entity.
(b) Agency means any office or any place of business of a foreign
bank located in any State of the United States at which credit balances
are maintained incidental to or arising out of the exercise of banking
powers, checks are paid, or money is lent but at which deposits may not
be accepted from citizens or residents of the United States.
(c) Branch means any office or place of business of a foreign bank
located in any state of the United States at which deposits are
received. The term does not include any office or place of business
deemed by the state licensing authority or the Comptroller of the
Currency to be an agency.
(d) Deposit has the same meaning as that term in section 3(l) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(l)).
(e) Depository means any insured state bank, national bank, or
insured branch.
(f) Domestic retail deposit activity means the acceptance by a
Federal or State branch of any initial deposit of less than an amount
equal to the standard maximum deposit insurance amount (``SMDIA'').
(g) Federal branch means a branch of a foreign bank established and
operating under the provisions of section 4 of the International Banking
Act of 1978 (12 U.S.C. 3102).
(h) Foreign bank means any company organized under the laws of a
foreign country, any territory of the United States, Puerto Rico, Guam,
American Samoa, the Northern Mariana Islands, or the Virgin Islands,
which engages in the business of banking. The term includes foreign
commercial banks, foreign merchant banks and other foreign institutions
that engage in banking activities usual in connection with the business
of banking in the countries where such foreign institutions are
organized and operating. Except as otherwise specifically provided by
the Federal Deposit Insurance Corporation, banks organized under the
laws of a foreign country, any territory of the United States, Puerto
Rico, Guam, American Samoa, the Northern Mariana Islands, or the Virgin
Islands which are insured banks other than by reason of having an
insured branch are not considered to be foreign banks for purposes of
Sec. Sec. 347.204, 347.205, 347.209, and 347.210.
(i) Foreign business means any entity including, but not limited to,
a corporation, partnership, sole proprietorship, association, foundation
or trust, which is organized under the laws of a foreign country or any
United States entity which is owned or controlled by an entity which is
organized under the laws of a foreign country or a foreign national.
(j) Foreign country means any country other than the United States
and includes any colony, dependency or possession of any such country.
(k) FRB means the Board of Governors of the Federal Reserve System.
(l) Highly liquid means, with respect to a security, that the
security has low credit and market risk; 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
[[Page 16]]
quotations can be determined within one day and settled at that price
within a reasonable time period conforming with trade custom; is a type
of asset that investors historically have purchased in periods of
financial market distress during which market liquidity has been
impaired.
(m) Home state of a foreign bank means the state so determined by
the election of the foreign bank, or in default of such election, by the
Board of Governors of the Federal Reserve System.
(n) Immediate family member of a natural person means the spouse,
father, mother, brother, sister, son or daughter of that natural person.
(o) Initial deposit means the first deposit transaction between a
depositor and the branch where there is no existing deposit
relationship. The initial deposit may be placed into different deposit
accounts or into different kinds of deposit accounts, such as demand,
savings or time. Deposit accounts that are held by a depositor in the
same right and capacity may be added together for the purposes of
determining the dollar amount of the initial deposit.
(p) Insured bank means any bank, including a foreign bank with an
insured branch, the deposits of which are insured in accordance with the
provisions of the Federal Deposit Insurance Act.
(q) Insured branch means a branch of a foreign bank any deposits of
which branch are insured in accordance with the provisions of the
Federal Deposit Insurance Act.
(r) Investment grade means a security issued by an entity that has
adequate capacity to meet financial commitments for the projected life
of the exposure. Such an entity has adequate capacity to meet financial
commitments if the risk of its default is low and the full and timely
repayment of principal and interest is expected.
(s) Large United States business means any entity including, but not
limited to, a corporation, partnership, sole proprietorship,
association, foundation or trust which is organized under the laws of
the United States or any state thereof, and:
(1) Whose securities are registered on a national securities
exchange or quoted on the National Association of Securities Dealers
Automated Quotation System; or
(2) Has annual gross revenues in excess of $1,000,000 for the fiscal
year immediately preceding the initial deposit.
(t) A majority owned subsidiary means a company the voting stock of
which is more than 50 percent owned or controlled by another company.
(u) Noninsured branch means a branch of a foreign bank deposits of
which branch are not insured in accordance with the provisions of the
Federal Deposit Insurance Act.
(v) OCC means the Office of the Comptroller of the Currency.
(w) Person means an individual, bank, corporation, partnership,
trust, association, foundation, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, or any other form of
entity.
(x) Significant risk to the deposit insurance fund shall be
understood to be present whenever there is a high probability that the
Deposit Insurance Fund administered by the FDIC may suffer a loss.
(y) Standard maximum deposit insurance amount, referred to as the
``SMDIA'' hereafter, means $250,000 adjusted pursuant to subparagraph
(F) of section 11(a)(1) of the FDI Act (12 U.S.C. 1821(a)(1)(F)).
(z) State means any state of the United States or the District of
Columbia.
(aa) State branch means a branch of a foreign bank established and
operating under the laws of any state.
(bb) Wholly owned subsidiary means a company the voting stock of
which is 100 percent owned or controlled by another company except for a
nominal number of directors' shares.
[70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005, as amended at 71
FR 20527, Apr. 21, 2006; 74 FR 47718, Sept. 17, 2009; 75 FR 49365, Aug.
13, 2010; 83 FR 9143, Mar. 5, 2018]
Sec. 347.203 Deposit insurance required for all branches of foreign
banks engaged in domestic retail deposit activity in the same State.
The FDIC will not insure deposits in any branch of a foreign bank
unless the foreign bank agrees that every branch established or operated
by the foreign
[[Page 17]]
bank in the same state that engages in domestic retail deposit activity
will be an insured branch.
Sec. 347.204 Commitment to be examined and provide information.
(a) In connection with an application for deposit insurance for a
U.S. branch or depository institution subsidiary of a foreign bank that
has been determined to be subject to comprehensive consolidated
supervision by the appropriate Federal banking agency, as defined in
section 3(q) of the FDI Act (12 U.S.C. 1813(q)), the foreign bank shall
provide binding written commitments (including a consent to U.S.
jurisdiction and designation of agent for service, acceptable to the
FDIC) to the following terms:
(1) The FDIC will be provided with any information about the foreign
bank and its affiliates located outside of the United States that the
FDIC requests to determine:
(i) The relationship between the U.S. branch or depository
institution subsidiary and its affiliates; and
(ii) The effect of such relationship on such U.S. branch or
depository institution subsidiary;
(2) The FDIC will be allowed to examine the affairs of any office,
agency, branch or affiliate of the foreign bank located in the United
States and will be provided any information requested to determine:
(i) The relationship between the U.S. branch or depository
institution subsidiary and such offices, agencies, branches or
affiliates; and
(ii) The effect of such relationship on such U.S. branch or
depository institution subsidiary.
(3) The FDIC will not process a deposit insurance application for
any U.S. branch or depository institution subsidiary of a foreign bank
if the foreign bank fails to provide the written commitments, consent to
U.S. jurisdiction, and designation of agent for service required by this
section.
(b) The FDIC will consider the existence and extent of any
prohibition or restrictions, if any, on its ability to utilize the
commitments, consent to U.S. jurisdiction, and designation of agent for
service required by this section, in determining whether to grant or
deny a deposit insurance application for the U.S. branch or depository
institution subsidiary of the foreign bank. In addition, the FDIC may
consider any additional assurances or commitments provided by the
foreign bank, including that it will cooperate and assist the FDIC,
without limitation, by seeking to obtain waivers and exemptions from
applicable confidentiality or secrecy restrictions or requirements to
enable the foreign bank or its affiliates to make information about the
foreign bank and its affiliates located outside of the United States
available to the FDIC for review.
(c) The foreign bank's commitments, consent to U.S. jurisdiction,
and designation of agent for service shall be signed by an officer of
the foreign bank who has been so authorized by the foreign bank's board
of directors and in all instances will be executed in a manner
acceptable to the FDIC and shall be included with the branch or
depository institution application for insurance. Any documents that are
not in English shall be accompanied by an English translation.
Sec. 347.205 Record maintenance.
The records of each insured branch shall be kept as though it were a
separate entity, with its assets and liabilities separate from the other
operations of the head office, other branches or agencies of the foreign
bank and its subsidiaries or affiliates. Each insured branch must keep a
set of accounts and records in the words and figures of the English
language that accurately reflects the business transactions of the
insured branch on a daily basis. A foreign bank that has more than one
insured branch in a state may treat such insured branches as one entity
for record-keeping purposes and may designate one branch to maintain
records for all the branches in the state.
[[Page 18]]
Sec. 347.206 Domestic retail deposit activity requiring deposit
insurance by U.S. branch of a foreign bank.
(a) Domestic retail deposit activity. To initiate or conduct
domestic retail deposit activity requiring deposit insurance protection
in any state after December 19, 1991, a foreign bank must establish one
or more insured U.S. bank subsidiaries for that purpose.
(b) Exception. Paragraph (a) of this section does not apply to any
bank organized under the laws of any territory of the United States,
Puerto Rico, Guam, American Samoa, or the Virgin Islands the deposits of
which are insured by the FDIC pursuant to the Federal Deposit Insurance
Act.
(c) Grandfathered insured branches. Domestic retail accounts with
balances of less than an amount equal to the SMDIA that require deposit
insurance protection may be accepted or maintained in an insured branch
of a foreign bank only if such branch was an insured branch on December
19, 1991
(d) Change in ownership of grandfathered insured branch. The
grandfathered status of an insured branch may not be transferred, except
in certain merger and acquisition transactions that the FDIC determines
are not designed, or motivated by the desire, to avoid compliance with
section 6(d)(1) of the International Banking Act (12 U.S.C. 3104(d)(1)).
[70 FR 17560, Apr. 6, 2005, as amended at 74 FR 47718, Sept. 17, 2009]
Sec. 347.207 Disclosure of supervisory information to foreign
supervisors.
(a) Disclosure by the FDIC. The FDIC may disclose information
obtained in the course of exercising its supervisory or examination
authority to a foreign bank regulatory or supervisory authority, if the
FDIC determines that disclosure is appropriate for bank supervisory or
regulatory purposes and will not prejudice the interests of the United
States.
(b) Confidentiality. Before making any disclosure of information
pursuant to paragraph (a) of this section, the FDIC will obtain, to the
extent necessary, the agreement of the foreign bank regulatory or
supervisory authority to maintain the confidentiality of such
information to the extent possible under applicable law. The disclosure
or transfer of information to a foreign bank regulatory or supervisory
authority under this section will not waive any privilege applicable to
the information that is disclosed or transferred.
Sec. 347.208 Assessment base deductions by insured branch.
Deposits in an insured branch to the credit of the foreign bank or
any of its offices, branches, agencies, or wholly owned subsidiaries may
be deducted from the assessment base of the insured branch.
Sec. 347.209 Pledge of assets.
(a) Purpose. A foreign bank that has an insured branch must pledge
assets for the benefit of the FDIC or its designee(s). Whenever the FDIC
is obligated under section 11(f) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(f)) to pay the insured deposits of an insured branch,
the assets pledged under this section must become the property of the
FDIC and be used to the extent necessary to protect the Deposit
Insurance Fund.
(b) Amount of assets to be pledged. (1) For a newly insured branch,
a foreign bank must pledge assets equal to at least 5 percent of the
liabilities of the branch, based on the branch's projection of its
liabilities at the end of each of the first three years of operations.
For all other insured branches, a foreign bank must pledge assets equal
to the appropriate percentage applicable to the insured branch, as
determined by reference to the risk-based assessment schedule contained
in this paragraph, of the insured branch's average liabilities for the
last 30 days of the most recent calendar quarter. \4\
---------------------------------------------------------------------------
\4\ This average must be computed by using the sum of the close of
business figures for the 30 calendar days of the most recent calendar
quarter, ending with and including the last day of the calendar quarter,
divided by 30. For days on which the branch is closed, however, balances
from the previous business day are to be used in determining its average
liabilities. In determining its average liabilities, the insured branch
may exclude liabilities to other offices, agencies, branches, and wholly
owned subsidiaries of the foreign bank. The value of the pledged assets
must be computed based on the lesser of the principal amount (par value)
or market value of such assets at the time of the original pledge and
thereafter as of the last day of the most recent calendar quarter.
---------------------------------------------------------------------------
[[Page 19]]
(2) Risk-based assessment schedule. The risk-based asset pledge
required by paragraph (b)(1) will be determined by utilizing the
following risk-based assessment schedule:
------------------------------------------------------------------------
Supervisory risk subgroup
Asset maintenance level --------------------------------------
A (%) B (%) C (%)
------------------------------------------------------------------------
Equal to or greater than 108%.... 2 3 4
Equal to or greater than 106%.... 4 5 6
Less than 106%................... 6 7 8
------------------------------------------------------------------------
The appropriate asset pledge percentage will be determined based on
the supervisory risk subgroup and asset maintenance level applicable to
the insured branch.
(3) Supervisory risk factors. For purposes of this section, within
each asset maintenance group, each institution will be assigned to one
of three subgroups based on consideration by the FDIC of supervisory
evaluations provided by the primary federal regulator for the insured
branch. The supervisory evaluations include the results of examination
findings by the primary federal regulator, as well as other information
the primary federal regulator determines to be relevant. In addition,
the FDIC will take into consideration such other information (such as
state examination findings, if appropriate) as it determines to be
relevant to the financial condition and the risk posed to the Deposit
Insurance Fund. The three supervisory subgroups are:
(i) Subgroup ``A''. This subgroup consists of financially sound
institutions with only a few minor weaknesses;
(ii) Subgroup ``B''. This subgroup consists of institutions that
demonstrate weaknesses which, if not corrected, could result in
significant deterioration of the institution and increased risk of loss
to the deposit insurance fund; and
(iii) Subgroup ``C''. This subgroup consists of institutions that
pose a substantial probability of loss to the deposit insurance fund.
(4) The FDIC may require a foreign bank to pledge additional assets
or to compute its pledge on a daily basis whenever the FDIC determines
that the condition of the foreign bank or the insured branch is such
that the assets pledged under this section will not adequately protect
the deposit insurance fund. In requiring a foreign bank to pledge
additional assets, the FDIC will consult with the primary regulator for
the insured branch. Among the factors to be considered in imposing these
requirements are the concentration of risk to any one borrower or group
of related borrowers, the concentration of transfer risk related to any
one country, including the country in which the foreign bank's head
office is located or any other factor the FDIC determines is relevant.
(5) Each insured branch must separately comply with the requirements
of this section. A foreign bank which has more than one insured branch
in a state may, however, treat all of its insured branches in the same
state as one entity and will designate one insured branch to be
responsible for compliance with this section.
(c) Depository. A foreign bank must place pledged assets for
safekeeping at any depository which is located in any state. However, a
depository may not be an affiliate of the foreign bank whose insured
branch is seeking to use the depository. A foreign bank must obtain the
FDIC's prior written approval of the depository selected, and such
approval may be revoked and dismissal of the depository required
whenever the depository does not fulfill any one of its obligations
under the pledge agreement. A foreign bank shall appoint and constitute
the depository as its attorney in fact for the sole purpose of
transferring title to pledged assets to the FDIC as may be required to
effectuate the provisions of paragraph (a) of this section.
[[Page 20]]
(d) Assets that may be pledged. (1) This paragraph sets forth the
kinds of assets that may be pledged to satisfy the requirements of this
section. A foreign bank shall be deemed to have pledged any such assets
for the benefit of the FDIC or its designee at such time as any such
asset is placed with the depository. The FDIC reserves the right to
require the substitution of pledged assets with other assets deemed
acceptable to the FDIC.
(2) A foreign bank may pledge the kinds of assets set forth in this
paragraph (d)(2), provided that: Such assets are denominated in United
States dollars; such assets are investment grade, as that term is
defined in Sec. 347.202(r); and such assets are highly liquid, as that
term is defined in Sec. 347.202(l). Furthermore, for the purposes of
calculating the amount of assets required to be pledged under paragraph
(b) of this section, the assets that are eligible for pledging under
this paragraph (d)(2) must be discounted at the rates set forth in Table
1 to Sec. 347.209.
(i) Cash;
(ii) Treasury bills, interest bearing bonds, notes, debentures, or
other direct obligations of or obligations fully guaranteed as to
principal and interest by the United States or any agency thereof;
(iii) Obligations of United States government-sponsored enterprises;
(iv) Negotiable certificates of deposit that are payable in the
United States and that are issued by any state bank, national bank,
state or federal savings association, or branch of a foreign bank which
has executed a valid waiver of offset agreement or similar debt
instruments that are payable in the United States and that are issued by
any agency of a foreign bank which has executed a valid waiver of offset
agreement; provided, that the maturity of any certificate or issuance is
not greater than one year; and provided further, that the issuing branch
or agency of a foreign bank is not an affiliate of the pledging bank or
from the same country as the pledging bank's domicile;
(v) Obligations of the African Development Bank, Asian Development
Bank, Inter-American Development Bank, and the International Bank for
Reconstruction and Development;
(vi) Commercial paper;
(vii) Notes issued by bank and savings and loan holding companies,
banks, or savings associations organized under the laws of the United
States or any state thereof or notes issued by branches or agencies of
foreign banks, provided that the notes are payable in the United States,
and provided further, that the issuing branch or agency of a foreign
bank is not an affiliate of the pledging bank or from the same country
as the pledging bank's domicile;
(viii) Banker's acceptances that are payable in the United States
and that are issued by any state bank, national bank, state or federal
savings association, or branch or agency of a foreign bank; provided,
that the maturity of any acceptance is not greater than 180 days; and
provided further, that the branch or agency issuing the acceptance is
not an affiliate of the pledging bank or from the same country as the
pledging bank's domicile;
(ix) General obligations of any state of the United States, or any
county or municipality of any state of the United States, or any agency,
instrumentality, or political subdivision of the foregoing or any
obligation guaranteed by a state of the United States or any county or
municipality of any state of the United States;
(x) Any other asset determined by the FDIC to be acceptable.
(e) Pledge agreement. A foreign bank shall not pledge any assets
unless a pledge agreement in form and substance satisfactory to the FDIC
has been executed by the foreign bank and the depository. The agreement,
in addition to other terms not inconsistent with this paragraph (e),
shall give effect to the following terms:
(1) Original pledge. The foreign bank shall place with the
depository assets of the kind described in paragraph (d) of this
section, having an aggregate value in the amount as required pursuant to
paragraph (b) of this section.
(2) Additional assets required to be pledged. Whenever the foreign
bank is required to pledge additional assets for the benefit of the FDIC
or its designees pursuant to paragraph (b)(4) of this section, it shall
deliver (within two business days after the last day of the most
[[Page 21]]
recent calendar quarter, unless otherwise ordered) additional assets of
the kind described in paragraph (d) of this section, having an aggregate
value in the amount required by the FDIC.
(3) Substitution of assets. The foreign bank, at any time, may
substitute any assets for pledged assets, and, upon such substitution,
the depository shall promptly release any such assets to the foreign
bank; provided, that:
(i) The foreign bank pledges assets of the kind described in
paragraph (d) of this section having an aggregate value not less than
the value of the pledged assets for which they are substituted and
certified as such by the foreign bank; and
(ii) The FDIC has not by written notification to the foreign bank, a
copy of which shall be provided to the depository, suspended or
terminated the foreign bank's right of substitution.
(4) Delivery of other documents. Concurrently with the pledge of any
assets, the foreign bank will deliver to the depository all documents
and instruments necessary or advisable to effectuate the transfer of
title to any such assets and thereafter, from time to time, at the
request of the FDIC, deliver to the depository any such additional
documents or instruments. The foreign bank shall provide copies of all
such documents described in this paragraph (e)(4) to the appropriate
regional director concurrently with their delivery to the depository.
(5) Acceptance and safekeeping responsibilities of the depository.
(i) The depository will accept and hold any assets pledged by the
foreign bank pursuant to the pledge agreement for safekeeping free and
clear of any lien, charge, right of offset, credit, or preference in
connection with any claim the depository may assert against the foreign
bank and shall designate any such assets as a special pledge for the
benefit of the FDIC or its designee. The depository shall not accept the
pledge of any such assets unless, concurrently with such pledge, the
foreign bank delivers to the depository the documents and instruments
necessary for the transfer of title thereto as provided in this part.
(ii) The depository shall hold any such assets separate from all
other assets of the foreign bank or the depository. Such assets may be
held in book-entry form but must at all times be segregated on the
records of the depository and clearly identified as assets subject to
the pledge agreement.
(6) Reporting requirements of the insured branch and the depository.
(i) Initial reports. Upon the original pledge of assets as provided in
paragraph (e)(1) of this section:
(A) The depository shall provide to the foreign bank and to the
appropriate FDIC regional director a written report in the form of a
receipt identifying each asset pledged and specifying in reasonable
detail with respect to each such asset the complete title, interest
rate, series, serial number (if any), principal amount (par value),
maturity date and call date; and
(B) The foreign bank shall provide to the appropriate regional
director a written report certified as correct by the foreign bank which
sets forth the value of each pledged asset and the aggregate value of
all such assets, and which states that the aggregate value of all such
assets is at least equal to the amount required pursuant to paragraph
(b) of this section and that all such assets are of the kind described
in paragraph (d) of this section.
(ii) Quarterly reports. Within ten calendar days after the end of
the most recent calendar quarter:
(A) The depository shall provide to the appropriate regional
director a written report specifying in reasonable detail with respect
to each asset currently pledged (including any asset pledged to satisfy
the requirements of paragraph (b)(4) of this section and identified as
such), as of two business days after the end of the most recent calendar
quarter, the complete title, interest rate, series, serial number (if
any), principal amount (par value), maturity date, and call date,
provided, that if no substitution of any asset has occurred during the
reporting period, the reporting need only specify that no substitution
of assets has occurred; and
(B) The foreign bank shall provide as of two business days after the
end of the most recent calendar quarter to the appropriate regional
director a written report certified as correct by the foreign bank which
sets forth the
[[Page 22]]
value of each pledged asset and the aggregate value of all such assets,
which states that the aggregate value of all such assets is at least
equal to the amount required pursuant to paragraph (b) of this section
and that all such assets are of the kind described in paragraph (d) of
this section, and which states the average of the liabilities of each
insured branch of the foreign bank computed in the manner and for the
period prescribed in paragraph (b) of this section.
(iii) Additional reports. The foreign bank shall, from time to time,
as may be required, provide to the appropriate regional director a
written report in the form specified containing the information
requested with respect to any asset then currently pledged.
(7) Access to assets. With respect to any asset pledged pursuant to
the pledge agreement, the depository will provide representatives of the
FDIC or the foreign bank with access (during regular business hours of
the depository and at the location where any such asset is held, without
other limitation or qualification) to all original instruments,
documents, books, and records evidencing or pertaining to any such
asset.
(8) Release upon the order of the FDIC. The depository shall release
to the foreign bank any pledged assets, as specified in a written
notification of the appropriate regional director, upon the terms and
conditions provided in such notification, including without limitation
the waiver of any requirement that any assets be pledged by the foreign
bank in substitution of any released assets.
(9) Release to the FDIC. Whenever the FDIC is obligated under
section 11(f) of the Federal Deposit Insurance Act to pay insured
deposits of an insured branch, the FDIC by written certification shall
so inform the depository; and the depository, upon receipt of such
certification, shall thereupon promptly release and transfer title to
any pledged assets to the FDIC or release such assets to the foreign
bank, as specified in the certification. Upon release and transfer of
title to all pledged assets specified in the certification, the
depository shall be discharged from any further obligation under the
pledge agreement.
(10) Interest earned on assets. The foreign bank may retain any
interest earned with respect to the assets currently pledged unless the
FDIC by written notice prohibits retention of interest by the foreign
bank, in which case the notice shall specify the disposition of any such
interest.
(11) Expenses of agreement. The FDIC shall not be required to pay
any fees, costs, or expenses for services provided by the depository to
the foreign bank pursuant to, or in connection with, the pledge
agreement.
(12) Substitution of depository. The depository may resign, or the
foreign bank may discharge the depository, from its duties and
obligations under the pledge agreement by giving at least 60 days'
written notice thereof to the other party and to the appropriate
regional director. The FDIC, upon 30 days' written notice to the foreign
bank and the depository, may require the foreign bank to dismiss the
depository if the FDIC in its discretion determines that the depository
is in breach of the pledge agreement. The depository shall continue to
function as such until the appointment of a successor depository becomes
effective and the depository has released to the successor depository
the pledged assets and documents and instruments to effectuate transfer
of title in accordance with the written instructions of the foreign bank
as approved by the FDIC. The appointment by the foreign bank of a
successor depository shall not be effective until:
(i) The FDIC has approved in writing the successor depository; and
(ii) A pledge agreement in form and substance satisfactory to the
FDIC has been executed.
(13) Waiver of terms. The FDIC may by written order waive compliance
by the foreign bank or the depository with any term or condition of the
pledge agreement.
[[Page 23]]
Table 1 to Sec. 347.209--Supervisory Haircuts for Assets Pledged Under Sec. 347.209(d)
----------------------------------------------------------------------------------------------------------------
Haircut % assigned based on maturity and risk weight
---------------------------------------------------------------
Remaining maturity Risk weight (%) by issuer as specified in part 324.32
---------------------------------------------------------------
0% 20% 50% 100%
----------------------------------------------------------------------------------------------------------------
<=to 1 Year..................................... 0 1.0 2.0 4.0
1 Year but <=5 Years................. 0 4.0 6.0 8.0
5 years.............................. 0 8.0 12.0 16.0
----------------------------------------------------------------------------------------------------------------
[70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005, as amended at 71
FR 20527, Apr. 21, 2006; 83 FR 9143, Mar. 5, 2018]
Sec. 347.210 Asset maintenance.
(a) An insured branch of a foreign bank shall maintain on a daily
basis eligible assets in an amount not less than 106 percent of the
preceding quarter's average book value of the insured branch's
liabilities or, in the case of a newly-established insured branch, the
estimated book value of its liabilities at the end of the first full
quarter of operation, exclusive of liabilities due to the foreign bank's
head office, other branches, agencies, offices, or wholly owned
subsidiaries. The Director of the Division of Supervision and Consumer
Protection or his designee may impose a computation of total liabilities
on a daily basis in those instances where it is found necessary for
supervisory purposes. The FDIC Board of Directors, after consulting with
the insured branch's primary regulator, may require that a higher ratio
of eligible assets be maintained if the financial condition of the
insured branch warrants such action. Among the factors which will be
considered in requiring a higher ratio of eligible assets are the
concentration of risk to any one borrower or group of related borrowers,
the concentration of transfer risk to any one country, including the
country in which the foreign bank's head office is located or any other
factor the FDIC determines is relevant. Eligible assets shall be payable
in United States dollars.
(b) In determining eligible assets for the purposes of compliance
with paragraph (a) of this section, the insured branch shall exclude the
following:
(1) Any asset due from the foreign bank's head office, or its other
branches, agencies, offices or affiliates;
(2) Any asset classified ``Value Impaired,'' to the extent of the
required Allocated Transfer Risk Reserves or equivalent write down, or
``Loss'' in the most recent state or federal examination report;
(3) Any deposit of the insured branch in a bank unless the bank has
executed a valid waiver of offset agreement;
(4) Any asset not supported by sufficient credit information to
allow a review of the asset's credit quality, as determined at the most
recent state or federal examination, as follows:
(i) Whether an asset has sufficient credit information will be a
function of the size of the borrower and the location within the foreign
bank of the responsibility for authorizing and monitoring extensions of
credit to the borrower. For large, well known companies, when credit
responsibility is located in an office of the foreign bank outside the
insured branch, the insured branch must have adequate documentation to
show that the asset is of good quality and is being supervised
adequately by the foreign bank. In such cases, copies of periodic
memoranda that include an analysis of the borrower's recent financial
statements and a report on recent developments in the borrower's
operations and borrowing relationships with the foreign bank generally
would constitute sufficient information. For other borrowers, periodic
memoranda must be supplemented by information such as copies of recent
financial statements, recent correspondence concerning the borrower's
financial condition and repayment history, credit terms and collateral,
data on any guarantors, and where necessary, the status of any
corrective measures being employed;
(ii) Subsequent to the determination that an asset lacks sufficient
credit information, an insured branch may not
[[Page 24]]
include the amount of that asset among eligible assets until the FDIC
determines that sufficient documentation exists. Such a determination
may be made either at the next federal examination, or upon request of
the insured branch, by the appropriate regional director;
(5) Any asset not in the insured branch's actual possession unless
the insured branch holds title to such asset and the insured branch
maintains records sufficient to enable independent verification of the
insured branch's ownership of the asset, as determined at the most
recent state or federal examination;
(6) Any intangible asset;
(7) Any other asset not considered bankable by the FDIC.
(c) A foreign bank which has more than one insured branch in a state
may treat all of its insured branches in the same state as one entity
for purposes of compliance with paragraph (a) of this section and shall
designate one insured branch to be responsible for maintaining the
records of the insured branches' compliance with this section.
(d) The average book value of the insured branch's liabilities for a
quarter shall be, at the insured branch's option, either an average of
the balances as of the close of business for each day of the quarter or
an average of the balances as of the close of business on each Wednesday
during the quarter. Quarters end on March 31, June 30, September 30, and
December 31 of any given year. For days on which the insured branch is
closed, balances from the previous business day are to be used.
Calculations of the average book value of the insured branch's
liabilities for a quarter shall be retained by the insured branch until
the next federal examination.
Sec. 347.211 Examination of branches of foreign banks.
(a) Frequency of on-site examination. Each branch or agency of a
foreign bank shall be examined on-site at least once during each 12-
month period (beginning on the date the most recent examination of the
office ended) by:
(1) The FRB;
(2) The FDIC, if an insured branch;
(3) The OCC, if the branch or agency of the foreign bank is licensed
by the OCC; or
(4) The state supervisor, if the office of the foreign bank is
licensed or chartered by the state.
(b) 18-month cycle for certain small institutions-- (1) Mandatory
standards. The FDIC may conduct a full-scope, on-site examination at
least once during each 18-month period, rather than each 12-month period
as provided in paragraph (a) of this section, if the insured branch:
(i) Has total assets of less than $3 billion;
(ii) Has received a composite ROCA supervisory rating (which rates
risk management, operational controls, compliance, and asset quality) of
1 or 2 at its most recent examination;
(iii) Satisfies the requirement of either the following paragraph
(b)(iii)(A) or (B):
(A) The foreign bank's most recently reported capital adequacy
position consists of, or is equivalent to, Tier 1 and total risk-based
capital ratios of at least 6 percent and 10 percent, respectively, on a
consolidated basis; or
(B) The insured branch has maintained on a daily basis, over the
past three quarters, eligible assets in an amount not less than 108
percent of the preceding quarter's average third party liabilities
(determined consistent with applicable federal and state law) and
sufficient liquidity is currently available to meet its obligations to
third parties;
(iv) Is not subject to a formal enforcement action or order by the
FRB, FDIC, or the OCC; and
(v) Has not experienced a change in control during the preceding 12-
month period in which a full-scope, on-site examination would have been
required but for this section.
(2) Discretionary standards. In determining whether an insured
branch that meets the standards of paragraph (b)(1) of this section
should not be eligible for an 18-month examination cycle pursuant to
this paragraph (b), the FDIC may consider additional factors, including
whether:
(i) Any of the individual components of the ROCA supervisory rating
of an insured branch is rated ``3'' or worse;
[[Page 25]]
(ii) The results of any off-site monitoring indicate a deterioration
in the condition of the insured branch;
(iii) The size, relative importance, and role of a particular
insured branch when reviewed in the context of the foreign bank's entire
U.S. operations otherwise necessitate an annual examination; and
(iv) The condition of the parent foreign bank gives rise to such a
need.
(c) Authority to conduct more frequent examinations. Nothing in
paragraphs (a) and (b) of this section limits the authority of the FDIC
to examine any insured branch as frequently as it deems necessary.
[70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005, as amended at 72
FR 17803, Apr. 10, 2007; 81 FR 10070, Feb. 29, 2016; 83 FR 43965, Aug.
29, 2018]
Sec. 347.212 FDIC approval to conduct activities that are not
permissible for federal branches.
(a) Scope. A foreign bank operating an insured state branch which
desires to engage in or continue to engage in any type of activity that
is not permissible for a federal branch, pursuant to the National Bank
Act (12 U.S.C. 21 et seq.) or any other federal statute, regulation,
official bulletin or circular, written order or interpretation, or
decision of a court of competent jurisdiction, must file a written
application for permission to conduct such activity with the FDIC.
(b) Exceptions. If the FDIC has already determined, pursuant to part
362 of this chapter, ``Activities and Investment of Insured State
Banks,'' that an activity does not present a significant risk to the
Deposit Insurance Fund, no application is required under paragraph (a)
of this section for a foreign bank operating an insured branch to engage
or continue to engage in the same activity.
(c) Agency activities. A foreign bank operating an insured state
branch is not required to submit an application pursuant to paragraph
(a) of this section to engage in or continue engaging in an activity
conducted as agent if the activity is:
(1) permissible agency activity for a state-chartered bank located
in the state which the state-licensed insured branch of the foreign bank
is located;
(2) permissible agency activity for a state-licensed branch of a
foreign bank located in that state; and
(3) permissible pursuant to any other applicable federal law or
regulation.
(d) Conditions of approval. (1) Approval of such an application
required by paragraph (a) of this section may be conditioned on the
agreement by the foreign bank and its insured state branch to conduct
the activity subject to specific limitations, which may include pledging
of assets in excess of the asset pledge and asset maintenance
requirements contained in Sec. Sec. 347.209 and 347.210.
(2) In the case of an application to initially engage in an
activity, as opposed to an application to continue to conduct an
activity, the insured state branch shall not commence the activity until
it has been approved in writing by the FDIC pursuant to this part and
the FRB, and any and all conditions imposed in such approvals have been
satisfied.
(e) Divestiture or cessation. (1) If an application for permission
to continue to conduct an activity is not approved by the FDIC or the
FRB, the applicant shall submit a plan of divestiture or cessation of
the activity to the appropriate regional director.
(2) A foreign bank operating an insured state branch which elects
not to apply to the FDIC for permission to continue to conduct an
activity which is rendered impermissible by any change in statute,
regulation, official bulletin or circular, written order or
interpretation, or decision of a court of competent jurisdiction shall
submit a plan of divestiture or cessation to the appropriate regional
director.
(3) All plans of divestitures or cessation required by this
paragraph must be completed within one year from the date of the
disapproval, or within such shorter period as the FDIC may direct.
(f) Procedures. Procedures for applications under this section are
set out in section 303.187.
[70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005, as amended at 71
FR 20527, Apr. 21, 2006]
[[Page 26]]
Sec. 347.213 Establishment or operation of noninsured foreign branch.
(a) A foreign bank may establish or operate a state branch, as
provided by state law, without federal deposit insurance whenever:
(1) The branch only accepts initial deposits in an amount equal to
the SMDIA or greater; or
(2) The branch meets the criteria set forth in Sec. 347.214 or
Sec. 347.215.
(b) [Reserved]
[70 FR 17560, Apr. 6, 2005, as amended at 74 FR 47718, Sept. 17, 2009]
Sec. 347.214 Branch established under section 5 of the International
Banking Act.
A foreign bank may operate any state branch as a noninsured branch
whenever the foreign bank has entered into an agreement with the FRB to
accept at that branch only those deposits as would be permissible for a
corporation organized under section 25(a) of the Federal Reserve Act (12
U.S.C. 611 et seq.) and implementing rules and regulations administered
by the FRB (12 CFR 211).
Sec. 347.215 Exemptions from deposit insurance requirement.
(a) Deposit activities not requiring insurance. A State branch will
not be considered to be engaged in domestic retail deposit activity that
requires the foreign bank parent to establish an insured U.S. bank
subsidiary if the State branch accepts initial deposits only in an
amount of less than an amount equal to the SMDIA that are derived solely
from the following:
(1) Individuals who are not citizens or residents of the United
States at the time of the initial deposit;
(2) Individuals who:
(i) Are not citizens of the United States;
(ii) Are residents of the United States; and
(iii) Are employed by a foreign bank, foreign business, foreign
government, or recognized international organization;
(3) Persons (including immediate family members of natural persons)
to whom the branch or foreign bank (including any affiliate thereof) has
extended credit or provided other nondeposit banking services within the
past twelve months or has entered into a written agreement to provide
such services within the next twelve months;
(4) Foreign businesses, large United States businesses, and persons
from whom an Edge or agreement corporation may accept deposits under 12
CFR 211.6(a)(1);
(5) Any governmental unit, including the United States government,
any state government, any foreign government and any political
subdivision or agency of any of the foregoing, and recognized
international organizations;
(6) Persons who are depositing funds in connection with the issuance
of a financial instrument by the branch for the transmission of funds or
the transmission of such funds by any electronic means; and
(7) Any other depositor, but only if:
(i) The branch's average deposits under this paragraph (a)(7) do not
exceed one percent of the branch's average total deposits, as calculated
under paragraph (a)(7)(ii) if this section (de minimis exception).
(ii) For purposes of calculating this exception:
(A) The branch's average deposits under this paragraph and the
average total deposits must be computed by summing the close of business
figures for each of the last 30 calendar days, ending with and including
the last day of the calendar quarter, and dividing the resulting sum by
30;
(B) For days on which the branch is closed, balances from the last
previous business day are to be used;
(C) The branch may exclude deposits in the branch of other offices,
branches, agencies or wholly owned subsidiaries of the bank to determine
its average deposits;
(D) The branch must not solicit deposits from the general public by
advertising, display of signs, or similar activity designed to attract
the attention of the general public; and
(E) A foreign bank that has more than one state branch in the same
state may aggregate deposits in such branches (excluding deposits of
other branches, agencies or wholly owned subsidiaries of the bank) for
the purpose of this paragraph (a)(7).
[[Page 27]]
(b) Application for an exemption. (1) Whenever a foreign bank
proposes to accept at a State branch initial deposits of less than an
amount equal to the SMDIA and such deposits are not otherwise exempted
under paragraph (a) of this section, the foreign bank may apply to the
FDIC for consent to operate the branch as a noninsured branch. The Board
of Directors may exempt the branch from the insurance requirement if the
branch is not engaged in domestic retail deposit activities requiring
insurance protection. The Board of Directors will consider the size and
nature of depositors and deposit accounts, the importance of maintaining
and improving the availability of credit to all sectors of the United
States economy, including the international trade finance sector of the
United States economy, whether the exemption would give the foreign bank
an unfair competitive advantage over United States banking
organizations, and any other relevant factors in making this
determination.
(2) Procedures for applications under this section are set out in
Sec. 303.186.
(c) Transition period. A noninsured state branch may maintain a
retail deposit lawfully accepted prior to April 1, 1996 pursuant to
regulations in effect prior to July 1, 1998:
(1) If the deposit qualifies pursuant to paragraph (a) or (b) of
this section; or
(2) If the deposit does not qualify pursuant to paragraph (a) or (b)
of this section, in the case of a time deposit, no later than the first
maturity date of the time deposit after April 1, 1996.
[70 FR 17560, Apr. 6, 2005, as amended at 74 FR 47718, Sept. 17, 2009]
Sec. 347.216 Depositor notification.
Any state branch that is exempt from the insurance requirement
pursuant to Sec. 347.215 shall:
(a) Display conspicuously at each window or place where deposits are
usually accepted a sign stating that deposits are not insured by the
FDIC; and
(b) Include in bold face conspicuous type on each signature card,
passbook, and instrument evidencing a deposit the statement ``This
deposit is not insured by the FDIC''; or require each depositor to
execute a statement which acknowledges that the initial deposit and all
future deposits at the branch are not insured by the FDIC. This
acknowledgment shall be retained by the branch so long as the depositor
maintains any deposit with the branch. This provision applies to any
negotiable certificates of deposit made in a branch on or after July 6,
1989, as well as to any renewals of such deposits which become effective
on or after July 6, 1989.
Subpart C_International Lending
Sec. 347.301 Purpose, authority, and scope.
Under the International Lending Supervision Act of 1983 (Title IX,
Pub. L. 98-181, 97 Stat. 1153) (12 U.S.C. 3901 et seq.) (ILSA), the
Federal Deposit Insurance Corporation prescribes the regulations in this
subpart relating to international lending activities of banks.
Sec. 347.302 Definitions.
For the purposes of this subpart:
(a) Administrative cost means those costs which are specifically
identified with negotiating, processing and consummating the loan. These
costs include, but are not necessarily limited to: legal fees; costs of
preparing and processing loan documents; and an allocable portion of
salaries and related benefits of employees engaged in the international
lending function. No portion of supervisory and administrative expenses
or other indirect expenses such as occupancy and other similar overhead
costs shall be included.
(b) Banking institution means an insured state nonmember bank.
(c) Federal banking agencies means the Board of Governors of the
Federal Reserve System, the Office of the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation.
(d) International assets means those assets required to be included
in banking institutions' ``Country Exposure Report'' form (FFIEC No.
009).
(e) International loan means a loan as defined in the instructions
to the ``Report of Condition and Income'' for the respective banking
institution (FFIEC Nos. 031, 032, 033 and 034) and made to a foreign
government, or to an individual, a corporation, or other entity
[[Page 28]]
not a citizen of, resident in, or organized or incorporated in the
United States.
(f) Restructured international loan means a loan that meets the
following criteria:
(1) The borrower is unable to service the existing loan according to
its terms and is a resident of a foreign country in which there is a
generalized inability of public and private sector obligors to meet
their external debt obligations on a timely basis because of a lack of,
or restraints on the availability of, needed foreign exchange in the
country; and
(2) Either:
(i) The terms of the existing loan are amended to reduce stated
interest or extend the schedule of payments; or
(ii) A new loan is made to, or for the benefit of, the borrower,
enabling the borrower to service or refinance the existing debt.
(g) Transfer risk means the possibility that an asset cannot be
serviced in the currency of payment because of a lack of, or restraints
on the availability of, needed foreign exchange in the country of the
obligor.
Sec. 347.303 Allocated transfer risk reserve.
(a) Establishment of Allocated Transfer Risk Reserve. A banking
institution shall establish an allocated transfer risk reserve (ATRR)
for specified international assets when required by the FDIC in
accordance with this section.
(b) Procedures and standards--(1) Joint agency determination. At
least annually, the federal banking agencies shall determine jointly,
based on the standards set forth in paragraph (b)(2) of this section,
the following:
(i) Which international assets subject to transfer risk warrant
establishment of an ATRR;
(ii) The amount of the ATRR for the specified assets; and
(iii) Whether an ATRR established for specified assets may be
reduced.
(2) Standards for requiring ATRR--(i) Evaluation of assets. The
federal banking agencies shall apply the following criteria in
determining whether an ATRR is required for particular international
assets:
(A) Whether the quality of a banking institution's assets has been
impaired by a protracted inability of public or private obligors in a
foreign country to make payments on their external indebtedness as
indicated by such factors, among others, as whether:
(1) Such obligors have failed to make full interest payments on
external indebtedness; or
(2) Such obligors have failed to comply with the terms of any
restructured indebtedness; or
(3) A foreign country has failed to comply with any International
Monetary Fund or other suitable adjustment program; or
(B) Whether no definite prospects exist for the orderly restoration
of debt service.
(ii) Determination of amount of ATRR. (A) In determining the amount
of the ATRR, the federal banking agencies shall consider:
(1) The length of time the quality of the asset has been impaired;
(2) Recent actions taken to restore debt service capability;
(3) Prospects for restored asset quality; and
(4) Such other factors as the federal banking agencies may consider
relevant to the quality of the asset.
(B) The initial year's provision for the ATRR shall be ten percent
of the principal amount of each specified international asset, or such
greater or lesser percentage determined by the federal banking agencies.
Additional provision, if any, for the ATRR in subsequent years shall be
fifteen percent of the principal amount of each specified international
asset, or such greater or lesser percentage determined by the federal
banking agencies.
(3) FDIC notification. Based on the joint agency determinations
under paragraph (b)(1) of this section, the FDIC shall notify each
banking institution holding assets subject to an ATRR:
(i) Of the amount of the ATRR to be established by the institution
for specified international assets; and
(ii) That an ATRR established for specified assets may be reduced.
(c) Accounting treatment of ATRR--(1) Charge to current income. A
banking institution shall establish an ATRR by a charge to current
income and the
[[Page 29]]
amounts so charged shall not be included in the banking institution's
capital or surplus.
(2) Separate accounting. A banking institution shall account for an
ATRR separately from the Allowance for Loan and Lease Losses or
allowance for credit losses, as applicable, and shall deduct the ATRR
from ``gross loans and leases'' to arrive at ``net loans and lease.''
The ATRR must be established for each asset subject to the ATRR in the
percentage amount specified.
(3) Consolidation. A banking institution shall establish an ATRR, as
required, on a consolidated basis. For banks, consolidation should be in
accordance with the procedures and tests of significance set forth in
the instructions for preparation of Consolidated Reports of Condition
and Income (FFIEC Nos. 031, 032, 033 and 034).
(4) Alternative accounting treatment. A banking institution need not
establish an ATRR if it writes down in the period in which the ATRR is
required, or has written down in prior periods, the value of the
specified international assets in the requisite amount for each such
asset. For purposes of this paragraph (c)(4), international assets may
be written down by a charge to the Allowance for Loan and Lease Losses
or allowance for credit losses, as applicable, or a reduction in the
principal amount of the asset by application of interest payments or
other collections on the asset; provided, that only those international
assets that may be charged to the Allowance for Loan and Lease Losses or
allowance for credit losses, as applicable, pursuant to U.S. generally
accepted accounting principles may be written down by a charge to the
Allowance for Loan and Lease Losses or allowance for credit losses, as
applicable. However, the Allowance for Loan and Lease Losses or
allowance for credit losses, as applicable, must be replenished in such
amount necessary to restore it to a level which adequately provides for
the estimated losses inherent in the banking institution's loan and
lease portfolio.
(5) Reduction of ATRR. A banking institution may reduce an ATRR when
notified by the FDIC or, at any time, by writing down such amount of the
international asset for which the ATRR was established.
[70 FR 17560, Apr. 6, 2005; 70 FR 20704, Apr. 21, 2005, as amended at 84
FR 4249, Feb. 14, 2019]
Sec. 347.304 Accounting for fees on international loans.
(a) Restrictions on fees for restructured international loans. No
banking institution shall charge, in connection with the restructuring
of an international loan, any fee exceeding the administrative cost of
the restructuring unless it amortizes the amount of the fee exceeding
the administrative cost over the effective life of the loan.
(b) Accounting treatment. Subject to paragraph (a) of this section,
banking institutions shall account for fees on international loans in
accordance with generally accepted accounting principles.
Sec. 347.305 Reporting and disclosure of international assets.
(a) Requirements. (1) Pursuant to section 907(a) of ILSA, a banking
institution shall submit to the FDIC, at least quarterly, information
regarding the amounts and composition of its holdings of international
assets.
(2) Pursuant to section 907(b) of ILSA, a banking institution shall
submit to the FDIC information regarding concentrations in its holdings
of international assets that are material in relation to total assets
and to capital of the institution, such information to be made publicly
available by the FDIC on request.
(b) Procedures. The format, content and reporting and filing dates
of the reports required under paragraph (a) of this section shall be
determined jointly by the federal banking agencies. The requirements to
be prescribed by the federal banking agencies may include changes to
existing forms (such as revisions to the Country Exposure Report, Form
FFIEC No. 009) or such other requirements as the federal banking
agencies deem appropriate. The federal banking agencies also may
determine to exempt from the requirements of paragraph (a) of this
section banking institutions that, in the federal banking agencies'
judgment, have de minimis holdings of international assets.
[[Page 30]]
(c) Reservation of Authority. Nothing contained in this subpart
shall preclude the FDIC from requiring from a banking institution such
additional or more frequent information on the institution's holdings of
international assets as the agency may consider necessary.
PART 348_MANAGEMENT OFFICIAL INTERLOCKS--Table of Contents
Sec.
348.1 Purpose and scope.
348.2 Other definitions and rules of construction.
348.3 Prohibitions.
348.4 Interlocking relationships permitted by statute.
348.5 Small market share exemption.
348.6 General exemption.
348.7 Change in circumstances.
348.8 Enforcement.
Authority: 12 U.S.C. 3207, 12 U.S.C. 1823(k).
Source: 80 FR 79252, Dec. 21, 2015, unless otherwise noted.
Sec. 348.1 Purpose and scope.
(a) Authority. This part 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 part 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 part applies to management officials of FDIC-
supervised institutions and their affiliates.
Sec. 348.2 Other definitions and rules of construction.
For purposes of this part, 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
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 an FDIC-
supervised institution based on common ownership does not exist if the
FDIC 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 FDIC 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 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
[[Page 31]]
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) FDIC-supervised institution means either an insured state
nonmember bank or a State savings association.
(j) 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.
(k) 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 12 CFR
303.101(b).
(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).
(l) 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.
(m) Person means a natural person, corporation, or other business
entity.
(n) 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.
(o) 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 FDIC 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 FDIC will determine, after giving the affected persons an
opportunity to respond, whether a person is a representative or nominee.
(p) State savings association has the same meaning as in section
(3)(b)(3) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(b)(3).
(q) Total assets. (1) The term total assets includes 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 are 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.
[[Page 32]]
(r) 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. 348.3 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 $10 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 $10
billion (or any affiliate of such an organization), regardless of the
location of the two depository organizations. The FDIC 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 FDIC will announce the revised thresholds by
publishing a final rule without notice and comment in the Federal
Register.
[80 FR 79252, Dec. 21, 2015, as amended at 84 FR 54472, Oct. 10, 2019]
Sec. 348.4 Interlocking relationships permitted by statute.
The prohibitions of Sec. 348.3 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 date the
depository organization is acquired;
(h) A savings association whose acquisition has been authorized on
an emergency basis in accordance with section 13(k) of the Federal
Deposit Insurance Act (12 U.S.C. 1823(k)) with resulting dual service by
a management official that would otherwise be prohibited under the
Interlocks Act which may continue for up to 10 years from the date of
the acquisition provided that the FDIC has given its approval for the
continuation of such service;
(i)(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 is also 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
[[Page 33]]
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 FDIC 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 FDIC.
(3) The FDIC may require that any interlock permitted under this
paragraph (i) 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.
(j) Any FDIC-supervised institution which is a State savings
association that has issued stock in connection with a qualified stock
issuance pursuant to section 10(q) of the Home Owners' Loan Act, except
that this paragraph (j) shall apply only with regard to service as a
single management official of such State savings association or any
subsidiary of such State savings association by a single management
official of a savings and loan holding company which purchased the stock
issued in connection with such qualified stock issuance, and shall apply
only when the FDIC has determined that such service is consistent with
the purposes of the Interlocks Act and the Home Owners' Loan Act.
[80 FR 79252, Dec. 21, 2015, as amended at 84 FR 2706, Feb. 8, 2019]
Sec. 348.5 Small market share exemption.
(a) Exemption. A management interlock that is prohibited by Sec.
348.3 is permissible, if:
(1) The interlock is not prohibited by Sec. 348.3(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. 348.6 General exemption.
(a) Exemption. The FDIC may by agency order exempt an interlock from
the prohibitions in Sec. 348.3 if the FDIC finds that the interlock
would not result in a monopoly or substantial lessening of competition
and would not present safety and soundness concerns.
(b) Presumptions. In reviewing an application for an exemption under
this section, the FDIC 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.
303.101(c).
(c) Duration. Unless a shorter expiration period is provided in the
FDIC 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 FDIC 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 FDIC in writing.
(d) Procedures. Procedures for applying for an exemption under this
section are set forth in 12 CFR 303.249.
Sec. 348.7 Change in circumstances.
(a) Termination. A management official shall terminate his or her
service
[[Page 34]]
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 FDIC-supervised
institution involved in the interlock for 15 months following the date
of the change in circumstances. The FDIC may shorten this period under
appropriate circumstances.
Sec. 348.8 Enforcement.
Except as provided in this section, the FDIC administers and
enforces the Interlocks Act with respect to FDIC-supervised institutions
and their 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 an FDIC-supervised institution is subject to
the primary regulation of another federal depository organization
supervisory agency, then the FDIC does not administer and enforce the
Interlocks Act with respect to that affiliate.
PART 349_DERIVATIVES--Table of Contents
Subpart A_Margin and Capital Requirements for Covered Swap Entities
Sec.
349.1 Authority, purpose, scope, exemptions and compliance dates.
349.2 Definitions.
349.3 Initial margin.
349.4 Variation margin.
349.5 Netting arrangements, minimum transfer amount and satisfaction of
collecting and posting requirements.
349.6 Eligible collateral.
349.7 Segregation of collateral.
349.8 Initial margin models and standardized amounts.
349.9 Cross-border application of margin requirements.
349.10 Documentation of margin matters.
349.11 Special rules for affiliates.
349.12 Capital.
Appendix A to Subpart A of Part 349--Standardized Minimum Initial Margin
Requirements for Non-Cleared Swaps and Non-Cleared Security-
Based Swaps
Appendix B to Subpart A of Part 349--Margin Values for Cash and Eligible
Noncash Margin Collateral
Subpart B_Retail Foreign Exchange Transactions
349.13 Authority, purpose, and scope.
349.14 Definitions.
349.15 Prohibited transactions.
349.16 Filing procedures.
349.17 Application and closing out of offsetting long and short
positions.
349.18 Disclosure.
349.19 Recordkeeping.
349.20 Capital requirements.
349.21 Margin requirements.
349.22 Required reporting to customers.
349.23 Unlawful representations.
349.24 Authorization to trade.
349.25 Trading and operational standards.
349.26 Supervision.
349.27 Notice of transfers.
349.28 Customer dispute resolution.
Source: 76 FR 40789, July 12, 2011, unless otherwise noted.
Subpart A_Margin and Capital Requirements for Covered Swap Entities
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), and 12 U.S.C. 1818
and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C.1813(q), 1818, 1819, and 3108.
Source: 80 FR 74912, Nov. 30, 2015, unless otherwise noted.
Sec. 349.1 Authority, purpose, scope, exemptions and compliance dates.
(a) Authority. This subpart is issued by the Federal Deposit
Insurance Corporation (FDIC) under section 4s(e) of the Commodity
Exchange Act (7 U.S.C. 6s(e)), section 15F(e) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o-10(e)), and section 8 of the Federal Deposit
Insurance Act (12 U.S.C. 1818).
(b) Purpose. Section 4s of the Commodity Exchange Act (7 U.S.C. 6s)
and section 15F of the Securities Exchange Act of 1934 (15 U.S.C. 78o-
10) require the
[[Page 35]]
FDIC to establish capital and margin requirements for any FDIC-insured
state-chartered bank that is not a member of the Federal Reserve System
or FDIC-insured state-chartered savings association 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 and section 15F of the
Securities Exchange Act of 1934 by defining terms used in the statutes
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 part (except for
Sec. 45.12) 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 part (except for
Sec. 349.12) 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.
349.3 for initial margin and Sec. 349.4 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. 349.4
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.
349.3 for initial margin for any non-cleared swaps and non-cleared
security-based swaps, where both:
[[Page 36]]
(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.
349.3 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.
349.3 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.
349.3 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.
(7) For purposes of determining the date on which a non-cleared swap
or a non-cleared security-based swap was entered into, a Covered Swap
Entity will not take into account amendments to the non-cleared swap or
the non-cleared security-based swap that were entered into solely to
comply with the requirements of part 47, Subpart I of part 252 or part
382 of Title 12, as applicable.
(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
[[Page 37]]
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
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.
(h) Legacy swaps. Covered swaps entities are required to comply with
the requirements of this part for non-cleared swaps and non-cleared
security-based swaps entered into on or after the relevant compliance
dates for variation margin and for initial margin established in
paragraph (e) of this section. Any non-cleared swap or non-cleared
security-based swap entered into before such relevant date shall remain
outside the scope of this part if changes are made to the non-cleared
swap or non-cleared security-based swap it as follows:
(1) [Reserved]
(2) The non-cleared swap or non-cleared security based swap was
amended under the following conditions:
(i) The swap was originally entered into, booked at, or otherwise
held at, an entity located in the United Kingdom before the relevant
compliance date established in paragraph (e) of this section and one
party to the swap booked it at, or otherwise held it at, an entity
(including a branch or other authorized form of establishment) located
in the United Kingdom;
(ii) The entity in the United Kingdom subsequently arranged to amend
the swap, solely for the purpose of transferring it to an affiliate, or
a branch or other authorized form of establishment, located in any
European Union member state or the United States, in connection with the
entity's planning for or response to the event described in paragraph
(h)(2)(iii) of this section, and the transferee is:
(A) A covered swap entity, or
(B) A covered swap entity's counterparty to the swap, and the
counterparty represents to the covered swap entity that the counterparty
performed the transfer in compliance with the requirements of paragraphs
(h)(2)(i) and (ii) of this section; subject to the following conditions:
(iii) The law of the European Union ceases to apply [to] the United
Kingdom pursuant to Article 50(3) of the Treaty on European Union,
without conclusion of a Withdrawal Agreement between the United Kingdom
and the European Union pursuant to Article 50(2);
(iv) The amendments do not modify any of the following: The payment
amount calculation methods, the maturity date, or the notional amount of
the swap or non-cleared swap;
(v) The amendments cause the transfer to take effect on or after the
date of the event described in paragraph (h)(2)(iii) of this section
transpires; and
(vi) The amendments cause the transfer to take effect by the later
of:
(A) The date that is one year after the date of the event described
in paragraph (h)(2)(iii) of this section; or
(B) Such other date permitted by transitional provisions under
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as
amended.
[80 FR 74912, Nov. 30, 2015, as amended at 83 FR 50812, Oct. 10, 2018;
84 FR 9949, Mar. 19, 2019]
Sec. 349.2 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
[[Page 38]]
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 FDIC has determined that a company is an affiliate of
another company, based on FDIC'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 FDIC-insured state-chartered bank that
is not a member of the Federal Reserve System or FDIC-insured state-
chartered savings association that is a swap entity, or any other entity
that the FDIC determines.
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.
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. 349.6.
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
[[Page 39]]
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,
(i) Any exercise of rights under the agreement will not be stayed or
avoided under applicable law in the relevant jurisdictions, other than:
(A) 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)(A) in order to facilitate the orderly
resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or incorporates,
any of the laws referenced in paragraph (2)(i)(A) of this definition;
and
(ii) The agreement may limit 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 of the
counterparty to the extent necessary for the counterparty to comply with
the requirements of part 47, Subpart I of part 252 or part 382 of Title
12, as applicable;
(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, 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,
[[Page 40]]
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);
(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
[[Page 41]]
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. 349.8 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. 349.8, 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 FDIC pursuant to Sec. 349.8.
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. 349.1(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 FDIC.
Margin means initial margin and variation margin.
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. 349.1(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
[[Page 42]]
which the U.S. government is a shareholder or contributing member or
which the FDIC determines poses comparable credit risk.
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)).
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).
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;
(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 FDIC has determined that the company is a subsidiary of
another company, based on FDIC'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
[[Page 43]]
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 74912, Nov. 30, 2015, as amended at 83 FR 50812, Oct. 10, 2018]
Sec. 349.3 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. 349.1(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 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. 349.4 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. 349.1(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
[[Page 44]]
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. 349.5 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. 349.3 using an
initial margin model as described in Sec. 349.8, or with the variation
margin requirements of Sec. 349.4, 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. 349.1(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. 349.2 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
into on or after the applicable compliance date set forth in Sec.
349.1(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. 349.2, 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. 349.3 or Sec.
349.4, 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. 349.3,
Sec. 349.4, or Sec. 349.6(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:
[[Page 45]]
(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 FDIC 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. 349.6 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. 349.12;
(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;
(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 FDIC; 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
[[Page 46]]
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. 349.12, 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. 349.12;
(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 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 FDIC; 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
[[Page 47]]
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. 349.12, 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 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. 349.3(d) or Sec. 349.4(c) or
that is not required pursuant to this subpart in any form of collateral.
[80 FR 74912, Nov. 30, 2015]
Sec. 349.7 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
[[Page 48]]
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. 349.3(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. 349.6(a)(2) or (b), such asset is held in compliance with this
Sec. 349.7, 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. 349.3(a) or posted by a covered swap entity pursuant to Sec.
349.3(b), the agreement requires the posting party to:
(1) Substitute only funds or other property that would qualify as
eligible collateral under Sec. 349.6, 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. 349.3; and
(2) Direct reinvestment of funds only in assets that would qualify
as eligible collateral under Sec. 349.6, 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. 349.3.
Sec. 349.8 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. 349.3
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. 349.3 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 FDIC 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 FDIC in writing 60 days
prior to:
(i) Extending the use of an initial margin model that the FDIC has
approved under this section to an additional product type;
(ii) Making any change to any initial margin model approved by the
FDIC 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.
[[Page 49]]
(4) The FDIC 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 FDIC 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.
(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
[[Page 50]]
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 FDIC 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 FDIC 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.
(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 FDIC 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 FDIC 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
[[Page 51]]
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
FDIC of the problems, describe to the FDIC 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, 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. 349.9 Cross-border application of margin requirements.
(a) Transactions to which this rule does not apply. The requirements
of Sec. Sec. 349.3 through 349.8 and Sec. Sec. 349.10 through 349.12
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
[[Page 52]]
(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 Sec. Sec. 349.3 through 349.8 and Sec. Sec. 349.10
through 349.12.
(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 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.
349.3(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
[[Page 53]]
(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 __.3(b) and __.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. 349.6(b) in compliance with the
segregation requirements of Sec. 349.7;
(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;
(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.
349.3(a) in the form of cash pursuant to Sec. 349.6(b)(1), and posts
and collects variation margin in accordance with Sec. 349.4(a) in the
form of cash pursuant to Sec. 349.6(b)(1); and
(v) The FDIC 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-
[[Page 54]]
cleared swap or non-cleared security-based swap by the other guarantor.
Sec. 349.10 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. 349.11 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. 349.1(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. 349.3(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 that is a financial end user with
material swaps exposure pursuant to Sec. 349.3(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. 349.3(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.
349.1(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. 349.4.
(d) Custodian for non-cash collateral. To the extent that a covered
swap entity collects initial margin required by Sec. 349.3(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. 349.8(d)(1)
[[Page 55]]
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. 349.8, 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. 349.3 on a daily basis pursuant to Appendix A with the gross
initial margin multiplied by 0.7.
Sec. 349.12 Capital.
A covered swap entity shall comply with the capital requirements
that are applicable to the covered swap entity under part 324 of this
chapter.
[80 FR 74912, Nov. 30, 2015]
Sec. Appendix A to Subpart A of Part 349--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 of Part 349--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. 349.6(a)(2)(iv) or (b)(5) debt:
residual maturity less than one-year...................
[[Page 56]]
Eligible government and related (e.g., central bank, 2.0
multilateral development bank, GSE securities
identified in Sec. 349.6(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. 349.6(a)(2)(iv) or (b)(5) debt:
residual maturity greater than five years..............
Eligible GSE debt securities not identified in Sec. 1.0
349.6(a)(2)(iv) or (b)(5): residual maturity less than
one-year...............................................
Eligible GSE debt securities not identified in Sec. 4.0
349.6(a)(2)(iv) or (b)(5): residual maturity between
one and five years:....................................
Eligible GSE debt securities not identified in Sec. 8.0
349.6(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.......................
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_Retail Foreign Exchange Transactions
Authority: 12 U.S.C.1813(q), 1818, 1819, and 3108; 7 U.S.C.
2(c)(2)(E), 27 et seq.
Sec. 349.13 Authority, purpose, and scope.
(a) Authority. An FDIC-supervised insured depository institution
that engages in retail forex transactions shall comply with the
requirements of this part.
(b) Purpose. This part establishes rules applicable to retail forex
transactions engaged in by FDIC-supervised insured depository
institutions and applies on or after the effective date.
(c) Scope. Except as provided in paragraph (d) of this section, this
part applies to FDIC-supervised insured depository institutions.
(d) International applicability. Sections 349.15 and 349.17 through
349.28 do not apply to retail foreign exchange transactions between a
foreign branch of an FDIC-supervised IDI and a non-U.S. customer. With
respect to those transactions, an FDIC-supervised IDI must comply with
any disclosure, recordkeeping, capital, margin, reporting, business
conduct, documentation, and other requirements of applicable foreign
law.
[76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912,
Nov. 30, 2015]
Sec. 349.14 Definitions.
For purposes of this part--
The following terms have the same meaning as in the Commodity
Exchange Act: ``Affiliated person of a futures commission merchant'';
``Associated person''; ``Contract of sale''; ``Commodity''; ``Eligible
contract participant''; ``Futures commission merchant''; ``Security'';
and ``Security futures product''.
Affiliate has the same meaning as in Sec. 2(k) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841(k)).
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. 1
et seq.).
FDIC-supervised insured depository institution means any insured
depository institution for which the Federal Deposit Insurance
Corporation is the appropriate Federal banking agency pursuant to Sec.
3(q) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(q).
Forex means foreign exchange.
Institution-affiliated party or IAP has the same meaning as in 12
U.S.C. 1813(u)(1), (2), or (3).
Insured depository institution or IDI has the same meaning as in 12
U.S.C. 1813(c)(2).
Introducing broker means any person who solicits or accepts orders
from a retail forex customer in connection with retail forex
transactions.
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 FDIC-supervised insured depository
institution;
[[Page 57]]
(2) An associated person or employee of the retail forex
counterparty, if the retail forex counterparty is not an FDIC-supervised
insured depository institution;
(3) An IAP, if the retail forex counterparty is an FDIC-supervised
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.
Retail forex account means the account of a retail forex customer,
established with an FDIC-supervised insured depository institution, in
which retail forex transactions with the FDIC-supervised insured
depository institution as counterparty are undertaken, or the account of
a retail forex customer that is established in order to enter into such
transactions.
Retail forex account agreement means the contractual agreement
between an FDIC-supervised insured depository institution and a retail
forex customer that contains the terms governing the customer's retail
forex account with the FDIC-supervised insured depository institution.
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.
Retail forex counterparty includes, as appropriate:
(1) An FDIC-supervised insured depository institution;
(2) A retail foreign exchange dealer;
(3) A futures commission merchant; and
(4) An affiliated person of a futures commission merchant.
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.
Retail forex obligations means obligations of a retail forex
customer with respect to retail forex transactions, including, but not
limited to, trading losses, fees, and commissions.
Retail forex proprietary account means: a retail forex account
carried on the books of an FDIC-supervised insured depository
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 FDIC-supervised insured depository institution;
(2) An officer, director or owner of ten percent or more of the
capital stock of the FDIC-supervised insured depository institution; or
(3) An employee of the FDIC-supervised insured depository
institution, whose duties include:
(i) The management of the FDIC-supervised insured depository
institution's business;
(ii) The handling of the FDIC-supervised insured depository
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 FDIC-
supervised insured depository institution's retail forex transactions;
or
(iv) The signing or co-signing of checks or drafts on behalf of the
FDIC-supervised insured depository institution;
(4) A spouse or minor dependent living in the same household as of
any of the foregoing persons; or
(5) An affiliate of the FDIC-supervised insured depository
institution;
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 FDIC-supervised insured depository 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;
(2) An option, other than an option executed or traded on a national
securities exchange registered pursuant to Sec. 6(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78(f)(a)); or
(3) Offered or entered into on a leveraged or margined basis, or
financed by an FDIC-supervised insured depository institution, its
affiliate, or any person acting in concert with the FDIC-supervised
insured depository institution or
[[Page 58]]
its affiliate on a similar basis, other than:
(i) A security that is not a security futures product as defined in
Sec. 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 FDIC
determines is not functionally or economically similar to:
(A) A contract of sale of a commodity for future delivery or an
option on such a contract; or
(B) 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. 78(f)(a)).
Retail forex obligations means obligations of a retail forex
customer with respect to retail forex transactions, including, but not
limited to, trading losses, fees, and commissions.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.15 Prohibited transactions.
(a) Fraudulent conduct prohibited. No FDIC-supervised insured
depository institution or its IAPs 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) Willfully 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) Willfully deceive or attempt to deceive any person by any means
whatsoever.
(b) Acting as counterparty and exercising discretion prohibited. If
an FDIC-supervised insured depository institution can cause retail forex
transactions to be effected for a retail forex customer without the
retail forex customer's specific authorization, then neither the FDIC-
supervised insured depository institution nor its affiliates may act as
the counterparty for any retail forex transaction with that retail forex
customer.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.16 Filing procedures.
(a) General. Before commencing a retail forex business, an FDIC-
supervised insured depository institution shall provide the FDIC prior
written notice and obtain the FDIC's prior written consent.
(b) Where to file. A notice required by this section shall be
submitted in writing to the appropriate FDIC office.
(c) Contents of filing. A complete letter notice shall include the
following information:
(1) Filings generally. (i) A brief description of the FDIC-
supervised institution's proposed retail forex business and the manner
in which it will be conducted;
(ii) The amount of the institution's existing or proposed direct or
indirect investment in the retail forex business as well as calculations
sufficient to indicate compliance with all capital requirements in Sec.
349.20 and all other applicable capital standards;
(iii) A copy of the FDIC-supervised insured depository institution's
comprehensive business plan that includes a discussion of, among other
things, how the operation of the retail forex business is consistent
with the institution's overall strategy;
(iv) A description of the FDIC-supervised insured depository
institution's target customers for its proposed retail forex business
and related information, including without limitation credit
evaluations, customer appropriateness, and ``know your customer''
documentation;
(v) A resolution by the FDIC-supervised insured depository
institution's board of directors that the proposed retail forex business
is an appropriate activity for the institution and that the
institution's written policies, procedures, and risk measurement and
management systems and controls address conducting retail forex business
in a safe and sound manner and in compliance with this part;
(vi) Sample risk disclosures sufficient to demonstrate compliance
with Sec. 349.18.
[[Page 59]]
(2) Copy of application or notice filed with another agency. If an
FDIC-supervised insured depository institution has filed an application
or notice with another regulatory authority which contains all of the
information required by subparagraph (c)(1) of this part, the
institution may submit a copy to the FDIC in lieu of a separate filing.
(3) Additional information. The FDIC may request additional
information to complete the processing of the notification.
(d) Treatment of Existing Retail Forex Business. Any FDIC-supervised
insured depository institution that is engaged in retail forex business
on July 15, 2011 may continue to do so for up to six months, subject to
an extension of time by the FDIC, provided that it notifies the FDIC of
its retail forex business and requests the FDIC's written consent in
accordance with paragraph (a) of this section.
(e) Compliance with the Commodities Exchange Act. Any FDIC-
supervised insured depository institution that is engaged in retail
forex business on July 15, 2011 shall be deemed, during the six-month
period (including any extension) provided in paragraph (e) of this
section, to be acting pursuant to a rule or regulation described in
Sec. 2(c)(2)(E)(ii)(I) of the Commodity Exchange Act (7 U.S.C.
2(c)(2)(E)(ii)(I)).
[76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912,
Nov. 30, 2015]
Sec. 349.17 Application and closing out of offsetting long and
short positions.
(a) Application of purchases and sales. Any FDIC-supervised insured
depository 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; 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 where
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 FDIC-supervised insured depository
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 FDIC-
supervised insured depository institution or an IAP.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.18 Disclosure.
(a) Risk disclosure statement required. No FDIC-supervised insured
depository institution may open or maintain open an account that will
engage in retail forex transactions for a retail forex customer unless
the FDIC-supervised insured depository institution has furnished the
retail forex customer with a
[[Page 60]]
separate written disclosure statement containing only the language set
forth in paragraph (d) of this section and the disclosures required by
paragraphs (e) and (f) of this section.
(b) Acknowledgement of risk disclosure statement required. The FDIC-
supervised insured depository 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:
Risk Disclosure Statement
Retail forex transactions involve the leveraged trading of contracts
denominated in foreign currency with an FDIC-supervised insured
depository 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 FDIC-supervised insured depository institution as
margin for such trading and you may lose more than you pledge as margin.
Your FDIC-supervised insured depository institution is prohibited
from applying losses that you experience on retail forex transactions on
any funds or property of yours other than funds or property that you
have given or pledged as margin for retail forex transactions.
You should be aware of and carefully consider the following points
before determining whether such trading is appropriate for you.
(1) Trading is a not on a regulated market or exchange--your FDIC-
supervised insured depository 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 as a designated
contract market by the Commodity Futures Trading Commission. The foreign
currency trades you transact are trades with your FDIC-supervised
insured depository institution as the counterparty. When you sell, the
FDIC-supervised insured depository institution is the buyer. When you
buy, the FDIC-supervised insured depository institution is the seller.
As a result, when you lose money trading, your FDIC-supervised insured
depository institution is making money on such trades, in addition to
any fees, commissions, or spreads the FDIC-supervised insured depository
institution may charge.
(2) An electronic trading platform for retail foreign currency
transactions is not an exchange. It is an electronic connection for
accessing your FDIC-supervised insured depository institution. The terms
of availability of such a platform are governed only by your contract
with your FDIC-supervised insured depository institution. Any trading
platform that you may use to enter into off-exchange foreign currency
transactions is only connected to your FDIC-supervised insured
depository institution. You are accessing that trading platform only to
transact with your FDIC-supervised insured depository institution. You
are not trading with any other entities or customers of the FDIC-
supervised insured depository 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
FDIC-supervised insured depository institution.
(3) You may be able to offset or liquidate any trading positions
only through your banking entity because the transactions are not made
on an exchange or regulated contract market, and your FDIC-supervised
insured depository institution may set its own prices. Your ability to
close your transactions or offset positions is limited to what your
FDIC-supervised insured depository institution will offer to you, as
there is no other market for these transactions. Your FDIC-supervised
insured depository institution may offer any prices it wishes, including
prices derived from outside sources or not in its discretion. Your FDIC-
supervised insured depository 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 FDIC-supervised insured
depository 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 FDIC-supervised insured
depository 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 FDIC-supervised insured depository
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 FDIC-
supervised insured depository 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
[[Page 61]]
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 FDIC-supervised insured depository 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, an FDIC-supervised insured depository 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
FDIC-supervised insured depository institution that minimize the
importance of, or contradict, any of the terms of this risk disclosure.
These 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 an FDIC-
supervised insured depository 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 FDIC-
supervised insured depository institution maintained retail forex
customer accounts:
(i) The total number of retail forex customer accounts maintained by
the FDIC-supervised insured depository institution over which the FDIC-
supervised insured depository 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) The FDIC-supervised insured depository institution's statement
of profitable trades shall include the following legend: ``Past
performance is not necessarily indicative of future results.'' Each
FDIC-supervised insured depository 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
FDIC-supervised insured depository institution for which the FDIC-
supervised insured depository 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 FDIC-supervised insured depository 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, commission, or spreads that the
FDIC-supervised insured depository 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 FDIC-supervised insured depository
institution will determine the amount of such fees, charges,
commissions, or spreads; and
(3) The circumstances under which the FDIC-supervised insured
depository institution may impose such fees, charges, commissions, or
spreads.
(g) Future disclosure requirements. If, with regard to a retail
forex customer, the FDIC-supervised insured depository institution
changes any fee, charge, commission or spreads required to be disclosed
under paragraph (f) of this section, then the FDIC-supervised insured
depository 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.
[[Page 62]]
(h) 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.
(i) Other disclosure requirements unaffected. This section does not
relieve an FDIC-supervised insured depository institution from any other
disclosure obligation it may have under applicable law.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.19 Recordkeeping.
(a) General rule. An FDIC-supervised insured depository institution
engaging in retail forex transactions shall keep full, complete and
systematic records, together with all pertinent data and memoranda,
pertaining 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 the 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;
(iii) The establishment or termination of the account; and
(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 deposits, withdrawals, and transfers, 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 price at which the FDIC-supervised insured depository
institution placed the order, or, in the case of an option, the premium
that the retail forex customer paid;
(ii) The customer account identification information;
(iii) The currency pair;
(iv) The size or quantity of the order;
(v) Whether the order was a buy or sell order;
(vi) The type of order, if the order was not a market order;
(vii) 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;
(viii) 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; and
(ix) For futures, the delivery date; and
(x) 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 customer orders are executed, including, but not limited to, any
markups, 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:
[[Page 63]]
(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;
(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; and
(6) Other records. Written acknowledgements of receipt of the risk
disclosure statement required by Sec. 349.18(b), records required under
paragraph (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 memoranda that
have been prepared in the course of the FDIC-supervised insured
depository 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, an FDIC-supervised insured
depository 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 FDIC-supervised insured
depository 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. An FDIC-
supervised insured depository institution engaging in retail forex
transactions shall make a record of all communications, including
customer complaints, received by the FDIC-supervised insured depository
institution or its IAPs concerning facts giving rise to possible
violations of law related to the FDIC-supervised insured depository
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; the name of the person who received the communication,
and the final disposition of the matter.
(d) Records for noncash margin. An FDIC-supervised insured
depository institution shall maintain a record of all noncash margin
collected pursuant to Sec. 349.21. 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;
[[Page 64]]
(4) The identity of the depositories or other places where such
securities or property are segregated or held, if applicable;
(5) The dates in which the FDIC-supervised insured depository
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, an FDIC-supervised insured depository institution must prepare an
order ticket for the order (whether unfulfilled, executed, or canceled).
The order ticket must 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);
(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 FDIC-supervised insured depository 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 retail forex customers upon request:
(A) The general nature of the post-execution allocation methodology
the FDIC-supervised insured depository institution will use;
(B) Whether the FDIC-supervised insured depository 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 its results with those of other comparable customers and, if
applicable, any account in which the FDIC-supervised insured depository
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 FDIC to verify the fairness of the
allocations using that methodology.
(f) Record of monthly statements and confirmations. An FDIC-
supervised insured depository institution shall retain a copy of each
monthly statement and confirmation required by Sec. 349.22.
(g) 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. Record maintenance may
include the use of automated or electronic records provided that the
records are easily retrievable, readily available for inspection, and
capable of being reproduced in hard copy.
(h) Length of maintenance. An FDIC-supervised insured depository
institution shall keep each record required by this section for at least
five years from the date the record is created.
[76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912,
Nov. 30, 2015]
Sec. 349.20 Capital requirements.
An FDIC-supervised insured depository institution offering or
entering into retail forex transactions must be well capitalized as
defined by 12 CFR
[[Page 65]]
part 324, unless specifically exempted by the FDIC in writing.
[83 FR 17741, Apr. 24, 2018]
Sec. 349.21 Margin requirements.
(a) Margin required. An FDIC-supervised insured depository
institution engaging, or offering to engage, 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
FDIC-supervised insured depository 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 Sec. 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 FDIC deems appropriate.
(2) Haircuts. An FDIC-supervised insured depository 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) Separate margin account. Margin collected by the FDIC-supervised
insured depository institution from a retail forex customer for retail
forex transactions or pledged by a retail forex customer for retail
forex transactions shall be placed into a separate account containing
only such margin.
(d) Margin calls; liquidation of position. For each retail forex
customer, at least once per day, an FDIC-supervised insured depository
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 if, based on the marks in paragraphs (c)(1) and (2) of
this section, the FDIC-supervised insured depository institution has
collected margin from the retail forex customer sufficient to satisfy
the requirements of this section; and
(4) Collect such margin from the retail forex customer as the FDIC-
supervised insured depository institution may require to satisfy the
requirements of this section, or liquidate the retail forex customer's
retail forex transactions.
(e) Set-off prohibited. An FDIC-supervised insured depository
institution may not:
(1) Apply a retail forex customer's retail forex obligations against
any funds or other asset of the retail forex customer other than margin
in the separate margin account described in paragraph (c) of this
section;
(2) Apply a retail forex customer's retail forex obligations to
increase the amount owed by the retail forex customer to the FDIC-
supervised insured depository institution under any loan; or
(3) Collect the margin required under this section by use of any
right of set-off.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
[[Page 66]]
Sec. 349.22 Required reporting to customers.
(a) Monthly statements. Each FDIC-supervised insured depository
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:
(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 in the separate margin
account required by Sec. 349.21(c); 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, commissions, and spreads.
(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 in the separate margin
account required by Sec. 349.21(c); 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 FDIC-supervised insured depository
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
[[Page 67]]
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 FDIC-supervised insured depository 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 FDIC-supervised insured depository institution was
introduced by an introducing broker and the name of the introducing
broker.
[76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912,
Nov. 30, 2015]
Sec. 349.23 Unlawful representations.
(a) No implication or representation of limiting losses. No FDIC-
supervised insured depository institution engaged in retail foreign
exchange transactions or its IAPs 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 FDIC-supervised insured depository institution or its IAPs 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 FDIC-supervised insured
depository institution or its IAPs 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 FDIC, the Federal
government, or any agency thereof.
(d) Assuming or sharing of liability from bank error. This section
shall not be construed to prevent an FDIC-supervised insured depository
institution from assuming or sharing in the losses resulting from the
FDIC-supervised insured depository 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.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.24 Authorization to trade.
(a) Specific authorization required. No FDIC-supervised insured
depository 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 FDIC-supervised insured depository institution to effect
the retail forex transaction.
(b) Requirements for specific authorization. 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.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.25 Trading and operational standards.
(a) Internal rules, procedures, and controls required. An FDIC-
supervised insured depository institution engaging in retail forex
transactions shall establish and implement internal policies,
procedures, and controls designed, at a minimum, to:
(1) Ensure, to the extent reasonable, that each order received from
a retail forex transaction that is executable at or near the price that
the FDIC-supervised insured depository institution has quoted to the
retail forex customer is entered for execution before any order in any
retail forex transaction for
[[Page 68]]
(i) A any 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 such 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 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.
(2) Prevent FDIC-supervised insured depository 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;
(3) Fairly and objectively establish settlement prices for retail
forex transactions; and
(b) Disclosure of retail forex transactions. No FDIC-supervised
insured depository institution engaging in retail forex transactions may
disclose that an order of another person is being held by the FDIC-
supervised insured depository institution, unless the disclosure is
necessary to the effective execution of such order or the disclosure is
made at the request of the FDIC.
(c) Handling of retail forex accounts of related persons of retail
forex counterparties. No FDIC-supervised insured depository institution
engaging in retail forex transactions may knowingly handle the retail
forex account of an employee of another retail forex counterparty's
retail forex business unless the FDIC-supervised insured depository
institution:
(1) Receives written authorization from a person designated by the
other retail forex counterparty 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 other retail forex
counterparty copies of all statements for the account and of all written
records prepared upon the receipt of orders for such account pursuant to
paragraph (a)(2) of this section.
(d) Related person of FDIC-supervised insured depository institution
establishing account at another retail forex counterparty. No related
person of an FDIC-supervised insured depository institution working in
the 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 an
account from a person designated by the FDIC-supervised insured
depository institution of which it is a related person with
responsibility for the surveillance over the account pursuant to
paragraph (a)(2) of this section; and
(2) Transmits on a regular basis to the FDIC-supervised insured
depository institution copies of all statements for such account and of
all written records prepared by the other retail forex counterparty upon
receipt of orders for the account pursuant to paragraph (c)(2) of this
section are transmitted on a regular basis to the retail forex
counterparty of which it is a related person.
(e) Prohibited trading practices. No FDIC-supervised insured
depository 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 FDIC-supervised insured
depository institution;
(2) Adjust or alter prices for a retail forex transaction after the
transaction
[[Page 69]]
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 FDIC-supervised insured depository institution holds outstanding
orders of other retail forex customers for the same currency pair at a
comparable price.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.26 Supervision.
(a) Supervision by the FDIC-supervised insured depository
institution. An FDIC-supervised insured depository 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 at the FDIC-supervised insured
depository 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.
(b) Supervision by officers, employees, or agents. An officer,
employee, or agent of an FDIC-supervised insured depository institution
must diligently supervise his or her subordinates' handling of all
retail forex accounts at the FDIC-supervised insured depository
institution and all the subordinates' activities relating to the FDIC-
supervised insured depository institution's retail forex business.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.27 Notice of transfers.
(a) Prior notice generally required. Except as provided in paragraph
(b) of this section, an FDIC-supervised insured depository 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 FDIC-supervised insured depository
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
(3) Otherwise authorized by applicable law.
(c) Obligations of transferee FDIC-supervised insured depository
institution. An FDIC-supervised insured depository 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 FDIC-supervised insured depository institution
has clear written evidence that the retail forex customer has received
and acknowledged receipt of the required disclosure statements.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
Sec. 349.28 Customer dispute resolution.
(a) Voluntary submission of claims to dispute or settlement
procedures. No FDIC-supervised insured depository institution may enter
into any agreement or understanding with a retail forex customer in
which the customer
[[Page 70]]
agrees, prior to the time a claim or grievance arises, to submit such
claim or grievance to any settlement procedure.
(b) Election of forum. (1) Within ten business days after receipt of
notice from the retail forex customer that the customer intends to
submit a claim to arbitration, the FDIC-supervised insured depository
institution must provide the customer with a list of persons qualified
in dispute resolution.
(2) The customer shall, within 45 days after receipt of such list,
notify the FDIC-supervised insured depository institution of the person
selected. The customer's failure to provide such notice shall give the
FDIC-supervised insured depository institution the right to select a
person from the list.
(c) Enforceability. A dispute settlement procedure may require
parties using such procedure to agree, under applicable state law,
submission agreement or otherwise, to be bound by an award rendered in
the procedure, provided that the agreement to submit the claim or
grievance to the voluntary procedure under paragraph (a) of this section
or that agreement to submit the claim or grievance was made after the
claim or grievance arose. Any award so rendered shall be enforceable in
accordance with applicable law.
(d) Time limits for submission of claims. The dispute settlement
procedure used by the parties shall 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 an FDIC-supervised insured
depository 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. Such a counterclaim may be permitted where it
arises out of the transaction or occurrence that is the subject of the
customer's claim or grievance and does not require for adjudication the
presence of essential witnesses, parties, or third persons over which
the settlement process lacks jurisdiction.
[76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]
PART 350 [RESERVED]
PART 351_PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS
WITH COVERED FUNDS--Table of Contents
Subpart A_Authority and Definitions
Sec.
351.1 Authority, purpose, scope, and relationship to other authorities.
351.2 Definitions.
Subpart B_Proprietary Trading
351.3 Prohibition on proprietary trading.
351.4 Permitted underwriting and market making-related activities.
351.5 Permitted risk-mitigating hedging activities.
351.6 Other permitted proprietary trading activities.
351.7 Limitations on permitted proprietary trading activities.
351.8-351.9 [Reserved]
Subpart C_Covered Fund Activities and Investments
351.10 Prohibition on acquiring or retaining an ownership interest in
and having certain relationships with a covered fund.
351.11 Permitted organizing and offering, underwriting, and market
making with respect to a covered fund.
351.12 Permitted investment in a covered fund.
351.13 Other permitted covered fund activities and investments.
351.14 Limitations on relationships with a covered fund.
351.15 Other limitations on permitted covered fund activities and
investments.
351.16 Ownership of interests in and sponsorship of issuers of certain
collateralized debt obligations backed by trust-preferred
securities.
351.17-351.19 [Reserved]
Subpart D_Compliance Program Requirement; Violations
351.20 Program for compliance; reporting.
351.21 Termination of activities or investments; penalties for
violations.
Appendix A to Part 351--Reporting and Recordkeeping Requirements for
Covered Trading Activities
Appendix Z to Part 351--Proprietary Trading and Certain Interests in and
Relationships With Covered Funds (Alternative Compliance)
[[Page 71]]
Authority: 12 U.S.C. 1851; 1811 et seq.; 3101 et seq.; and 5412.
Source: 79 FR 5805, Jan. 31, 2014, unless otherwise noted.
Subpart A_Authority and Definitions
Sec. 351.1 Authority, purpose, scope, and relationship to
other authorities.
(a) Authority. This part is issued by the FDIC under section 13 of
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
(b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading and investments in
or relationships with covered funds by certain banking entities,
including any insured depository institution as defined in section
3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)) and
certain subsidiaries thereof for which the FDIC is the appropriate
Federal banking agency as defined in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)). 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 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 insured depository institutions for which
the FDIC is the appropriate Federal banking agency, as defined in
section 3(q) of the Federal Deposit Insurance Act, and certain
subsidiaries of the foregoing, but does not include such entities to the
extent they are not within the definition of banking entity in Sec.
351.2(c).
(d) Relationship to other authorities. Except as otherwise provided
in under section 13 of the Bank Holding Company Act, and notwithstanding
any other provision of law, the prohibitions and restrictions under
section 13 of Bank Holding Company Act shall apply to the activities and
investments of a banking entity, even if such activities and investments
are authorized for a banking entity under other applicable provisions of
law.
(e) Preservation of authority. Nothing in this part limits in any
way the authority of the FDIC 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 5805, Jan. 31, 2014, as amended at 84 FR 35021, July 22, 2019]
Sec. 351.2 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
paragraph (c)(1)(i), (ii), or (iii) of this section.
(2) Banking entity does not include:
(vii) A covered fund that is not itself a banking entity under
paragraph (c)(1)(i), (ii), or (iii) of this section;
(viii) 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 paragraph (c)(1)(i), (ii), or (iii) of this
section; or
(ix) The FDIC acting in its corporate capacity or as conservator or
receiver under the Federal Deposit Insurance
[[Page 72]]
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 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, 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 Sec.
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:
[[Page 73]]
(1) 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)); or
(2) An insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
(s) Limited trading assets and liabilities means with respect to a
banking entity that:
(1)(i) The banking entity has, together with its affiliates and
subsidiaries, trading assets and liabilities (excluding trading assets
and liabilities attributable to trading activities permitted pursuant to
Sec. 351.6(a)(1) and (2) of subpart B) the average gross sum of which
over the previous consecutive four quarters, as measured as of the last
day of each of the four previous calendar quarters, is less than $1
billion; and
(ii) The FDIC has not determined pursuant to Sec. 351.20(g) or (h)
of this part that the banking entity should not be treated as having
limited trading assets and liabilities.
(2) With respect to a banking entity other than a banking entity
described in paragraph (s)(3) of this section, trading assets and
liabilities for purposes of this paragraph (s) means trading assets and
liabilities (excluding trading assets and liabilities attributable to
trading activities permitted pursuant to Sec. 351.6(a)(1) and (2) of
subpart B) on a worldwide consolidated basis.
(3)(i) With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, trading
assets and liabilities for purposes of this paragraph (s) means the
trading assets and liabilities (excluding trading assets and liabilities
attributable to trading activities permitted pursuant to Sec.
351.6(a)(1) and (2) of subpart B) of the combined U.S. operations of the
top-tier foreign banking organization (including all subsidiaries,
affiliates, branches, and agencies of the foreign banking organization
operating, located, or organized in the United States).
(ii) For purposes of paragraph (s)(3)(i) of this section, a U.S.
branch, agency, or subsidiary of a 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. For purposes of paragraph (s)(3)(i) of
this section, all foreign operations of a U.S. agency, branch, or
subsidiary of a foreign banking organization are considered to be
located in the United States, including branches outside the United
States that are managed or controlled by a U.S. branch or agency of the
foreign banking organization, for purposes of calculating the banking
entity's U.S. trading assets and liabilities.
(t) Loan means any loan, lease, extension of credit, or secured or
unsecured receivable that is not a security or derivative.
(u) Moderate trading assets and liabilities means, with respect to a
banking entity, that the banking entity does not have significant
trading assets and liabilities or limited trading assets and
liabilities.
(v) 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)).
(w) 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.
(x) Qualifying foreign banking organization means a foreign banking
organization that qualifies as such under Sec. 211.23(a), (c) or (e) of
the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
(y) SEC means the Securities and Exchange Commission.
(z) Sale and sell each include any contract to sell or otherwise
dispose of. For security futures products, such
[[Page 74]]
terms include any contract, agreement, or transaction for future
delivery. With respect to a commodity future, such 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.
(aa) Security has the meaning specified in section 3(a)(10) of the
Exchange Act (15 U.S.C. 78c(a)(10)).
(bb) 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)).
(cc) Security future has the meaning specified in section 3(a)(55)
of the Exchange Act (15 U.S.C. 78c(a)(55)).
(dd) 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.
(ee) Significant trading assets and liabilities means with respect
to a banking entity that:
(1)(i) The banking entity has, together with its affiliates and
subsidiaries, trading assets and liabilities the average gross sum of
which over the previous consecutive four quarters, as measured as of the
last day of each of the four previous calendar quarters, equals or
exceeds $20 billion; or
(ii) The FDIC has determined pursuant to Sec. 351.20(h) of this
part that the banking entity should be treated as having significant
trading assets and liabilities.
(2) With respect to a banking entity, other than a banking entity
described in paragraph (ee)(3) of this section, trading assets and
liabilities for purposes of this paragraph (ee) means trading assets and
liabilities (excluding trading assets and liabilities attributable to
trading activities permitted pursuant to Sec. 351.6(a)(1) and (2) of
subpart B) on a worldwide consolidated basis.
(3)(i) With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, trading
assets and liabilities for purposes of this paragraph (ee) means the
trading assets and liabilities (excluding trading assets and liabilities
attributable to trading activities permitted pursuant to Sec.
351.6(a)(1) and (2) of subpart B) of the combined U.S. operations of the
top-tier foreign banking organization (including all subsidiaries,
affiliates, branches, and agencies of the foreign banking organization
operating, located, or organized in the United States as well as
branches outside the United States that are managed or controlled by a
branch or agency of the foreign banking entity operating, located or
organized in the United States).
(ii) For purposes of paragraph (ee)(3)(i) of this section, a U.S.
branch, agency, or subsidiary of a 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. For purposes of paragraph (ee)(3)(i) of
this section, all foreign operations of a U.S. agency, branch, or
subsidiary of a foreign banking organization are considered to be
located in the United States for purposes of calculating the banking
entity's U.S. trading assets and liabilities.
(ff) 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.
(gg) Subsidiary has the same meaning as in section 2(d) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
(hh) 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.
[[Page 75]]
(ii) Swap dealer has the same meaning as in section 1(a)(49) of the
Commodity Exchange Act (7 U.S.C. 1a(49)).
[84 FR 62165, Nov. 14, 2019]
Subpart B_Proprietary Trading
Sec. 351.3 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. Trading
account means:
(i) Any account that is used by a banking entity to purchase or sell
one or more financial instruments principally for the purpose of short-
term resale, benefitting from actual or expected short-term price
movements, realizing short-term arbitrage profits, or hedging one or
more of the positions resulting from the purchases or sales of financial
instruments described in this paragraph;
(ii) Any account that is used by a banking entity to 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 with which the banking entity is consolidated for regulatory
reporting purposes, calculates risk-based capital ratios under the
market risk capital rule; or
(iii) Any account that is used by a banking entity to purchase or
sell one or more financial instruments, 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) Trading account application for certain banking entities. (i) A
banking entity that is subject to paragraph (b)(1)(ii) of this section
in determining the scope of its trading account is not subject to
paragraph (b)(1)(i) of this section.
(ii) A banking entity that does not calculate risk-based capital
ratios under the market risk capital rule and is not a consolidated
affiliate for regulatory reporting purposes of a banking entity that
calculates risk based capital ratios under the market risk capital rule
may elect to apply paragraph (b)(1)(ii) of this section in determining
the scope of its trading account as if it were subject to that
paragraph. A banking entity that elects under this subsection to apply
paragraph (b)(1)(ii) of this section in determining the scope of its
trading account as if it were subject to that paragraph is not required
to apply paragraph (b)(1)(i) of this section.
(3) Consistency of account election for certain banking entities.
(i) Any election or change to an election under paragraph (b)(2)(ii) of
this section must apply to the electing banking entity and all of its
wholly owned subsidiaries. The primary financial regulatory agency of a
banking entity that is affiliated with but is not a wholly owned
subsidiary of such electing banking entity may require that the banking
entity be subject to this uniform application requirement if the primary
financial regulatory agency determines that it is necessary to prevent
evasion of the requirements of this part after notice and opportunity
for response as provided in subpart D of this part.
(ii) A banking entity that does not elect under paragraph (b)(2)(ii)
of this section to be subject to the trading account definition in
(b)(1)(ii) of this section may continue to apply the trading account
definition in paragraph (b)(1)(i) of this section for one year from the
date on which it becomes, or becomes a consolidated affiliate for
regulatory reporting purposes with, a banking entity that calculates
risk-based capital ratios under the market risk capital rule.
[[Page 76]]
(4) Rebuttable presumption for certain purchases and sales. The
purchase (or sale) of a financial instrument by a banking entity shall
be presumed not 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 sixty days or longer and does not transfer
substantially all of the risk of the financial instrument within sixty
days of the purchase (or sale).
(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, foreign exchange forward (as
that term is defined in section 1a(24) of the Commodity Exchange Act (7
U.S.C. 1a(24)), foreign exchange swap (as that term is defined in
section 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(25)), or
cross-currency swap 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
financial instruments to be used for liquidity management purposes, the
amount, types, and risks of these financial instruments that are
consistent with liquidity management, and the liquidity circumstances in
which the particular financial instruments may or must be used;
(ii) Requires that any purchase or sale of financial instruments
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 financial instruments purchased or sold for
liquidity management purposes be highly liquid and limited to financial
instruments 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 financial instruments purchased or sold for
liquidity management purposes, together with any other financial
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 financial instruments that are not permitted
[[Page 77]]
under Sec. 351.6(a) or (b) of this subpart are for the purpose of
liquidity management and in accordance with the liquidity management
plan described in this paragraph (d)(3); and
(vi) Is consistent with the FDIC's regulatory requirements regarding
liquidity management;
(4) Any purchase or sale of one or more financial instruments by a
banking entity that is a derivatives clearing 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;
(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 FDIC;
(10) Any purchase or sale of one or more financial instruments that
was made in error by a banking entity in the course of conducting a
permitted or excluded activity or is a subsequent transaction to correct
such an error;
(11) Contemporaneously entering into a customer-driven swap or
customer-driven security-based swap and a matched swap or security-based
swap if:
(i) The banking entity retains no more than minimal price risk; and
(ii) The banking entity is not a registered dealer, swap dealer, or
security-based swap dealer;
(12) Any purchase or sale of one or more financial instruments that
the banking entity uses to hedge mortgage servicing rights or mortgage
servicing assets in accordance with a documented hedging strategy; or
(13) Any purchase or sale of a financial instrument that does not
meet the definition of trading asset or trading liability under the
applicable reporting form for a banking entity as of January 1, 2020.
(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) 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
[[Page 78]]
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.
(6) 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.
(7) 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)).
(8) 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
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.
(9) Designated financial market utility has the same meaning as in
section 803(4) of the Dodd-Frank Act (12 U.S.C. 5462(4)).
(10) Issuer has the same meaning as in section 2(a)(4) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(4)).
(11) Market risk capital rule covered position and trading position
means a financial instrument that meets the criteria to be a covered
position and a trading position, as those terms are respectively
defined, without regard to whether the financial instrument is reported
as a covered position or trading position on any applicable regulatory
reporting forms:
[[Page 79]]
(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.
(12) Market risk capital rule means the market risk capital rule
that is contained in 12 CFR part 3, subpart F, with respect to a banking
entity for which the OCC is the primary financial regulatory agency, 12
CFR part 217 with respect to a banking entity for which the Board is the
primary financial regulatory agency, or 12 CFR part 324 with respect to
a banking entity for which the FDIC is the primary financial regulatory
agency.
(13) 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.
(14) Trading desk means a 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 that is:
(i)(A) Structured by the banking entity to implement a well-defined
business strategy;
(B) Organized to ensure appropriate setting, monitoring, and
management review of the desk's trading and hedging limits, current and
potential future loss exposures, and strategies; and
(C) Characterized by a clearly defined unit that:
(1) Engages in coordinated trading activity with a unified approach
to its key elements;
(2) Operates subject to a common and calibrated set of risk metrics,
risk levels, and joint trading limits;
(3) Submits compliance reports and other information as a unit for
monitoring by management; and
(4) Books its trades together; or
(ii) For a banking entity that calculates risk-based capital ratios
under the market risk capital rule, or a consolidated affiliate for
regulatory reporting purposes of a banking entity that calculates risk-
based capital ratios under the market risk capital rule, established by
the banking entity or its affiliate for purposes of market risk capital
calculations under the market risk capital rule.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62167, Nov. 14, 2019]
Sec. 351.4 Permitted underwriting and market making-related activities.
(a) Underwriting activities--(1) Permitted underwriting activities.
The prohibition contained in Sec. 351.3(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:
(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)(A) 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, taking into
account the liquidity, maturity, and depth of the market for the
relevant types of securities; and
(B) 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 types
of securities;
(iii) In the case of a banking entity with significant trading
assets and liabilities, 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 paragraph
(a),
[[Page 80]]
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, in accordance with paragraph
(a)(2)(ii)(A) of this section;
(C) Written 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; and
(D) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits.
(iv) A banking entity with significant trading assets and
liabilities may satisfy the requirements in paragraphs (a)(2)(iii)(B)
and (C) of this section by complying with the requirements set forth in
paragraph (c) of this section;
(v) The compensation arrangements of persons performing the
activities described in this paragraph (a) are designed not to reward or
incentivize prohibited proprietary trading; and
(vi) 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
section, 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, 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. 351.3(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
[[Page 81]]
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 trading desk's market-making related activities are
designed not to exceed, on an ongoing basis, the reasonably expected
near term demands of clients, customers, or counterparties, taking into
account the liquidity, maturity, and depth of the market for the
relevant types of financial instruments;
(iii) In the case of a banking entity with significant trading
assets and liabilities, 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 positions; 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, in accordance with paragraph
(b)(2)(ii) of this section;
(D) Written 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; and
(E) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
(iv) A banking entity with significant trading assets and
liabilities may satisfy the requirements in paragraphs (b)(2)(iii)(C)
and (D) of this section by complying with the requirements set forth in
paragraph (c) of this section;
(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 the methodology described in Sec.
351.2(ee) of this part, 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.
(ii) [Reserved]
(4) Definition of financial exposure. For purposes of this section,
financial exposure means the aggregate risks of one
[[Page 82]]
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 positions. For the purposes of this
section, market-maker positions 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.
(c) Rebuttable presumption of compliance--(1) Internal limits. (i) A
banking entity shall be presumed to meet the requirement in paragraph
(a)(2)(ii)(A) or (b)(2)(ii) of this section with respect to the purchase
or sale of a financial instrument if the banking entity has established
and implements, maintains, and enforces the internal limits for the
relevant trading desk as described in paragraph (c)(1)(ii) of this
section.
(ii)(A) With respect to underwriting activities conducted pursuant
to paragraph (a) of this section, the presumption described in paragraph
(c)(1)(i) of this section shall be available to each trading desk that
establishes, implements, maintains, and enforces internal limits that
should take into account the liquidity, maturity, and depth of the
market for the relevant types of securities and are designed not to
exceed the reasonably expected near term demands of clients, customers,
or counterparties, based on the nature and amount of the trading desk's
underwriting activities, 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.
(B) With respect to market making-related activities conducted
pursuant to paragraph (b) of this section, the presumption described in
paragraph (c)(1)(i) of this section shall be available to each trading
desk that establishes, implements, maintains, and enforces internal
limits that should take into account the liquidity, maturity, and depth
of the market for the relevant types of financial instruments and are
designed not to exceed the reasonably expected near term demands of
clients, customers, or counterparties, based on the nature and amount of
the trading desk's market-making related activities, that address the:
(1) Amount, types, and risks of its market-maker positions;
(2) Amount, types, and risks of the products, instruments, and
exposures the trading desk may use for risk management purposes;
(3) Level of exposures to relevant risk factors arising from its
financial exposure; and
(4) Period of time a financial instrument may be held.
(2) Supervisory review and oversight. The limits described in
paragraph (c)(1) of this section shall be subject to supervisory review
and oversight by the FDIC on an ongoing basis.
(3) Limit Breaches and Increases. (i) With respect to any limit set
pursuant to paragraph (c)(1)(ii)(A) or (B) of this section, a banking
entity shall maintain and make available to the FDIC upon request
records regarding:
(A) Any limit that is exceeded; and
(B) Any temporary or permanent increase to any limit(s), in each
case in the form and manner as directed by the FDIC.
(ii) In the event of a breach or increase of any limit set pursuant
to paragraph (c)(1)(ii)(A) or (B) of this section, the presumption
described in paragraph (c)(1)(i) of this section shall continue to be
available only if the banking entity:
(A) Takes action as promptly as possible after a breach to bring the
trading desk into compliance; and
(B) Follows established written authorization procedures, including
escalation procedures that require review and approval of any trade that
exceeds 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.
[[Page 83]]
(4) Rebutting the presumption. The presumption in paragraph
(c)(1)(i) of this section may be rebutted by the FDIC if the FDIC
determines, taking into account the liquidity, maturity, and depth of
the market for the relevant types of financial instruments and based on
all relevant facts and circumstances, that a trading desk is engaging in
activity that is not based on the reasonably expected near term demands
of clients, customers, or counterparties. The FDIC's rebuttal of the
presumption in paragraph (c)(1)(i) must be made in accordance with the
notice and response procedures in subpart D of this part.
[84 FR 62169, Nov. 14, 2019]
Sec. 351.5 Permitted risk-mitigating hedging activities.
(a) Permitted risk-mitigating hedging activities. The prohibition
contained in Sec. 351.3(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. (1) The risk-mitigating hedging activities of a
banking entity that has significant trading assets and liabilities are
permitted under paragraph (a) of this section 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 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;
(B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
(C) The conduct of analysis and independent testing designed to
ensure that the positions, techniques and strategies that may be used
for hedging may reasonably be expected to reduce or otherwise
significantly mitigate the specific, identifiable risk(s) being hedged;
(ii) The risk-mitigating hedging activity:
(A) Is conducted in accordance with the written policies,
procedures, and internal controls required under this section;
(B) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate 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;
(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;
(D) Is subject to continuing review, monitoring and management by
the banking entity that:
(1) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1)(i) of this section;
(2) Is designed to reduce or otherwise significantly mitigate 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
(3) Requires ongoing recalibration of the hedging activity by the
banking
[[Page 84]]
entity to ensure that the hedging activity satisfies the requirements
set out in paragraph (b)(1)(ii) of this section and is not prohibited
proprietary trading; and
(iii) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
(2) The risk-mitigating hedging activities of a banking entity that
does not have significant trading assets and liabilities are permitted
under paragraph (a) of this section only if the risk-mitigating hedging
activity:
(i) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate 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; and
(ii) Is subject, as appropriate, to ongoing recalibration 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.
(c) Documentation requirement. (1) A banking entity that has
significant trading assets and liabilities must comply with the
requirements of paragraphs (c)(2) and (3) of this section, unless the
requirements of paragraph (c)(4) of this section are met, 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. 351.4(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.
(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 FDIC on request, or such
longer period as required under other law or this part.
(4) The requirements of paragraphs (c)(2) and (3) of this section do
not apply to the purchase or sale of a financial instrument described in
paragraph (c)(1) of this section if:
(i) The financial instrument purchased or sold is identified on a
written list of pre-approved financial instruments that are commonly
used by the trading desk for the specific type of hedging activity for
which the financial instrument is being purchased or sold; and
(ii) At the time the financial instrument is purchased or sold, the
hedging activity (including the purchase or sale of the financial
instrument) complies with written, pre-approved limits for
[[Page 85]]
the trading desk purchasing or selling the financial instrument for
hedging activities undertaken for one or more other trading desks. The
limits shall be appropriate for the:
(A) Size, types, and risks of the hedging activities commonly
undertaken by the trading desk;
(B) Financial instruments purchased and sold for hedging activities
by the trading desk; and
(C) Levels and duration of the risk exposures being hedged.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62171, Nov. 14, 2019; 84
FR 66063, Dec. 3, 2019]
Sec. 351.6 Other permitted proprietary trading activities.
(a) Permitted trading in domestic government obligations. The
prohibition contained in Sec. 351.3(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. 351.3(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. 351.3(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
[[Page 86]]
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. 351.3(a) does 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. 351.3(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. 351.3(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. 351.3(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.
[[Page 87]]
(3) A purchase or sale by a banking entity is permitted for purposes
of this paragraph (e) if:
(i) The banking entity engaging as principal in the purchase or sale
(including relevant personnel) 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; and
(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.
(4) 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.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62172, Nov. 14, 2019]
Sec. 351.7 Limitations on permitted proprietary trading activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 351.4 through 351.6 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 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:
[[Page 88]]
(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. Sec. 351.8-351.9 [Reserved]
Subpart C_Covered Funds Activities and Investments
Sec. 351.10 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);
(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 FDIC; 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
[[Page 89]]
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:
(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.
351.4(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
[[Page 90]]
(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 requirements 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:
(A) Loans as defined in Sec. 351.2(t) 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.
[[Page 91]]
(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 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
[[Page 92]]
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. 351.20(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);
(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. 351.20(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 FDIC 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-
[[Page 93]]
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 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. 351.12 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
[[Page 94]]
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, except as permitted under Sec. 351.11(a)(6).
(10) Trustee. (i) For purposes of paragraph (d)(9) of this section
and Sec. 351.11 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.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 35021, July 22, 2019; 84
FR 62172, Nov. 14, 2019]
Sec. 351.11 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. 351.10(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. 351.12 of this subpart;
(4) The banking entity and its affiliates comply with the
requirements of Sec. 351.14 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
[[Page 95]]
banking entity (or an affiliate thereof), except that a covered fund may
share the same name or a variation of the same name with a banking
entity that is an investment adviser to the covered fund if:
(A) The investment adviser is not an insured depository institution,
a company that controls an insured depository institution, or a 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
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a 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
(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. 351.10(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 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. 351.10(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. 351.4(a) or (b) of subpart B, respectively; and
(2) With respect to any banking entity (or any affiliate thereof)
that: Acts
[[Page 96]]
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; or 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, 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. 351.12(a)(2)(ii) and (iii) and (d) of this subpart.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 35021, July 22, 2019; 84
FR 62172, Nov. 14, 2019]
Sec. 351.12 Permitted investment in a covered fund.
(a) Authority and limitations on permitted investments in covered
funds. (1) Notwithstanding the prohibition contained in Sec. 351.10(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. 351.11, 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 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.
[[Page 97]]
(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. 351.12 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. 351.10(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
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.
[[Page 98]]
(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 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. 351.11 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. 351.10(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:
[[Page 99]]
(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 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.
351.10(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. 351.10(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
[[Page 100]]
(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 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;
(vii) 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;
(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.
(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.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62172, Nov. 14, 2019]
Sec. 351.13 Other permitted covered fund activities and investments.
(a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec. 351.10(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 reduce or otherwise
significantly mitigate the specific, identifiable risks to the banking
entity in connection with:
(i) 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; or
(ii) A position taken by the banking entity when acting as
intermediary on behalf of a customer that is not itself a banking entity
to facilitate the exposure by the customer to the profits and losses of
the covered fund.
(2) 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 in accordance with 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
[[Page 101]]
(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 one or more specific, identifiable
risks arising:
(1) Out of a transaction conducted solely to accommodate a specific
customer request with respect to the covered fund; or
(2) 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) With respect to risk-mitigating hedging activity conducted
pursuant to paragraph (a)(1)(i) of this section, the compensation
arrangement relates solely to the covered fund in which the banking
entity or any affiliate has acquired an ownership interest pursuant to
paragraph (a)(1)(i) 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.
351.10(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 (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 not sold and has not been sold
pursuant to an offering that targets residents of the United States in
which the banking entity or any affiliate of the banking entity
participates. If the banking entity or an
[[Page 102]]
affiliate sponsors or serves, directly or indirectly, as the investment
manager, investment adviser, commodity pool operator or commodity
trading advisor to a covered fund, then the banking entity or affiliate
will be deemed for purposes of this paragraph (b)(3) to participate in
any offer or sale by the covered fund of ownership interests in the
covered fund.
(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; and
(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.
(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. 351.10(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 and regulations 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 or regulation 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.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62172, Nov. 14, 2019]
Sec. 351.14 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. 351.11 of this subpart, or
that continues to hold an ownership interest in accordance with Sec.
351.11(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:
[[Page 103]]
(i) Acquire and retain any ownership interest in a covered fund in
accordance with the requirements of Sec. 351.11, Sec. 351.12, or Sec.
351.13 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. 351.11 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 no later than March 31 to
the FDIC (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.
351.11 of this subpart, or that continues to hold an ownership interest
in accordance with Sec. 351.11(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.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62173, Nov. 14, 2019]
Sec. 351.15 Other limitations on permitted covered fund activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 351.11 through 351.13 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.
(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,
[[Page 104]]
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. 351.16 Ownership of Interests in and Sponsorship of Issuers of
Certain Collateralized Debt Obligations Backed by Trust-Preferred
Securities.
(a) The prohibition contained in Sec. 351.10(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. 351.16, 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 Sec. Sec. 351.4 and 351.11.
(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 5228, Jan. 31, 2014]
Sec. Sec. 351.17-351.19 [Reserved]
Subpart D_Compliance Program Requirement; Violations
Sec. 351.20 Program for compliance; reporting.
(a) Program requirement. Each banking entity (other than a banking
entity with limited trading assets and liabilities) 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.
[[Page 105]]
(b) Banking entities with significant trading assets and
liabilities. With respect to a banking entity with significant trading
assets and liabilities, 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 Sec. Sec. 351.3 to 351.6 of subpart
B), including setting, monitoring and managing required limits set out
in Sec. 351.4 and Sec. 351.5, and activities and investments with
respect to a covered fund subject to subpart C (including those
permitted under Sec. Sec. 351.11 through 351.14 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 FDIC upon request and retain for a period of no less than 5 years
or such longer period as required by the FDIC.
(c) CEO attestation. The CEO of a banking entity that has
significant trading assets and liabilities must, based on a review by
the CEO of the banking entity, attest in writing to the FDIC, each year
no later than March 31, that the banking entity has in place processes
to establish, maintain, enforce, review, test and modify the compliance
program required by paragraph (b) of this section 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
U.S. operations of the foreign banking entity who is located in the
United States.
(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 to this part, if:
(i) The banking entity has significant trading assets and
liabilities; or
(ii) The FDIC notifies the banking entity in writing that it must
satisfy the reporting requirements contained in appendix A to this part.
(2) Frequency of reporting: Unless the FDIC notifies the banking
entity in writing that it must report on a different basis, a banking
entity subject to appendix A to this part shall report the information
required by appendix A for each quarter within 30 days of the end of the
quarter.
(e) Additional documentation for covered funds. A banking entity
with significant trading assets and liabilities 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
[[Page 106]]
exclusions from the definition of covered fund provided by Sec. Sec.
351.10(c)(1),351.10(c)(5), 351.10(c)(8), 351.10(c)(9), or 351.10(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. 351.10(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. 351.12(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. 351.10(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 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. 351.6(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. 351.6(a) of subpart B).
(2) Banking entities with moderate trading assets and liabilities. A
banking entity with moderate trading assets and liabilities 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.
(g) Rebuttable presumption of compliance for banking entities with
limited trading assets and liabilities--(1) Rebuttable presumption.
Except as otherwise provided in this paragraph, a banking entity with
limited trading assets and liabilities shall be presumed to be compliant
with subpart B and subpart C of this part and shall have no obligation
to demonstrate compliance with this part on an ongoing basis.
(2) Rebuttal of presumption. If upon examination or audit, the FDIC
determines that the banking entity has engaged in proprietary trading or
covered fund activities that are otherwise prohibited under subpart B or
subpart C of this part, the FDIC may require the banking entity to be
treated under this part as if it did not have limited trading assets and
liabilities. The FDIC's rebuttal of the presumption in this paragraph
must be made in accordance with the notice and response procedures in
paragraph (i) of this section.
(h) Reservation of authority. Notwithstanding any other provision of
this part, the FDIC retains its authority to
[[Page 107]]
require a banking entity without significant trading assets and
liabilities to apply any requirements of this part that would otherwise
apply if the banking entity had significant or moderate trading assets
and liabilities if the FDIC determines that the size or complexity of
the banking entity's trading or investment activities, or the risk of
evasion of subpart B or subpart C of this part, does not warrant a
presumption of compliance under paragraph (g) of this section or
treatment as a banking entity with moderate trading assets and
liabilities, as applicable. The FDIC's exercise of this reservation of
authority must be made in accordance with the notice and response
procedures in paragraph (i) of this section.
(i) Notice and response procedures--(1) Notice. The FDIC will notify
the banking entity in writing of any determination requiring notice
under this part and will provide an explanation of the determination.
(2) Response. The banking entity may respond to any or all items in
the notice described in paragraph (i)(1) of this section. The response
should include any matters that the banking entity would have the FDIC
consider in deciding whether to make the determination. The response
must be in writing and delivered to the designated FDIC official within
30 days after the date on which the banking entity received the notice.
The FDIC may shorten the time period when, in the opinion of the FDIC,
the activities or condition of the banking entity so requires, provided
that the banking entity is informed of the time period at the time of
notice, or with the consent of the banking entity. In its discretion,
the FDIC may extend the time period for good cause.
(3) Waiver. Failure to respond within 30 days or such other time
period as may be specified by the FDIC shall constitute a waiver of any
objections to the FDIC determination.
(4) Decision. The FDIC will notify the banking entity of the
decision in writing. The notice will include an explanation of the
decision.
[79 FR 5805, Jan. 31, 2014, as amended at 84 FR 62173, Nov. 14, 2019]
Sec. 351.21 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 FDIC 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 FDIC 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 351--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. 351.20(d),
this appendix 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 FDIC 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. 351.20.
[[Page 108]]
b. The purpose of this appendix is to assist banking entities and
the FDIC in:
(1) Better understanding and evaluating the scope, type, and profile
of the banking entity's covered trading activities;
(2) Monitoring the banking entity's covered trading activities;
(3) Identifying covered trading activities that warrant further
review or examination by the banking entity to verify compliance with
the proprietary trading restrictions;
(4) Evaluating whether the covered trading activities of trading
desks engaged in market making-related activities subject to Sec.
351.4(b) are consistent with the requirements governing permitted market
making-related activities;
(5) Evaluating whether the covered trading activities of trading
desks that are engaged in permitted trading activity subject to Sec.
351.4, Sec. 351.5, or Sec. 351.6(a) and (b) (i.e., underwriting and
market making-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;
(6) 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 FDIC of such activities; and
(7) Assessing and addressing the risks associated with the banking
entity's covered trading activities.
c. Information that must be furnished pursuant to this appendix is
not intended to serve as a dispositive tool for the identification of
permissible or impermissible activities.
d. 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. 351.20. 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.
e. 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
Sec. Sec. 351.4 through 351.6(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 FDIC, 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 Sec. Sec. 351.2 and 351.3. In addition, for purposes of this
appendix, the following definitions apply:
Applicability identifies the trading desks for which a banking
entity is required to calculate and report a particular quantitative
measurement based on the type of covered trading activity conducted by
the trading desk.
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 Sec. 351.4, Sec. 351.5, Sec. 351.6(a), or Sec. 351.6(b). A
banking entity may include in its covered trading activity trading
conducted under Sec. 351.3(d), Sec. 351.6(c), Sec. 351.6(d) or Sec.
351.6(e).
Measurement frequency means the frequency with which a particular
quantitative metric must be calculated and recorded.
Trading day means a calendar day on which a trading desk is open for
trading.
III. Reporting and Recordkeeping
a. Scope of Required Reporting
1. Quantitative measurements. Each banking entity made subject to
this appendix by Sec. 351.20 must furnish the following quantitative
measurements, as applicable, for each trading desk of the banking entity
engaged in covered trading activities and calculate these quantitative
measurements in accordance with this appendix:
[[Page 109]]
i. Internal Limits and Usage;
ii. Value-at-Risk;
iii. Comprehensive Profit and Loss Attribution;
iv. Positions; and
v. Transaction Volumes.
2. Trading desk information. Each banking entity made subject to
this appendix by Sec. 351.20 must provide certain descriptive
information, as further described in this appendix, regarding each
trading desk engaged in covered trading activities.
3. Quantitative measurements identifying information. Each banking
entity made subject to this appendix by Sec. 351.20 must provide
certain identifying and descriptive information, as further described in
this appendix, regarding its quantitative measurements.
4. Narrative statement. Each banking entity made subject to this
appendix by Sec. 351.20 may provide an optional narrative statement, as
further described in this appendix.
5. File identifying information. Each banking entity made subject to
this appendix by Sec. 351.20 must provide file identifying information
in each submission to the FDIC pursuant to this appendix, including the
name of the banking entity, the RSSD ID assigned to the top-tier banking
entity by the Board, and identification of the reporting period and
creation date and time.
b. Trading Desk Information
1. Each banking entity must provide descriptive information
regarding each trading desk engaged in covered trading activities,
including:
i. Name of the trading desk used internally by the banking entity
and a unique identification label for the trading desk;
ii. Identification of each type of covered trading activity in which
the trading desk is engaged;
iii. Brief description of the general strategy of the trading desk;
v. A list identifying each Agency receiving the submission of the
trading desk;
2. Indication of whether each calendar date is a trading day or not
a trading day for the trading desk; and
3. Currency reported and daily currency conversion rate.
c. Quantitative Measurements Identifying Information
Each banking entity must provide the following information regarding
the quantitative measurements:
1. An Internal Limits Information Schedule that provides identifying
and descriptive information for each limit reported pursuant to the
Internal Limits and Usage quantitative measurement, including the name
of the limit, a unique identification label for the limit, a description
of the limit, the unit of measurement for the limit, the type of limit,
and identification of the corresponding risk factor attribution in the
particular case that the limit type is a limit on a risk factor
sensitivity and profit and loss attribution to the same risk factor is
reported; and
2. A Risk Factor Attribution Information Schedule that provides
identifying and descriptive information for each risk factor attribution
reported pursuant to the Comprehensive Profit and Loss Attribution
quantitative measurement, including the name of the risk factor or other
factor, a unique identification label for the risk factor or other
factor, a description of the risk factor or other factor, and the risk
factor or other factor's change unit.
d. Narrative Statement
Each banking entity made subject to this appendix by Sec. 351.20
may submit in a separate electronic document a Narrative Statement to
the FDIC with any information the banking entity views as relevant for
assessing the information reported. The Narrative Statement may include
further description of or changes to calculation methods, identification
of material events, description of and reasons for changes in the
banking entity's trading desk structure or trading desk strategies, and
when any such changes occurred.
e. Frequency and Method of Required Calculation and Reporting
A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report the
Trading Desk Information, the Quantitative Measurements Identifying
Information, and each applicable quantitative measurement electronically
to the FDIC on the reporting schedule established in Sec. 351.20 unless
otherwise requested by the FDIC. A banking entity must report the
Trading Desk Information, the Quantitative Measurements Identifying
Information, and each applicable quantitative measurement to the FDIC in
accordance with the XML Schema specified and published on the FDIC's
website.
f. Recordkeeping
A banking entity must, for any quantitative measurement furnished to
the FDIC pursuant to this appendix and Sec. 351.20(d), create and
maintain records documenting the preparation and content of these
reports, as well as such information as is necessary to permit the FDIC
to verify the accuracy of such reports, for a period of five years from
the end of the calendar year for which the measurement was taken. A
banking entity must retain the Narrative Statement, the Trading Desk
Information, and the Quantitative Measurements Identifying Information
for a period of five years from the end of
[[Page 110]]
the calendar year for which the information was reported to the FDIC.
IV. Quantitative Measurements
a. Risk-Management Measurements
1. Internal Limits and Usage
i. Description: For purposes of this appendix, Internal Limits are
the constraints that define the amount of risk and the positions 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 value
of the trading desk's risk or positions that are accounted for by the
current activity of the desk. Internal limits and their usage are key
compliance and risk management tools used to control and monitor risk
taking and include, but are not limited to, the limits set out in
Sec. Sec. 351.4 and 351.5. A trading desk's risk limits, commonly
including a limit on ``Value-at-Risk,'' are useful in the broader
context of the trading desk's overall activities, particularly for the
market making activities under Sec. 351.4(b) and hedging activity under
Sec. 351.5. Accordingly, the limits required under Sec. Sec.
351.4(b)(2)(iii)(C) and 351.5(b)(1)(i)(A) must meet the applicable
requirements under Sec. Sec. 351.4(b)(2)(iii)(C) and 351.5(b)(1)(i)(A)
and also must include appropriate metrics for the trading desk limits
including, at a minimum, ``Value-at-Risk'' except to the extent the
``Value-at-Risk'' metric is 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.
A. A banking entity must provide the following information for each
limit reported pursuant to this quantitative measurement: The unique
identification label for the limit reported in the Internal Limits
Information Schedule, the limit size (distinguishing between an upper
and a lower limit), and the value of usage of the limit.
ii. Calculation Period: One trading day.
iii. Measurement Frequency: Daily.
iv. Applicability: All trading desks engaged in covered trading
activities.
2. Value-at-Risk
i. Description: For purposes of this appendix, Value-at-Risk
(``VaR'') is the measurement of the risk of future financial loss in the
value of a trading desk's aggregated positions at the ninety-nine
percent confidence level over a one-day period, based on current market
conditions.
ii. Calculation Period: One trading day.
iii. Measurement Frequency: Daily.
iv. Applicability: All trading desks engaged in covered trading
activities.
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 two 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'');
and (ii) profit and loss attributable to new positions resulting from
the current day's trading activity (``new positions'').
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 (i) changes in
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 correction, cancellation, or
exercise of a trade.
B. For the attribution of comprehensive profit and loss from
existing positions to specific risk factors and other factors, a banking
entity must provide the following information for the factors that
explain the preponderance of the profit or loss changes due to risk
factor changes: The unique identification label for the risk factor or
other factor listed in the Risk Factor Attribution Information Schedule,
and the profit or loss due to the risk factor or other factor change.
C. 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.
D. The portion of comprehensive profit and loss from existing
positions that is not attributed to changes in specific risk factors and
other factors must be allocated to a residual category. Significant
unexplained profit and loss must be escalated for further investigation
and analysis.
ii. Calculation Period: One trading day.
iii. Measurement Frequency: Daily.
iv. Applicability: All trading desks engaged in covered trading
activities.
[[Page 111]]
c. Positions and Transaction Volumes Measurements
1. Positions
i. Description: For purposes of this appendix, Positions is the
value of securities and derivatives positions managed by the trading
desk. For purposes of the Positions quantitative measurement, do not
include in the Positions calculation for ``securities'' those securities
that are also ``derivatives,'' as those terms are defined under subpart
A; instead, report those securities that are also derivatives as
``derivatives.'' \1225\ A banking entity must separately report the
trading desk's market value of long securities positions, short
securities positions, derivatives receivables, and derivatives payables.
---------------------------------------------------------------------------
\1225\ See Sec. 351.2(h), (aa). For example, under this part, a
security-based swap is both a ``security'' and a ``derivative.'' For
purposes of the Positions quantitative measurement, security-based swaps
are reported as derivatives rather than securities.
---------------------------------------------------------------------------
ii. Calculation Period: One trading day.
iii. Measurement Frequency: Daily.
iv. Applicability: All trading desks that rely on Sec. 351.4(a) or
Sec. 351.4(b) to conduct underwriting activity or market-making-related
activity, respectively.
2. Transaction Volumes
i. Description: For purposes of this appendix, Transaction Volumes
measures three exclusive categories of covered trading activity
conducted by a trading desk. A banking entity is required to report the
value and number of security and derivative transactions conducted by
the trading desk with: (i) Customers, excluding internal transactions;
(ii) non-customers, excluding internal transactions; and (iii) trading
desks and other organizational units where the transaction is booked
into either the same banking entity or an affiliated banking entity. For
securities, value means gross market value. For derivatives, value means
gross notional value. For purposes of calculating the Transaction
Volumes quantitative measurement, do not include in the Transaction
Volumes calculation for ``securities'' those securities that are also
``derivatives,'' as those terms are defined under subpart A; instead,
report those securities that are also derivatives as ``derivatives.''
\1226\ Further, for purposes of the Transaction Volumes quantitative
measurement, a customer of a trading desk that relies on Sec. 351.4(a)
to conduct underwriting activity is a market participant identified in
Sec. 351.4(a)(7), and a customer of a trading desk that relies on Sec.
351.4(b) to conduct market making-related activity is a market
participant identified in Sec. 351.4(b)(3).
---------------------------------------------------------------------------
\1226\ See Sec. 351.2(h), (aa).
---------------------------------------------------------------------------
ii. Calculation Period: One trading day.
iii. Measurement Frequency: Daily.
iv. Applicability: All trading desks that rely on Sec. 351.4(a) or
Sec. 351.4(b) to conduct underwriting activity or market-making-related
activity, respectively.
[84 FR 62174, Nov. 14, 2019]
Sec. Appendix Z to Part 351--Proprietary Trading and Certain Interests
in and Relationships With Covered Funds (Alternative Compliance)
Note: The content of this appendix reproduces the regulation
implementing Section 13 of the Bank Holding Company Act as of November
13, 2019.
Subpart A--Authority and Definitions
Sec. 351.1 Authority, purpose, scope, and relationship to other
authorities.
(a) Authority. This part is issued by the FDIC under section 13 of
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
(b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading and investments in
or relationships with covered funds by certain banking entities,
including any insured depository institution as defined in section
3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)) and
certain subsidiaries thereof for which the FDIC is the appropriate
Federal banking agency as defined in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)). 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 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 insured depository institutions for which
the FDIC is the appropriate Federal banking agency, as defined in
section 3(q) of the Federal Deposit Insurance Act, and certain
subsidiaries of the foregoing, but does not include such entities to the
extent they are not within the definition of banking entity in Sec.
351.2(c).
(d) Relationship to other authorities. Except as otherwise provided
in under section 13 of the Bank Holding Company Act, and notwithstanding
any other provision of law, the prohibitions and restrictions under
section 13 of Bank Holding Company Act shall apply to the activities and
investments of a banking entity, even if such activities and investments
are authorized for a banking entity under other applicable provisions of
law.
(e) Preservation of authority. Nothing in this part limits in any
way the authority of the
[[Page 112]]
FDIC 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.
Sec. 351.2 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 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
[[Page 113]]
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, unless otherwise indicated, 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:
(1) An insured depository institution that is described in section
2(c)(2)(D) of the Bank Holding Company Act of 1956 (12 U.S.C.
1841(c)(2)(D)); or
(2) An insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
(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 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. 351.3 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;
[[Page 114]]
(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 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 Sec. Sec. 351.6(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 FDIC's supervisory requirements,
guidance, and expectations regarding liquidity management;
[[Page 115]]
(4) Any purchase or sale of one or more financial instruments by a
banking entity that is a derivatives clearing 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 FDIC.
(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
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;
[[Page 116]]
(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. 351.4 Permitted underwriting and market making-related activities.
(a) Underwriting activities--(1) Permitted underwriting activities.
The prohibition contained in Sec. 351.3(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:
(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
[[Page 117]]
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, 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. 351.3(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
[[Page 118]]
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
(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. 351.20(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. 351.5 Permitted risk-mitigating hedging activities.
(a) Permitted risk-mitigating hedging activities. The prohibition
contained in Sec. 351.3(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 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
[[Page 119]]
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. 351.4(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.
(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 FDIC on request, or such
longer period as required under other law or this part.
Sec. 351.6 Other permitted proprietary trading activities.
(a) Permitted trading in domestic government obligations. The
prohibition contained in Sec. 351.3(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. 351.3(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
[[Page 120]]
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. 351.3(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. 351.3(a) does 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. 351.3(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. 351.3(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. 351.3(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
[[Page 121]]
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:
(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. 351.7 Limitations on permitted proprietary trading activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 351.4 through 351.6 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 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 122]]
(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. Sec. 351.8-351.9 [Reserved]
Subpart C--Covered Funds Activities and Investments
Sec. 351.10 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);
(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 FDIC; 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
[[Page 123]]
(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:
(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.
351.4(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:
[[Page 124]]
(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:
(A) Loans as defined in Sec. 351.2(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
[[Page 125]]
or directly from an underwriter in the distribution of the asset-backed
securities;
(B) The asset-backed commercial paper conduit issues only asset-
backed 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. 351.20(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);
(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. 351.20(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.
[[Page 126]]
(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 FDIC 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 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. 351.12 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.
[[Page 127]]
(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, except as permitted under Sec. 351.11(a)(6).
(10) Trustee. (i) For purposes of paragraph (d)(9) of this section
and Sec. 351.11 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.
Sec. 351.11 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. 351.10(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. 351.12 of this subpart;
(4) The banking entity and its affiliates comply with the
requirements of Sec. 351.14 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), except that a covered
fund may share the same name or a variation of the same name with a
banking entity that is an investment adviser to the covered fund if:
(A) The investment adviser is not an insured depository institution,
a company that controls an insured depository institution, or a 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
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a 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
(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
[[Page 128]]
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. 351.10(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 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. 351.10(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. 351.4(a) or Sec. 351.4(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.
351.12(a)(2)(ii) and Sec. 351.12(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. 351.11 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. 351.12(a)(2)(iii)
and Sec. 351.12(d) of this subpart.
Sec. 351.12 Permitted investment in a covered fund.
(a) Authority and limitations on permitted investments in covered
funds. (1) Notwithstanding the prohibition contained in Sec. 351.10(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. 351.11, 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
[[Page 129]]
(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 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. 351.12 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. 351.10(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
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
[[Page 130]]
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 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. 351.11 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. 351.10(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
[[Page 131]]
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 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.
351.10(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. 351.10(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 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
[[Page 132]]
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;
(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.
(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. 351.13 Other permitted covered fund activities and investments.
(a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec. 351.10(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.
351.10(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 (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
[[Page 133]]
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. 351.10(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.
Sec. 351.14 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. 351.11 of this subpart, or
that continues to hold an ownership interest in accordance with Sec.
351.11(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. 351.11, Sec. 351.12, or Sec.
351.13 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
[[Page 134]]
Sec. 351.11 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 FDIC (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.
351.11 of this subpart, or that continues to hold an ownership interest
in accordance with Sec. 351.11(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. 351.15 Other limitations on permitted covered fund activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 351.11 through 351.13 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.
(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. 351.16 Ownership of Interests in and Sponsorship of Issuers of
Certain Collateralized Debt Obligations Backed by Trust-
Preferred Securities.
(a) The prohibition contained in Sec. 351.10(a)(1) does not apply
to the ownership by a banking entity of an interest in, or sponsorship
of, any issuer if:
[[Page 135]]
(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. 351.16, 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 Sec. Sec. 351.4 and 351.11.
(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.
Sec. Sec. 351.17-351.19 [Reserved]
Subpart D--Compliance Program Requirement; Violations
Sec. 351.20 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 Sec. Sec. 351.3 to 351.6 of subpart
B), including setting, monitoring and managing required limits set out
in Sec. 351.4 and Sec. 351.5, and activities and investments with
respect to a covered fund subject to subpart C (including those
permitted under Sec. Sec. 351.11 through 351.14 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 FDIC upon request and retain for a period of no less than 5 years
or such longer period as required by the FDIC.
(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 FDIC 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
[[Page 136]]
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 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 FDIC 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 FDIC 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 FDIC 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 Sec. Sec. 351.10(c)(1), 351.10(c)(5), 351.10(c)(8), 351.10(c)(9), or
351.10(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. 351.10(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. 351.12(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. 351.10(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 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.
[[Page 137]]
(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. 351.6(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. 351.6(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. 351.6(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. 351.21 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 FDIC 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 FDIC 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.
Appendix A to Part 351--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. 351.20(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 FDIC 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. 351.20 and Appendix B.
b. The purpose of this appendix is to assist banking entities and
the FDIC in:
(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.
351.4(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
Sec. Sec. 351.4, 351.5, or 351.6(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 FDIC 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. 351.20 of the final rule. The Agencies will review
the data collected and revise this collection requirement as appropriate
based on
[[Page 138]]
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. 351.20 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
Sec. Sec. 351.4 through 351.6(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 FDIC, 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 Sec. Sec. 351.2 and 351.3. 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 Sec. Sec. 351.4, 351.5, 351.6(a), or 351.6(b). A banking entity
may include trading under Sec. Sec. 351.3(d), 351.6(c), 351.6(d) or
351.6(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. 351.20 must furnish the following quantitative measurements for
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 FDIC on the reporting
schedule established in Sec. 351.20 unless otherwise requested by the
FDIC. All quantitative measurements for any calendar month must be
reported within the time period required by Sec. 351.20.
c. Recordkeeping
A banking entity must, for any quantitative measurement furnished to
the FDIC pursuant to this appendix and Sec. 351.20(d), create and
maintain records documenting the preparation and content of these
reports, as well as such information as is necessary to permit the FDIC
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
[[Page 139]]
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. 351.4 and Sec. 351.5. 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. 351.4(b) and
hedging activity under Sec. 351.5. Accordingly, the limits required
under Sec. 351.4(b)(2)(iii) and Sec. 351.5(b)(1)(i) must meet the
applicable requirements under Sec. 351.4(b)(2)(iii) and Sec.
351.5(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 FDIC, 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;
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
[[Page 140]]
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 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.
[[Page 141]]
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. 351.20(d)(1) unless 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. 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.
Appendix B to Part 351--Enhanced Minimum Standards for Compliance
Programs
I. Overview
Section 351.20(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. 351.20. 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
[[Page 142]]
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. 351.4(b) and for hedging activity conducted in
reliance on Sec. 351.5;
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;
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
[[Page 143]]
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:
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. 351.5.
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
[[Page 144]]
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 FDIC, 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 Sec. Sec. 351.4 through 351.6,
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 Sec. Sec. 351.3(d)(3), and 351.4 through 351.6,
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;
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. 351.20; 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.
[[Page 145]]
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. 351.20(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;
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. 351.12 or registered in compliance with
the securities laws and thereby exempt from those limits within the time
periods allotted in Sec. 351.12; 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.
351.12, 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. 351.12;
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. 351.11(a)(8);
[[Page 146]]
vi. Monitoring for and preventing any relationship or transaction
between the banking entity and a covered fund that is prohibited under
Sec. 351.14, 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. 351.14.
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. 351.21, 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 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.
351.4 or risk-mitigating hedging activities under Sec. 351.5 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. 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
[[Page 147]]
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 FDIC 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. 351.20 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 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 FDIC in a form that allows it to promptly produce such records to
the FDIC on request.
[84 FR 62176, Nov. 14, 2019]
Effective Date Note: At 84 FR 62176, Nov. 14, 2019, Appendix Z to
Part 351 was added, effective Jan. 1, 2020 until Dec. 31, 2020.
PART 352_NONDISCRIMINATION ON THE BASIS OF DISABILITY--Table of Contents
Sec.
352.1 Purpose.
352.2 Application.
352.3 Definitions.
352.4 Nondiscrimination in any program or activity conducted by the
FDIC.
352.5 Accessibility to electronic and information technology.
352.6 Employment.
352.7 Accessibility of programs, and activities: Existing facilities.
352.8 Program accessibility: New construction and alterations.
[[Page 148]]
352.9 Communications.
352.10 Compliance procedures.
352.11 Notice.
Authority: 12 U.S.C. 1819(a); 29 U.S.C. 794d.
Source: 69 FR 26492, May 13, 2004, unless otherwise noted.
Sec. 352.1 Purpose.
(a) One purpose of this part is to implement the spirit of section
504 of the Rehabilitation Act of 1973 (the Rehabilitation Act) as
amended by section 119 of the Rehabilitation, Comprehensive Services,
and Developmental Disabilities Amendments of 1978 and the Workforce
Investment Act of 1998. Section 504 prohibits discrimination on the
basis of disability in programs and activities conducted by a federal
executive agency. Although the FDIC does not believe that Congress
contemplated coverage of non-appropriated, independent regulatory
agencies such as the FDIC, the FDIC has chosen to promulgate this final
regulation to ensure that, to the extent practicable, persons with
disabilities are provided with equal access to FDIC programs and
activities.
(b) This part is also intended to implement section 508 of the
Rehabilitation Act as amended. Section 508 requires each federal agency
or department to ensure that the electronic and information technology
they procure allows individuals with disabilities access to that
technology comparable to the access of those who are not disabled,
unless the agency would incur an undue burden.
Sec. 352.2 Application.
(a) This part applies to all programs, activities, and electronic
and information technology developed, procured, maintained, used or
conducted by the FDIC. The following programs and activities involve the
direct provision of benefits and services to, or participation by,
members of the public:
(1) Attending Board of Directors meetings open to the public and all
other public meetings;
(2) Making inquiries or filing complaints at the FDIC Office of
Legislative Affairs and Office of Public Affairs;
(3) Using the FDIC library in Washington, DC;
(4) Using the FDIC Web site on the Internet;
(5) Visiting an insured bank at which they conducted business (or an
alternative liquidation site selected by the FDIC) and which has become
insolvent, or been purchased by another bank under FDIC supervision, for
the purpose of:
(i) Collecting FDIC checks for the insured amount of their deposits
previously held in such bank; and/or
(ii) Discussing with FDIC representatives matters related to the
repayment of debts which they previously owed to such bank, prior to its
failure or purchase by another bank under FDIC supervision;
(6) Seeking employment with the FDIC;
(b) This regulation governs the conduct of FDIC personnel in their
interaction with employees of insured banks and employees of other state
or federal agencies while discharging the FDIC's statutory obligations
as insurer and/or receiver of financial institutions. It does not apply
to financial institutions insured by the FDIC.
(c) Although application for employment and employment with the FDIC
are programs and activities of the FDIC for purposes of this regulation,
they shall be governed only by the standards set forth in Sec. 352.6 of
this part.
Sec. 352.3 Definitions.
For purposes of this part, the term--
(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, the FDIC
programs or activities, and Electronic and Information Technology set
forth in Sec. 352.2.
(b) ``Electronic and Information Technology'' (``EIT'') has the same
meaning as ``information technology'' except EIT also includes any
equipment or interconnected system or subsystem of equipment that is
used in the creation, conversion, or duplication of data or information.
The term EIT includes, but is not limited to, telecommunication products
(such as telephones), information kiosks and transaction machines,
worldwide web sites,
[[Page 149]]
multimedia, and office equipment (such as copiers and fax machines).
(c) ``Facility'' means all or any portion of buildings, structures,
equipment, roads, walks, parking lots and other real or personal
property. As used in this definition, ``personal property'' means only
furniture, carpeting and similar features not considered to be real
property.
(d) ``Individual 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.
(e) ``Qualified individual with a disability'' means--
(1) With respect to any FDIC program or activity in which a person
is required to perform services or to achieve a level of accomplishment,
an individual with a disability who meets the essential eligibility
requirements and can achieve the purpose of the program or activity
without modifications in the program or activity that the FDIC can
determine on the basis of a written record would result in a fundamental
alteration in its nature;
(2) With respect to any other program or activity, an individual
with a disability who meets the essential eligibility requirements for
participation in, or receipt of benefits from, that program or activity;
(3) With respect to employment, an individual with a disability as
defined in 29 CFR 1630.2(g), which is made applicable to this part by
Sec. 352.6.
(f) ``Sections 504 and 508'' mean sections 504 and 508 of the
Rehabilitation Act of 1973 (Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794
and 794d)), as amended by the Rehabilitation Act Amendments of 1974
(Pub. L. 93-516, 88 Stat. 1617), the Rehabilitation, Comprehensive
Services, and Developmental Disabilities Amendments of 1978 (Pub. L. 95-
602, 92 Stat. 2955), and the Workforce Investment Act of 1998 (Pub. L.
105-220, 112 Stat. 936). As used in this regulation, sections 504 and
508 shall be applied only to the programs, activities, and EIT conducted
by the FDIC as set forth in Sec. Sec. 352.2 and 352.3(b) of this
regulation.
Sec. 352.4 Nondiscrimination in any program or activity conducted by the FDIC.
In accordance with section 504 of the Rehabilitation Act, no
qualified individual with a disability shall, solely by reason of his or
her disability, be excluded from participation in, be denied the
benefits of, or be subjected to discrimination in any program or
activity conducted by the FDIC.
Sec. 352.5 Accessibility to electronic and information technology.
(a) In accordance with section 508 of the Rehabilitation Act, the
FDIC shall ensure, absent an undue burden, that the electronic and
information technology the agency develops, procures, maintains or
allows:
(1) Individuals with disabilities who are FDIC employees or
applicants to have access to and use of information and data that is
comparable to the access to and use of information and data by FDIC
employees or applicants who are not individuals with disabilities; and
(2) Individuals with disabilities who are members of the public
seeking information or services from the FDIC to have access to and use
of information and data that is comparable to the access to and use of
information and data by members of the public who are not individuals
with disabilities.
(b) When development or procurement of electronic and information
technology that meets the standards published by the Architectural and
Transportation Barriers Compliance Board, 36 CFR 1194, would pose an
undue burden, the FDIC shall provide individuals with disabilities
covered by paragraph (a) of this section with the information and data
by an alternative means of access that allows the individuals to use the
information and data.
Sec. 352.6 Employment.
No qualified individual with a disability shall, on the basis of
that disability, be subjected to discrimination in employment in any
program or activity conducted by the FDIC. The definitions,
requirements, and procedures (including those pertaining to employment
discrimination complaints) of
[[Page 150]]
sections 501 of the Rehabilitation Act of 1973, as established in 29 CFR
parts 1614 and 1630, shall apply to employment in the FDIC.
Sec. 352.7 Accessibility of programs and activities: Existing facilities.
The FDIC shall operate each of the programs or activities set forth
in Sec. 352.2 of this part so that when viewed in its entirety, the
program or activity is readily accessible to and usable by individuals
with disabilities.
Sec. 352.8 Program accessibility: New construction and alterations.
Each building or part of a building, whether newly constructed, or
substantially altered, in which FDIC programs or activities will be
conducted, shall be designed, constructed or altered so as to be readily
accessible to, and usable by, individuals with disabilities.
Sec. 352.9 Communications.
(a) The FDIC shall take appropriate steps to ensure effective
communication with participants in FDIC programs, activities and EIT.
(1) The FDIC 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, the FDIC programs or
activities.
(i) In determining what type of auxiliary aid is necessary, the FDIC
shall give primary consideration to any reasonable requests of the
individual with a disability.
(ii) The FDIC need not provide individually prescribed devices,
readers for personal use or study, or other devices of a personal
nature.
(2) Where the FDIC communicates by telephone, it shall use
telecommunications devices for deaf persons (TDD's) or equally effective
telecommunication systems with hearing impaired participants and
beneficiaries.
(b) The FDIC 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, facilities
and EIT. Interested persons may obtain such information by calling,
writing or visiting the FDIC Office of Minority and Women Inclusion
(OMWI), located at 3501 Fairfax Drive, Arlington, VA 22226. The FDIC
telephone number is (877) 275-3342 or (703) 562-2473 (TTY).
(c) The FDIC shall provide information at a primary entrance to each
of its facilities where programs or activities are conducted, 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.
[69 FR 26492, May 13, 2004, as amended at 73 FR 45857, Aug. 7, 2008; 80
FR 62445, Oct. 16, 2015]
Sec. 352.10 Compliance procedures.
(a) Applicability. Paragraph (b) of this section applies to
employment complaints. The remaining sections concern complaints
alleging disability discrimination in FDIC programs or activities and
denial of technology access.
(b) Employment complaints. The FDIC shall process complaints
alleging employment discrimination on the basis of disability according
to the procedures established by the Equal Employment Opportunity
Commission in 29 CFR parts 1614 and 1630 pursuant to section 501 of the
Rehabilitation Act of 1973 (29 U.S.C. 791).
(c) Informal process. A complainant shall first exhaust informal
administrative procedures before filing a formal complaint alleging
disability discrimination in FDIC programs or activities, or a denial of
technology access. The FDIC's Office of Minority and Women Inclusion
shall be responsible for coordinating implementation of this section. An
aggrieved individual initiates the process by filing an informal
complaint with OMWI within 180 calendar days from the date of the
alleged disability discrimination or denial of access to electronic
information technology. An informal complaint with respect to any FDIC
program or activity must include a written statement containing the
individual's name and address which describes the FDIC's action in
sufficient detail to inform the FDIC of the nature and date of the
alleged violation of these regulations. An
[[Page 151]]
informal complaint for denial of technology access must clearly identify
the individual and the manner in which the EIT was inaccessible. All
informal complaints shall be signed by the complainant or one authorized
to do so on his or her behalf. Informal complaints filed on behalf of
third parties shall describe or identify (by name if possible) the
alleged victim of discrimination or denial of technology access. During
the informal resolution process, OMWI has 30 days to attempt a
resolution of the matter. If the aggrieved individual elects to
participate in mediation, the period for attempting informal resolution
will be extended for an additional 60 calendar days. If the matter is
not resolved informally, the individual will be provided written notice
of the right to file a formal complaint. All complaints should be sent
to the FDIC's Office of Minority and Women Inclusion, 3501 Fairfax
Drive, Arlington, VA 22226.
(d) If the FDIC receives a complaint over which it does not have
jurisdiction, it shall promptly notify the complainant and shall make
reasonable efforts to refer the complainant to the appropriate
government entity.
(e) Formal complaints. The individual must file a written formal
complaint within 15 calendar days after receiving the notice of a right
to file a formal complaint. Formal complaints must be filed with the
FDIC Chairman or the OMWI Director. Within 120 days of the receipt of
such a complaint for which it has jurisdiction, the FDIC shall notify
the complainant of the results of the investigation in a letter
containing--
(1) A finding regarding the alleged violations;
(2) A description of a remedy for each violation found; and
(3) A notice of the right to appeal.
(f) Appeals of the findings or remedies must be filed by the
complainant within 30 days of receipt from the FDIC of the letter
required by Sec. 352.10 (e). The FDIC may extend this time for good
cause.
(g) Timely appeals shall be accepted and processed by the FDIC
Chairman or OMWI Director.
(h) The FDIC Chairman or ODEO Director shall notify the complainant
of the results of the appeal within 60 days of the receipt of the
request. If the FDIC Chairman or OMWI Director determines that
additional information is needed from the complainant, he or she shall
have 60 days from the date of receipt of the additional information to
make a determination on the appeal.
(i) The time limits set forth in (e) and (h) above may be extended
for an individual case when the FDIC Chairman or OMWI Director
determines that there is good cause, based on the particular
circumstances of that case.
(j) The FDIC may delegate its authority for conducting complaint
investigations to other federal agencies or independent contractors,
except that the authority for making the final determination may not be
delegated.
[69 FR 26492, May 13, 2004, as amended at 73 FR 45857, Aug. 7, 2008; 80
FR 62445, Oct. 16, 2015]
Sec. 352.11 Notice.
The FDIC shall make available to employees, applicants,
participants, beneficiaries, and other interested persons such
information regarding the provisions of this part and its applicability
to the programs or activities conducted by the FDIC, and make such
information available to them in such manner as the Chairman or designee
finds necessary to apprise such persons of the protections against
discrimination under section 504 or technology access provided under
section 508 and this regulation.
PART 353_SUSPICIOUS ACTIVITY REPORTS--Table of Contents
Sec.
353.1 Purpose and scope.
353.2 Definitions.
353.3 Reports and records.
Authority: 12 U.S.C. 1818, 1819; 31 U.S.C. 5318.
Source: 61 FR 6099, Feb. 16, 1996, unless otherwise noted.
Sec. 353.1 Purpose and scope.
The purpose of this part is to ensure that an insured state
nonmember bank files a Suspicious Activity Report when it detects a
known or suspected criminal violation of federal law or a suspicious
transaction related to a money laundering activity or a violation of
[[Page 152]]
the Bank Secrecy Act. This part applies to all insured state nonmember
banks as well as any insured, state-licensed branches of foreign banks.
Sec. 353.2 Definitions.
For the purposes of this part:
(a) FinCEN means the Financial Crimes Enforcement Network of the
Department of the Treasury.
(b) Institution-affiliated party means any institution-affiliated
party as that term is defined in sections 3(u) and 8(b)(5) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(u) and 1818(b)(5)).
Sec. 353.3 Reports and records.
(a) Suspicious activity reports required. A bank shall file a
suspicious activity report with the appropriate federal law enforcement
agencies and the Department of the Treasury, in accordance with the
form's instructions, by sending a completed suspicious activity report
to FinCEN in the following circumstances:
(1) Insider abuse involving any amount. Whenever the bank detects
any known or suspected federal criminal violation, or pattern of
criminal violations, committed or attempted against the bank or
involving a transaction or transactions conducted through the bank,
where the bank believes it was either an actual or potential victim of a
criminal violation, or series of criminal violations, or that the bank
was used to facilitate a criminal transaction, and the bank has a
substantial basis for identifying one of the bank's directors, officers,
employees, agents, or other institution-affiliated parties as having
committed or aided in the commission of the criminal violation,
regardless of the amount involved in the violation;
(2) Transactions aggregating $5,000 or more where a suspect can be
identified. Whenever the bank detects any known or suspected federal
criminal violation, or pattern of criminal violations, committed or
attempted against the bank or involving a transaction or transactions
conducted through the bank, and involving or aggregating $5,000 or more
in funds or other assets, where the bank believes it was either an
actual or potential victim of a criminal violation, or series of
criminal violations, or that the bank was used to facilitate a criminal
transaction, and the bank has a substantial basis for identifying a
possible suspect or group of suspects. If it is determined prior to
filing this report that the identified suspect or group of suspects has
used an ``alias'', then information regarding the true identity of the
suspect or group of suspects, as well as alias identifiers, such as
driver's license or social security numbers, addresses and telephone
numbers, must be reported;
(3) Transactions aggregating $25,000 or more regardless of potential
suspects. Whenever the bank detects any known or suspected federal
criminal violation, or pattern of criminal violations, committed or
attempted against the bank or involving a transaction or transactions
conducted through the bank, involving or aggregating $25,000 or more in
funds or other assets, where the bank believes it was either an actual
or potential victim of a criminal violation, or series of criminal
violations, or that the bank was used to facilitate a criminal
transaction, even though the bank has no substantial basis for
identifying a possible suspect or group of suspects; or
(4) Transactions aggregating $5,000 or more that involve potential
money laundering or violations of the Bank Secrecy Act. Any transaction
(which for purposes of this paragraph (a)(4) means a deposit,
withdrawal, transfer between accounts, exchange of currency, loan,
extension of credit, purchase or sale of any stock, bond, certificate of
deposit, or other monetary instrument or investment security, or any
other payment, transfer, or delivery by, through, or to a financial
institution, by whatever means effected) conducted or attempted by, at
or through the bank and involving or aggregating $5,000 or more in funds
or other assets, if the bank knows, suspects, or has reason to suspect
that:
(i) The transaction involves funds derived from illegal activities
or is intended or conducted in order to hide or disguise funds or assets
derived from illegal activities (including, without limitation, the
ownership, nature, source, location, or control of such
[[Page 153]]
funds or assets) as part of a plan to violate or evade any federal law
or regulation or to avoid any transaction reporting requirement under
federal law;
(ii) The transaction is designed to evade any regulations
promulgated under the Bank Secrecy Act; or
(iii) The transaction has no business or apparent lawful purpose or
is not the sort of transaction in which the particular customer would
normally be expected to engage, and the bank knows of no reasonable
explanation for the transaction after examining the available facts,
including the background and possible purpose of the transaction.
(b) Time for reporting. (1) A bank shall file the suspicious
activity report no later than 30 calendar days after the date of initial
detection of facts that may constitute a basis for filing a suspicious
activity report. If no suspect was identified on the date of detection
of the incident requiring the filing, a bank may delay filing a
suspicious activity report for an additional 30 calendar days to
identify a suspect. In no case shall reporting be delayed more than 60
calendar days after the date of initial detection of a reportable
transaction.
(2) In situations involving violations requiring immediate
attention, such as when a reportable violation is ongoing, the bank
shall immediately notify, by telephone, an appropriate law enforcement
authority and the appropriate FDIC regional office (Division of
Supervision and Consumer Protection (DSC)) in addition to filing a
timely report.
(c) Reports to state and local authorities. A bank is encouraged to
file a copy of the suspicious activity report with state and local law
enforcement agencies where appropriate.
(d) Exemptions. (1) A bank need not file a suspicious activity
report for a robbery or burglary committed or attempted, that is
reported to appropriate law enforcement authorities.
(2) A bank need not file a suspicious activity report for lost,
missing, counterfeit, or stolen securities if it files a report pursuant
to the reporting requirements of 17 CFR 240.17f-1.
(e) Retention of records. A bank shall maintain a copy of any
suspicious activity report filed and the original or business record
equivalent of any supporting documentation for a period of five years
from the date of filing the suspicious activity report. Supporting
documentation shall be identified and maintained by the bank as such,
and shall be deemed to have been filed with the suspicious activity
report. A bank must make all supporting documentation available to
appropriate law enforcement authorities upon request.
(f) Notification to board of directors. The management of a bank
shall promptly notify its board of directors, or a committee thereof, of
any report filed pursuant to this section. The term ``board of
directors'' includes the managing official of an insured state-licensed
branch of a foreign bank for purposes of this part.
(g) Confidentiality of suspicious activity reports. Suspicious
activity reports are confidential. Any bank subpoenaed or otherwise
requested to disclose a suspicious activity report or the information
contained in a suspicious activity report shall decline to produce the
suspicious activity report or to provide any information that would
disclose that a suspicious activity report has been prepared or filed
citing this part, applicable law (e.g., 31 U.S.C. 5318(g)), or both, and
notify the appropriate FDIC regional office (Division of Supervision and
Consumer Protection (DSC)).
(h) Safe harbor. The safe harbor provisions of 31 U.S.C. 5318(g),
which exempts any bank that makes a disclosure of any possible violation
of law or regulation from liability under any law or regulation of the
United States, or any constitution, law or regulation of any state or
political subdivision, cover all reports of suspected or known criminal
violations and suspicious activities to law enforcement and financial
institution supervisory authorities, including supporting documentation,
regardless of whether such reports are filed pursuant to this part or
are filed on a voluntary basis.
[[Page 154]]
PART 357_DETERMINATION OF ECONOMICALLY DEPRESSED REGIONS-
-Table of Contents
Authority: 12 U.S.C. 1819, 1823(k)(5).
Sec. 357.1 Economically depressed regions.
(a) Purpose. Section 13(k)(5) of the Federal Deposit Insurance Act
(12 U.S.C. 1823(k)(5)) provides that the FDIC shall consider proposals
for financial assistance for eligible insured savings associations
before grounds exist for appointment of a conservator or receiver for
such member. One of the criteria for eligibility is that an
institution's offices are located in an economically depressed region as
determined by the FDIC.
(b) Economically depressed regions. (1) For the purpose of
determining ``economically depressed regions'', the FDIC will determine
whether an institution qualifies as being located in an ``economically
depressed region'' on a case-by-case basis. That determination will be
based on four criteria:
(i) High unemployment rates;
(ii) Significant declines in non-farm employment;
(iii) High delinquency rates of real estate assets at insured
depository institutions; and
(iv) Evidence indicating declining real estate values.
(2) In addition, the FDIC will also consider relevant information
from institutions regarding their geographic market area, as well as
information on whether that market is ``economically depressed''.
[55 FR 11161, Mar. 27, 1990, as amended at 63 FR 10295, Mar. 3, 1998; 71
FR 20527, Apr. 21, 2006]
PART 359_GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS--Table of Contents
Sec.
359.0 Scope.
359.1 Definitions.
359.2 Golden parachute payments prohibited.
359.3 Prohibited indemnification payments.
359.4 Permissible golden parachute payments.
359.5 Permissible indemnification payments.
359.6 Filing instructions.
359.7 Applicability in the event of receivership.
Authority: 12 U.S.C. 1828(k).
Source: 61 FR 5930, Feb. 15, 1996, unless otherwise noted.
Sec. 359.0 Scope.
(a) This part limits and/or prohibits, in certain circumstances, the
ability of insured depository institutions, their subsidiaries and
affiliated depository institution holding companies to enter into
contracts to pay and to make golden parachute and indemnification
payments to institution-affiliated parties (IAPs).
(b) The limitations on golden parachute payments apply to troubled
insured depository institutions which seek to enter into contracts to
pay or to make golden parachute payments to their IAPs. The limitations
also apply to depository institution holding companies which are
troubled and seek to enter into contracts to pay or to make golden
parachute payments to their IAPs as well as healthy holding companies
which seek to enter into contracts to pay or to make golden parachute
payments to IAPs of a troubled insured depository institution
subsidiary. A ``golden parachute payment'' is generally considered to be
any payment to an IAP which is contingent on the termination of that
person's employment and is received when the insured depository
institution making the payment is troubled or, if the payment is being
made by an affiliated holding company, either the holding company itself
or the insured depository institution employing the IAP, is troubled.
The definition of golden parachute payment does not include payments
pursuant to qualified retirement plans, nonqualified bona fide deferred
compensation plans, nondiscriminatory severance pay plans, other types
of common benefit plans, state statutes and death benefits. Certain
limited exceptions to the golden parachute payment prohibition are
provided for in cases involving the hiring of a white knight and
unassisted changes in control. A procedure is also set forth whereby an
institution or IAP can request permission to make what would otherwise
be a prohibited golden parachute payment.
[[Page 155]]
(c) The limitations on indemnification payments apply to all insured
depository institutions, their subsidiaries and affiliated depository
institution holding companies regardless of their financial health.
Generally, this part prohibits insured depository institutions, their
subsidiaries and affiliated holding companies from indemnifying an IAP
for that portion of the costs sustained with regard to an administrative
or civil enforcement action commenced by any federal banking agency
which results in a final order or settlement pursuant to which the IAP
is assessed a civil money penalty, removed from office, prohibited from
participating in the affairs of an insured depository institution or
required to cease and desist from or take an affirmative action
described in section 8(b) (12 U.S.C. 1818(b)) of the Federal Deposit
Insurance Act (FDI Act). However, there are exceptions to this general
prohibition. First, an institution or holding company may purchase
commercial insurance to cover such expenses, except judgments and
penalties. Second, the institution or holding company may advance legal
and other professional expenses to an IAP directly (except for judgments
and penalties) if its board of directors makes certain specific findings
and the IAP agrees in writing to reimburse the institution if it is
ultimately determined that the IAP violated a law, regulation or other
fiduciary duty.
Sec. 359.1 Definitions.
(a) Act means the Federal Deposit Insurance Act, as amended (12
U.S.C. 1811, et seq.).
(b) Appropriate federal banking agency, bank holding company,
depository institution holding company and savings and loan holding
company have the meanings given to such terms in section 3 of the Act.
(c) Benefit plan means any plan, contract, agreement or other
arrangement which is an ``employee welfare benefit plan'' as that term
is defined in section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and
customary plans such as dependent care, tuition reimbursement, group
legal services or cafeteria plans; provided however, that such term
shall not include any plan intended to be subject to paragraphs (f)(2)
(iii) and (v) of this section.
(d) Bona fide deferred compensation plan or arrangement means any
plan, contract, agreement or other arrangement whereby:
(1) An IAP voluntarily elects to defer all or a portion of the
reasonable compensation, wages or fees paid for services rendered which
otherwise would have been paid to such party at the time the services
were rendered (including a plan that provides for the crediting of a
reasonable investment return on such elective deferrals) and the insured
depository institution or depository institution holding company either:
(i) Recognizes compensation expense and accrues a liability for the
benefit payments according to generally accepted accounting principles
(GAAP); or
(ii) Segregates or otherwise sets aside assets in a trust which may
only be used to pay plan and other benefits, except that the assets of
such trust may be available to satisfy claims of the institution's or
holding company's creditors in the case of insolvency; or
(2) An insured depository institution or depository institution
holding company establishes a nonqualified deferred compensation or
supplemental retirement plan, other than an elective deferral plan
described in paragraph (e)(1) of this section:
(i) Primarily for the purpose of providing benefits for certain IAPs
in excess of the limitations on contributions and benefits imposed by
sections 415, 401(a)(17), 402(g) or any other applicable provision of
the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17), 402(g));
or
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of directors,
management or highly compensated employees (excluding severance payments
described in paragraph (f)(2)(v) of this section and permissible golden
parachute payments described in Sec. 359.4); and
(3) In the case of any nonqualified deferred compensation or
supplemental
[[Page 156]]
retirement plans as described in paragraphs (d) (1) and (2) of this
section, the following requirements shall apply:
(i) The plan was in effect at least one year prior to any of the
events described in paragraph (f)(1)(ii) of this section;
(ii) Any payment made pursuant to such plan is made in accordance
with the terms of the plan as in effect no later than one year prior to
any of the events described in paragraph (f)(1)(ii) of this section and
in accordance with any amendments to such plan during such one year
period that do not increase the benefits payable thereunder;
(iii) The IAP has a vested right, as defined under the applicable
plan document, at the time of termination of employment to payments
under such plan;
(iv) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
(v) Any payment made pursuant to such plan is not based on any
discretionary acceleration of vesting or accrual of benefits which
occurs at any time later than one year prior to any of the events
described in paragraph (f)(1)(ii) of this section;
(vi) The insured depository institution or depository institution
holding company has previously recognized compensation expense and
accrued a liability for the benefit payments according to GAAP or
segregated or otherwise set aside assets in a trust which may only be
used to pay plan benefits, except that the assets of such trust may be
available to satisfy claims of the institution's or holding company's
creditors in the case of insolvency; and
(vii) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
(e) Corporation means the Federal Deposit Insurance Corporation, in
its corporate capacity.
(f) Golden parachute payment. (1) The term golden parachute payment
means any payment (or any agreement to make any payment) in the nature
of compensation by any insured depository institution or an affiliated
depository institution holding company for the benefit of any current or
former IAP pursuant to an obligation of such institution or holding
company that:
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party's primary employment or affiliation with the
institution or holding company; and
(ii) Is received on or after, or is made in contemplation of, any of
the following events:
(A) The insolvency (or similar event) of the insured depository
institution which is making the payment or bankruptcy or insolvency (or
similar event) of the depository institution holding company which is
making the payment; or
(B) The appointment of any conservator or receiver for such insured
depository institution; or
(C) A determination by the insured depository institution's or
depository institution holding company's appropriate federal banking
agency, respectively, that the insured depository institution or
depository institution holding company is in a troubled condition, as
defined in the applicable regulations of the appropriate federal banking
agency (Sec. 303.101(c) of this chapter); or
(D) The insured depository institution is assigned a composite
rating of 4 or 5 by the appropriate federal banking agency or informed
in writing by the Corporation that it is rated a 4 or 5 under the
Uniform Financial Institutions Rating System of the Federal Financial
Institutions Examination Council, or the depository institution holding
company is assigned a composite rating of 4 or 5 or unsatisfactory by
its appropriate federal banking agency; or
(E) The insured depository institution is subject to a proceeding to
terminate or suspend deposit insurance for such institution; and
(iii)(A) Is payable to an IAP whose employment by or affiliation
with an insured depository institution is terminated at a time when the
insured depository institution by which the IAP is employed or with
which the IAP is affiliated satisfies any of the conditions enumerated
in paragraphs (f)(1)(ii) (A) through (E) of this section,
[[Page 157]]
or in contemplation of any of these conditions; or
(B) Is payable to an IAP whose employment by or affiliation with an
insured depository institution holding company is terminated at a time
when the insured depository institution holding company by which the IAP
is employed or with which the IAP is affiliated satisfies any of the
conditions enumerated in paragraphs (f)(1)(ii)(A), (C) or (D) of this
section, or in contemplation of any of these conditions.
(2) Exceptions. The term golden parachute payment shall not include:
(i) Any payment made pursuant to a pension or retirement plan which
is qualified (or is intended within a reasonable period of time to be
qualified) under section 401 of the Internal Revenue Code of 1986 (26
U.S.C. 401) or pursuant to a pension or other retirement plan which is
governed by the laws of any foreign country; or
(ii) Any payment made pursuant to a benefit plan as that term is
defined in paragraph (c) of this section; or
(iii) Any payment made pursuant to a bona fide deferred compensation
plan or arrangement as defined in paragraph (d) of this section; or
(iv) Any payment made by reason of death or by reason of termination
caused by the disability of an institution-affiliated party; or
(v) Any payment made pursuant to a nondiscriminatory severance pay
plan or arrangement which provides for payment of severance benefits to
all eligible employees upon involuntary termination other than for
cause, voluntary resignation, or early retirement; provided, however,
that no employee shall receive any such payment which exceeds the base
compensation paid to such employee during the twelve months (or such
longer period or greater benefit as the Corporation shall consent to)
immediately preceding termination of employment, resignation or early
retirement, and such severance pay plan or arrangement shall not have
been adopted or modified to increase the amount or scope of severance
benefits at a time when the insured depository institution or depository
institution holding company was in a condition specified in paragraph
(f)(1)(ii) of this section or in contemplation of such a condition
without the prior written consent of the appropriate federal banking
agency; or
(vi) Any severance or similar payment which is required to be made
pursuant to a state statute or foreign law which is applicable to all
employers within the appropriate jurisdiction (with the exception of
employers that may be exempt due to their small number of employees or
other similar criteria); or
(vii) Any other payment which the Corporation determines to be
permissible in accordance with Sec. 359.4.
(g) Insured depository institution means any bank or savings
association the deposits of which are insured by the Corporation
pursuant to the Act, or any subsidiary thereof.
(h) Institution-affiliated party (IAP) means:
(1) Any director, officer, employee, or controlling stockholder
(other than a depository institution holding company) of, or agent for,
an insured depository institution or depository institution holding
company;
(2) Any other person who has filed or is required to file a change-
in-control notice with the appropriate federal banking agency under
section 7(j) of the Act (12 U.S.C. 1817(j));
(3) Any shareholder (other than a depository institution holding
company), consultant, joint venture partner, and any other person as
determined by the appropriate federal banking agency (by regulation or
case-by-case) who participates in the conduct of the affairs of an
insured depository institution or depository institution holding
company; and
(4) Any independent contractor (including any attorney, appraiser,
or accountant) who knowingly or recklessly participates in: Any
violation of any law or regulation, any breach of fiduciary duty, or any
unsafe or unsound practice, which caused or is likely to cause more than
a minimal financial loss to, or a significant adverse effect on, the
insured depository institution or depository institution holding
company.
(i) Liability or legal expense means:
[[Page 158]]
(1) Any legal or other professional fees and expenses incurred in
connection with any claim, proceeding, or action;
(2) The amount of, and any cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
(j) Nondiscriminatory means that the plan, contract or arrangement
in question applies to all employees of an insured depository
institution or depository institution holding company who meet
reasonable and customary eligibility requirements applicable to all
employees, such as minimum length of service requirements. A
nondiscriminatory plan, contract or arrangement may provide different
benefits based only on objective criteria such as salary, total
compensation, length of service, job grade or classification, which are
applied on a proportionate basis (with a variance in severance benefits
relating to any criterion of plus or minus ten percent) to groups of
employees consisting of not less than the lesser of 33 percent of
employees or 1,000 employees.
(k) Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit, including but not limited to
stock options and stock appreciation rights; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter of
credit or other instrument, for the purpose of making, or pursuant to
any agreement to make, any payment on or after the date on which such
funds or assets are segregated, or at the time of or after such trust is
established or letter of credit or other instrument is made available,
without regard to whether the obligation to make such payment is
contingent on:
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
(l) Prohibited indemnification payment. (1) The term prohibited
indemnification payment means any payment (or any agreement or
arrangement to make any payment) by any insured depository institution
or an affiliated depository institution holding company for the benefit
of any person who is or was an IAP of such insured depository
institution or holding company, to pay or reimburse such person for any
civil money penalty or judgment resulting from any administrative or
civil action instituted by any federal banking agency, or any other
liability or legal expense with regard to any administrative proceeding
or civil action instituted by any federal banking agency which results
in a final order or settlement pursuant to which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the insured depository institution; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 8(b) of the Act with respect to such
institution.
(2) Exceptions. (i) The term prohibited indemnification payment
shall not include any reasonable payment by an insured depository
institution or depository institution holding company which is used to
purchase any commercial insurance policy or fidelity bond, provided that
such insurance policy or bond shall not be used to pay or reimburse an
IAP for the cost of any judgment or civil money penalty assessed against
such person in an administrative proceeding or civil action commenced by
any federal banking agency, but may pay any legal or professional
expenses incurred in connection with such proceeding or action or the
amount of any restitution to the insured depository institution,
depository institution holding company or receiver.
(ii) The term prohibited indemnification payment shall not include
any reasonable payment by an insured depository institution or
depository institution holding company that represents partial
indemnification for legal or
[[Page 159]]
professional expenses specifically attributable to particular charges
for which there has been a formal and final adjudication or finding in
connection with a settlement that the IAP has not violated certain
banking laws or regulations or has not engaged in certain unsafe or
unsound banking practices or breaches of fiduciary duty, unless the
administrative action or civil proceeding has resulted in a final
prohibition order against the IAP.
[61 FR 5930, Feb. 15, 1996, as amended at 68 FR 50461, Aug. 21, 2003]
Sec. 359.2 Golden parachute payments prohibited.
No insured depository institution or depository institution holding
company shall make or agree to make any golden parachute payment, except
as provided in this part.
Sec. 359.3 Prohibited indemnification payments.
No insured depository institution or depository institution holding
company shall make or agree to make any prohibited indemnification
payment, except as provided in this part.
Sec. 359.4 Permissible golden parachute payments.
(a) An insured depository institution or depository institution
holding company may agree to make or may make a golden parachute payment
if and to the extent that:
(1) The appropriate federal banking agency, with the written
concurrence of the Corporation, determines that such a payment or
agreement is permissible; or
(2) Such an agreement is made in order to hire a person to become an
IAP either at a time when the insured depository institution or
depository institution holding company satisfies or in an effort to
prevent it from imminently satisfying any of the criteria set forth in
Sec. 359.1(f)(1)(ii), and the institution's appropriate federal banking
agency and the Corporation consent in writing to the amount and terms of
the golden parachute payment. Such consent by the FDIC and the
institution's appropriate federal banking agency shall not improve the
IAP's position in the event of the insolvency of the institution since
such consent can neither bind a receiver nor affect the provability of
receivership claims. In the event that the institution is placed into
receivership or conservatorship, the FDIC and/or the institution's
appropriate federal banking agency shall not be obligated to pay the
promised golden parachute and the IAP shall not be accorded preferential
treatment on the basis of such prior approval; or
(3) Such a payment is made pursuant to an agreement which provides
for a reasonable severance payment, not to exceed twelve months salary,
to an IAP in the event of a change in control of the insured depository
institution; provided, however, that an insured depository institution
or depository institution holding company shall obtain the consent of
the appropriate federal banking agency prior to making such a payment
and this paragraph (a)(3) shall not apply to any change in control of an
insured depository institution which results from an assisted
transaction as described in section 13 of the Act (12 U.S.C. 1823) or
the insured depository institution being placed into conservatorship or
receivership; and
(4) An insured depository institution, depository institution
holding company or IAP making a request pursuant to paragraphs (a)(1)
through (3) of this section shall demonstrate that it does not possess
and is not aware of any information, evidence, documents or other
materials which would indicate that there is a reasonable basis to
believe, at the time such payment is proposed to be made, that:
(i) The IAP has committed any fraudulent act or omission, breach of
trust or fiduciary duty, or insider abuse with regard to the depository
institution or depository institution holding company that has had or is
likely to have a material adverse effect on the institution or holding
company;
(ii) The IAP is substantially responsible for the insolvency of, the
appointment of a conservator or receiver for, or the troubled condition,
as defined by applicable regulations of the appropriate federal banking
agency, of the insured depository institution, depository institution
holding company or any insured depository institution subsidiary of such
holding company;
[[Page 160]]
(iii) The IAP has materially violated any applicable federal or
state banking law or regulation that has had or is likely to have a
material effect on the insured depository institution or depository
institution holding company; and
(iv) The IAP has violated or conspired to violate section 215, 656,
657, 1005, 1006, 1007, 1014, 1032, or 1344 of title 18 of the United
States Code, or section 1341 or 1343 of such title affecting a federally
insured financial institution as defined in title 18 of the United
States Code.
(b) In making a determination under paragraphs (a) (1) through (3)
of this section, the appropriate federal banking agency and the
Corporation may consider:
(1) Whether, and to what degree, the IAP was in a position of
managerial or fiduciary responsibility;
(2) The length of time the IAP was affiliated with the insured
depository institution or depository institution holding company, and
the degree to which the proposed payment represents a reasonable payment
for services rendered over the period of employment; and
(3) Any other factors or circumstances which would indicate that the
proposed payment would be contrary to the intent of section 18(k) of the
Act or this part.
Sec. 359.5 Permissible indemnification payments.
(a) An insured depository institution or depository institution
holding company may make or agree to make reasonable indemnification
payments to an IAP with respect to an administrative proceeding or civil
action initiated by any federal banking agency if:
(1) The insured depository institution's or depository institution
holding company's board of directors, in good faith, determines in
writing after due investigation and consideration that the institution-
affiliated party acted in good faith and in a manner he/she believed to
be in the best interests of the institution;
(2) The insured depository institution's or depository institution
holding company's board of directors, respectively, in good faith,
determines in writing after due investigation and consideration that the
payment of such expenses will not materially adversely affect the
institution's or holding company's safety and soundness;
(3) The indemnification payments do not constitute prohibited
indemnification payments as that term is defined in Sec. 359.1(l); and
(4) The IAP agrees in writing to reimburse the insured depository
institution or depository institution holding company, to the extent not
covered by payments from insurance or bonds purchased pursuant to Sec.
359.1(l)(2), for that portion of the advanced indemnification payments
which subsequently become prohibited indemnification payments, as
defined in Sec. 359.1(l)
(b) An IAP requesting indemnification payments shall not participate
in any way in the board's discussion and approval of such payments;
provided, however, that such IAP may present his/her request to the
board and respond to any inquiries from the board concerning his/her
involvement in the circumstances giving rise to the administrative
proceeding or civil action.
(c) In the event that a majority of the members of the board of
directors are named as respondents in an administrative proceeding or
civil action and request indemnification, the remaining members of the
board may authorize independent legal counsel to review the
indemnification request and provide the remaining members of the board
with a written opinion of counsel as to whether the conditions
delineated in paragraph (a) of this section have been met. If
independent legal counsel opines that said conditions have been met, the
remaining members of the board of directors may rely on such opinion in
authorizing the requested indemnification.
(d) In the event that all of the members of the board of directors
are named as respondents in an administrative proceeding or civil action
and request indemnification, the board shall authorize independent legal
counsel to review the indemnification request and provide the board with
a written opinion of counsel as to whether the conditions delineated in
paragraph (a) of this section have been met. If independent legal
counsel opines
[[Page 161]]
that said conditions have been met, the board of directors may rely on
such opinion in authorizing the requested indemnification.
Sec. 359.6 Filing instructions.
Requests to make excess nondiscriminatory severance plan payments
pursuant to Sec. 359.1(f)(2)(v) and golden parachute payments permitted
by Sec. 359.4 shall be submitted in writing to the appropriate regional
director (DSC). For filing requirements, consult 12 CFR 303.244. In the
event that the consent of the institution's primary federal regulator is
required in addition to that of the FDIC, the requesting party shall
submit a copy of its letter to the FDIC to the institution's primary
federal regulator. In the case of national banks, such written requests
shall be submitted to the OCC. In the case of state member banks and
bank holding companies, such written requests shall be submitted to the
Federal Reserve district bank where the institution or holding company,
respectively, is located. In the case of savings associations and
savings association holding companies, such written requests shall be
submitted to the OTS regional office where the institution or holding
company, respectively, is located. In cases where only the prior consent
of the institution's primary federal regulator is required and that
agency is not the FDIC, a written request satisfying the requirements of
this section shall be submitted to the primary federal regulator as
described in this section.
[63 FR 44751, Aug. 20, 1998]
Sec. 359.7 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
under the provisions of this part by the FDIC (in its corporate
capacity), shall not in any way bind any receiver of a failed insured
depository institution. Any consent or approval granted under the
provisions of this part by the FDIC or any other federal banking agency
shall not in any way obligate such agency or receiver to pay any claim
or obligation pursuant to any golden parachute, severance,
indemnification or other agreement. Claims for employee welfare benefits
or other benefits which are contingent, even if otherwise vested, when
the FDIC is appointed as receiver for any depository institution,
including any contingency for termination of employment, are not
provable claims or actual, direct compensatory damage claims against
such receiver. Nothing in this part may be construed to permit the
payment of salary or any liability or legal expense of any IAP contrary
to 12 U.S.C. 1828(k)(3).
PART 360_RESOLUTION AND RECEIVERSHIP RULES--Table of Contents
Sec.
360.1 Least-cost resolution.
360.2 Federal Home Loan banks as secured creditors.
360.3 Priorities.
360.4 Administrative expenses.
360.5 Definition of qualified financial contracts.
360.6 Treatment of financial assets transferred in connection with a
securitization or participation.
360.7 Post-insolvency interest.
360.8 Method for determining deposit and other liability account
balances at a failed insured depository institution.
360.9 Large-bank deposit insurance determination modernization.
360.10 Resolution plans required for insured depository institutions
with $50 billion or more in total assets.
360.11 Records of failed insured depository institutions.
Appendix A to Part 360--Non-Monetary Transaction File Structure
Appendix B to Part 360--Debit/Credit File Structure
Appendix C to Part 360--Deposit File Structure
Appendix D to Part 360--Sweep/Automated Credit Account File Structure
Appendix E to Part 360--Hold File Structure
Appendix F to Part 360--Customer File Structure
Appendix G to Part 360--Deposit-Customer Join File Structure
Appendix H to Part 360--Possible File Combinations for Deposit data
Authority: 12 U.S.C. 1821(d)(1), 1821(d)(10)(C), 1821(d)(11),
1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub.
L. 101-73, 103 Stat. 357.
Sec. 360.1 Least-cost resolution.
(a) General rule. Except as provided in section 13(c)(4)(G) of the
FDI Act (12 U.S.C. 1823 (c)(4)(G)), the FDIC shall
[[Page 162]]
not take any action, directly or indirectly, under sections 13(c),
13(d), 13(f), 13(h) or 13(k) of the FDI Act (12 U.S.C. 1823 (c), (d),
(f), (h) or (k)) with respect to any insured depository institution that
would have the effect of increasing losses to any insurance fund by
protecting:
(1) Depositors for more than the insured portion of their deposits
(determined without regard to whether such institution is liquidated);
or
(2) Creditors other than depositors.
(b) Purchase and assumption transactions. Subject to the requirement
of section 13(c)(4)(A) of the FDI Act (12 U.S.C. 1823(c)(4)(A)),
paragraph (a) of this section shall not be construed as prohibiting the
FDIC from allowing any person who acquires any assets or assumes any
liabilities of any insured depository institution, for which the FDIC
has been appointed conservator or receiver, to acquire uninsured deposit
liabilities of such institution as long as the applicable insurance fund
does not incur any loss with respect to such uninsured deposit
liabilities in an amount greater than the loss which would have been
incurred with respect to such liabilities if the institution had been
liquidated.
[58 FR 67664, Dec. 22, 1993, as amended at 63 FR 37761, July 14, 1998]
Sec. 360.2 Federal Home Loan banks as secured creditors.
(a) Notwithstanding any other provisions of federal or state law or
any other provisions of these regulations, the receiver of a borrower
from a Federal Home Loan Bank shall recognize the priority of any
security interest granted to a Federal Home Loan Bank by any member of
any Federal Home Loan Bank or any affiliate of any such member, whether
such security interest is in specifically designated assets or a blanket
interest in all assets or categories of assets, over the claims and
rights of any other party (including any receiver, conservator, trustee
or similar party having rights of a lien creditor) other than claims and
rights that
(1) Would be entitled to priority under otherwise applicable law;
and
(2) Are held by actual bona fide purchasers for value or by actual
secured parties that are secured by actual perfected security interests.
(b) If the receiver rather than the Bank shall have possession of
any collateral consisting of notes, securities, other instruments,
chattel paper or cash securing advances of the Bank, the receiver shall,
upon request by the Bank, promptly deliver possession of such collateral
to the Bank or its designee.
(c) In the event that a receiver is appointed for any member of a
Federal Home Loan Bank, the following procedures shall apply:
(1) The receiver and the Bank shall immediately seek and develop a
mutually agreeable plan for the payment of any advances made by the Bank
to such borrower or for the servicing, foreclosure upon and liquidation
of the collateral securing any such advances, taking into account the
nature and amount of such collateral, the markets in which such
collateral is normally traded or sold and other relevant factors.
(2) In the event that the receiver and the Bank shall not, in good
faith, be able to develop such a mutually agreeable plan, or, in the
interim, the Bank in good faith reasonably concludes that the value of
such collateral is decreasing, because of interest rate or other market
changes, at such a rate that to delay liquidation or other exercise of
the Bank's rights as a secured party for the development of a mutually
agreeable plan could reasonably cause the value of such collateral to
decrease to an amount that is insufficient to satisfy the Bank's claim
in full, the Bank may, at any time thereafter if permitted to do so by
the terms of the advances or other security agreement with such borrower
or otherwise by applicable law, proceed to foreclose upon, sell, lease
or otherwise dispose of such collateral (or any portion thereof), or
otherwise exercise its rights as a secured party, provided that the Bank
acts in good faith and in a commercially reasonable manner and otherwise
in accordance with applicable law.
(3) The foregoing provisions of this paragraph (c) shall not apply
in the event that a purchase and assumption transaction is entered into
regarding any such member.
[[Page 163]]
(d) The Bank's rights pursuant to the second sentence of section
10(d) of the Federal Home Loan Bank Act shall not be affected or
diminished by any provisions of state law that may be applicable to a
security interest in property of the member.
(e) The receiver for a borrower from a Federal Home Loan Bank shall
allow a claim for a prepayment fee by the Bank if, and only if:
(1) The claim is made pursuant to a written contract that provides
for a prepayment fee, provided, however, that such prepayment fee
allowed by the receiver shall not exceed the present value of the loss
attributable to the difference between the contract rate of the secured
borrowing and the reinvestment rate then available to the Bank; and
(2) The indebtedness owed to the Bank by such borrower is secured by
sufficient collateral in which a perfected security interest in favor of
the Bank exists or as to which the Bank's security interest is entitled
to priority under section 306(d) of the Competitive Equality Banking Act
of 1987 (CEBA) (12 U.S.C. 1430(e), footnote (1), or otherwise so that
the aggregate of the outstanding principal on the advances secured by
such collateral, the accrued but unpaid interest thereon and the
prepayment fee applicable to such advances can be paid in full from the
amounts realized from such collateral. For purposes of this paragraph
(e)(2), the adequacy of such collateral shall be determined as of the
date such prepayment fees shall be due and payable under the terms of
the written contract providing therefor.
[54 FR 19156, May 4, 1989. Redesignated at 54 FR 42801, Oct. 18, 1989,
and further redesignated at 55 FR 46496, Nov. 5, 1990. Redesignated at
58 FR 67664, Dec. 22, 1993, as amended at 63 FR 37761, July 14, 1998]
Sec. 360.3 Priorities.
(a) Unsecured claims against an association or the receiver that are
proved to the satisfaction of the receiver shall have priority in the
following order:
(1) Administrative expenses of the receiver, including the costs,
expenses, and debts of the receiver;
(2) Administrative expenses of the association, provided that such
expenses were incurred within thirty (30) days prior to the receiver's
taking possession, and that such expenses shall be limited to reasonable
expenses incurred for services actually provided by accountants,
attorneys, appraisers, examiners, or management companies, or reasonable
expenses incurred by employees which were authorized and reimbursable
under a pre-existing expense reimbursement policy, that, in the opinion
of the receiver, are of benefit to the receivership, and shall not
include wages or salaries of employees of the association;
(3) Claims for wages and salaries, including vacation and sick leave
pay and contributions to employee benefit plans, earned prior to the
appointment of the receiver by an employee of the association whom the
receiver determines it is in the best interests of the receivership to
engage or retain for a reasonable period of time;
(4) If authorized by the receiver, claims for wages and salaries,
including vacation and sick leave pay and contributions to employee
benefits plans, earned prior to the appointment of the receiver, up to a
maximum of three thousand dollars ($3,000) per person, by an employee of
the association not engaged or retained pursuant to a determination by
the receiver pursuant to the third category above;
(5) Claims of governmental units for unpaid taxes, other than
Federal income taxes, except to the extent subordinated pursuant to
applicable law; but no other claim of a governmental unit shall have a
priority higher than that of a general creditor under paragraph (a)(6)
of this section;
(6) Claims for withdrawable accounts, including those of the
Corporation as subrogee or transferee, and all other claims which have
accrued and become unconditionally fixed on or before the date of
default, whether liquidated or unliquidated, except as provided in
paragraphs (a)(1) through (a)(5) of this section, provided, however,
that if the association is chartered and was operated under the laws of
a state that provided a priority for holders of withdrawable accounts
over such other claims or general creditors, such priority within this
paragraph (a)(6) shall
[[Page 164]]
be observed by the receiver; and provided further, that if deposits of a
Federal association are booked or registered at an office of such
association that is located in a State that provides such priority with
respect to State-chartered associations, such deposits in a Federal
association shall have priority over such other claims or general
creditors, which shall be observed by the receiver;
(7) Claims other than those that have accrued and become
unconditionally fixed on or before the date of default, including claims
for interest after the date of default on claims under paragraph (a)(6)
of this section, Provided that any claim based on an agreement for
accelerated, stipulated, or liquidated damages, which claim did not
accrue prior to the date of default, shall be considered as not having
accrued and become unconditionally fixed on or before the date of
default;
(8) Claims of the United States for unpaid Federal income taxes;
(9) Claims that have been subordinated in whole or in part to
general creditor claims, which shall be given the priority specified in
the written instruments that evidence such claims; and
(10) Claims by holders of nonwithdrawable accounts, including stock,
which shall have priority within this paragraph (a)(10) in accordance
with the terms of the written instruments that evidence such claims.
(b) Interest after the date of default on claims under paragraph
(a)(6) of this section shall be at a rate or rates adjusted monthly to
reflect the average rate for U.S. Treasury bills with maturities of not
more than ninety-one (91) days during the preceding three (3) months.
(c) [Reserved]
(d) All unsecured claims of any category or class or priority
described in paragraphs (a)(1) through (a)(10) of this section shall be
paid in full, or provision made for such payment, before any claims of
lesser priority are paid. If there are insufficient funds to pay all
claims of a category or class in full, distribution to claimants in such
category or class shall be made pro rata. Notwithstanding anything to
the contrary herein, the receiver may, at any time, and from time to
time, prior to the payment in full of all claims of a category or class
with higher priority, make such distributions to claimants in priority
classes outlined in paragraphs (a)(1) through (a)(6) of this section as
the receiver believes are reasonably necessary to conduct the
receivership,
Provided that the receiver determines that adequate funds exist or
will be recovered during the receivership to pay in full all claims of
any higher priority.
(e) If the association is in mutual form, and a surplus remains
after making distribution in full of allowed claims as set forth in
paragraphs (a) and (b) of this section, such surplus shall be
distributed to the depositors in proportion to their accounts as of the
date of default.
(f) Under the provisions of section 11(d)(11) of the Act (12 U.S.C.
1821(d)(11)), the provisions of this Sec. 360.3 do not apply to any
receivership established and liquidation or other resolution occurring
after August 10, 1993.
[53 FR 25132, July 5, 1988, as amended at 53 FR 30667, Aug. 15, 1988.
Redesignated and amended at 54 FR 42801, Oct. 18, 1989, and further
redesignated and amended at 55 FR 46496, Nov. 5, 1990; 58 FR 43070, Aug.
13, 1993. Redesignated at 58 FR 67664, Dec. 22, 1993; 60 FR 35488, July
10, 1995]
Sec. 360.4 Administrative expenses.
The priority for administrative expenses of the receiver, as that
term is used in section 11(d)(11) of the Act (12 U.S.C. 1821(d)(11),
shall include those necessary expenses incurred by the receiver in
liquidating or otherwise resolving the affairs of a failed insured
depository institution. Such expenses shall include pre-failure and
post-failure obligations that the receiver determines are necessary and
appropriate to facilitate the smooth and orderly liquidation or other
resolution of the institution.
[60 FR 35488, July 10, 1995]
Sec. 360.5 Definition of qualified financial contracts.
(a) Authority and purpose. Sections 11(e) (8) through (10) of the
Federal Deposit Insurance Act, 12 U.S.C. 1821(e) (8) through (10),
provide special rules for the treatment of qualified financial
[[Page 165]]
contracts of an insured depository institution for which the FDIC is
appointed conservator or receiver, including rules describing the manner
in which qualified financial contracts may be transferred or closed out.
Section 11(e)(8)(D)(i) of the Federal Deposit Insurance Act, 12 U.S.C.
1821(e)(8)(D)(i), grants the Corporation authority to determine by
regulation whether any agreement, other than those identified within
section 11(e)(8)(D), should be recognized as qualified financial
contracts under the statute. The purpose of this section is to identify
additional agreements which the Corporation has determined to be
qualified financial contracts.
(b) Repurchase agreements. The following agreements shall be deemed
``repurchase agreements'' under section 11(e)(8)(D)(v) of the Federal
Deposit Insurance Act, as amended (12 U.S.C. 1821(e)(8)(D)(v)): A
repurchase agreement on qualified foreign government securities is an
agreement or combination of agreements (including master agreements)
which provides for the transfer of securities that are direct
obligations of, or that are fully guaranteed by, the central governments
(as set forth at 12 CFR 324.2 (definition of sovereign exposure), as may
be amended from time to time) of the OECD-based group of countries (as
generally discussed in 12 CFR 324.32) against the transfer of funds by
the transferee of such securities with a simultaneous agreement by such
transferee to transfer to the transferor thereof securities as described
above, at a date certain not later than one year after such transfers or
on demand, against the transfer of funds.
(c) Swap agreements. The following agreements shall be deemed ``swap
agreements'' under section 11(e)(8)(D)(vi) of the Federal Deposit
Insurance Act, as amended (12 U.S.C. 1821(e)(8)(D)(vi)): A spot foreign
exchange agreement is any agreement providing for or effecting the
purchase or sale of one currency in exchange for another currency (or a
unit of account established by an intergovernmental organization such as
the European Currency Unit) with a maturity date of two days or less
after the agreement has been entered into, and includes short-dated
transactions such as tomorrow/next day and same day/tomorrow
transactions.
(d) Nothing in this section shall be construed as limiting or
changing a party's obligation to comply with all reasonable trading
practices and requirements, non-insolvency law requirements and any
other requirements imposed by other provisions of the FDI Act. This
section in no way limits the authority of the Corporation to take
supervisory or enforcement actions, or to otherwise manage the affairs
of a financial institution for which the Corporation has been appointed
conservator or receiver.
[60 FR 66865, Dec. 27, 1995, as amended at 78 FR 55595, Sept. 10, 2013;
83 FR 17741, Apr. 24, 2018]
Sec. 360.6 Treatment of financial assets transferred in connection
with a securitization or participation.
(a) Definitions--
(1) Applicable compliance date means, with respect to a
securitization, the date on which compliance with Section 15G of the
Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act is
required with respect to that securitization.
(2) Financial asset means cash or a contract or instrument that
conveys to one entity a contractual right to receive cash or another
financial instrument from another entity.
(3) Investor means a person or entity that owns an obligation issued
by an issuing entity.
(4) Issuing entity means an entity that owns a financial asset or
financial assets transferred by the sponsor and issues obligations
supported by such asset or assets. Issuing entities may include, but are
not limited to, corporations, partnerships, trusts, and limited
liability companies and are commonly referred to as special purpose
vehicles or special purpose entities. To the extent a securitization is
structured as a multi-step transfer, the term issuing entity would
include both the issuer of the obligations and any intermediate entities
that may be a transferee. Notwithstanding the foregoing, a Specified
[[Page 166]]
GSE or an entity established or guaranteed by a Specified GSE shall not
constitute an issuing entity.
(5) Monetary default means a default in the payment of principal or
interest when due following the expiration of any cure period.
(6) Obligation means a debt or equity (or mixed) beneficial interest
or security that is primarily serviced by the cash flows of one or more
financial assets or financial asset pools, either fixed or revolving,
that by their terms convert into cash within a finite time period, or
upon the disposition of the underlying financial assets, and by any
rights or other assets designed to assure the servicing or timely
distributions of proceeds to the security holders issued by an issuing
entity. The term may include beneficial interests in a grantor trust,
common law trust or similar issuing entity to the extent that such
interests satisfy the criteria set forth in the preceding sentence, but
does not include LLC interests, partnership interests, common or
preferred equity, or similar instruments evidencing ownership of the
issuing entity.
(7) Participation means the transfer or assignment of an undivided
interest in all or part of a financial asset, that has all of the
characteristics of a ``participating interest,'' from a seller, known as
the ``lead,'' to a buyer, known as the ``participant,'' without recourse
to the lead, pursuant to an agreement between the lead and the
participant. ``Without recourse'' means that the participation is not
subject to any agreement that requires the lead to repurchase the
participant's interest or to otherwise compensate the participant upon
the borrower's default on the underlying obligation.
(8) Securitization means the issuance by an issuing entity of
obligations for which the investors are relying on the cash flow or
market value characteristics and the credit quality of transferred
financial assets (together with any external credit support permitted by
this section) to repay the obligations.
(9) Servicer means any entity responsible for the management or
collection of some or all of the financial assets on behalf of the
issuing entity or making allocations or distributions to holders of the
obligations, including reporting on the overall cash flow and credit
characteristics of the financial assets supporting the securitization to
enable the issuing entity to make payments to investors on the
obligations. The term ``servicer'' does not include a trustee for the
issuing entity or the holders of obligations that makes allocations or
distributions to holders of the obligations if the trustee receives such
allocations or distributions from a servicer and the trustee does not
otherwise perform the functions of a servicer.
(10) Specified GSE means each of the following:
(i) The Federal National Mortgage Association and any affiliate
thereof;
(ii) Federal Home Loan Mortgage Corporation and any affiliate
thereof;
(iii) The Government National Mortgage Association; and
(iv) Any federal or state sponsored mortgage finance agency.
(11) Sponsor means a person or entity that organizes and initiates a
securitization by transferring financial assets, either directly or
indirectly, including through an affiliate, to an issuing entity,
whether or not such person owns an interest in the issuing entity or
owns any of the obligations issued by the issuing entity.
(12) Transfer means:
(i) The conveyance of a financial asset or financial assets to an
issuing entity or
(ii) The creation of a security interest in such asset or assets for
the benefit of the issuing entity.
(b) Coverage. This section shall apply to securitizations that meet
the following criteria:
(1) Capital Structure and Financial Assets. The documents creating
the securitization must define the payment structure and capital
structure of the transaction.
(i) Requirements applicable to all securitizations:
(A) The securitization shall not consist of re-securitizations of
obligations or collateralized debt obligations unless the documents
creating the securitization require that disclosures required in
paragraph (b)(2) of this section are made available to investors for the
underlying assets supporting the
[[Page 167]]
securitization at initiation and while obligations are outstanding; and
(B) The documents creating the securitization shall require that
payment of principal and interest on the securitization obligation must
be primarily based on the performance of financial assets that are
transferred to the issuing entity and, except for interest rate or
currency mismatches between the financial assets and the obligations,
shall not be contingent on market or credit events that are independent
of such financial assets. The securitization may not be an unfunded
securitization or a synthetic transaction.
(ii) Requirements applicable only to securitizations in which the
financial assets include any residential mortgage loans:
(A) The capital structure of the securitization shall be limited to
no more than six credit tranches and cannot include ``sub-tranches,''
grantor trusts or other structures. Notwithstanding the foregoing, the
most senior credit tranche may include time-based sequential pay or
planned amortization and companion sub-tranches; and
(B) The credit quality of the obligations cannot be enhanced at the
issuing entity or pool level through external credit support or
guarantees. However, the credit quality of the obligations may be
enhanced by credit support or guarantees provided by Specified GSEs and
the temporary payment of principal and/or interest may be supported by
liquidity facilities, including facilities designed to permit the
temporary payment of interest following appointment of the FDIC as
conservator or receiver. Individual financial assets transferred into a
securitization may be guaranteed, insured or otherwise benefit from
credit support at the loan level through mortgage and similar insurance
or guarantees, including by private companies, agencies or other
governmental entities, or government-sponsored enterprises, and/or
through co-signers or other guarantees.
(2) Disclosures. The documents shall require that the sponsor,
issuing entity, and/or servicer, as appropriate, shall make available to
investors, information describing the financial assets, obligations,
capital structure, compensation of relevant parties, and relevant
historical performance data set forth in paragraph (b)(2) of this
section.
(i) Requirements applicable to all securitizations:
(A) The documents shall require that, on or prior to issuance of
obligations and at the time of delivery of any periodic distribution
report and, in any event, at least once per calendar quarter, while
obligations are outstanding, information about the obligations and the
securitized financial assets shall be disclosed to all potential
investors at the financial asset or pool level, as appropriate for the
financial assets, and security-level to enable evaluation and analysis
of the credit risk and performance of the obligations and financial
assets. The documents shall require that such information and its
disclosure, at a minimum, shall comply with the requirements of
Securities and Exchange Commission Regulation AB, 17 CFR 229.1100
through 1123 (to the extent then in effect) or any successor disclosure
requirements for public issuances, even if the obligations are issued in
a private placement or are not otherwise required to be registered.
Information that is unknown or not available to the sponsor or the
issuer after reasonable investigation may be omitted if the issuer
includes a statement in the offering documents disclosing that the
specific information is otherwise unavailable;
(B) The documents shall require that, on or prior to issuance of
obligations, the structure of the securitization and the credit and
payment performance of the obligations shall be disclosed, including the
capital or tranche structure, the priority of payments and specific
subordination features; representations and warranties made with respect
to the financial assets, the remedies for and the time permitted for
cure of any breach of representations and warranties, including the
repurchase of financial assets, if applicable; liquidity facilities and
any credit enhancements permitted by this rule, any waterfall triggers
or priority of payment reversal features; and policies governing
delinquencies, servicer advances, loss mitigation, and write-offs of
financial assets;
[[Page 168]]
(C) The documents shall require that while obligations are
outstanding, the issuing entity shall provide to investors information
with respect to the credit performance of the obligations and the
financial assets, including periodic and cumulative financial asset
performance data, delinquency and modification data for the financial
assets, substitutions and removal of financial assets, servicer
advances, as well as losses that were allocated to such tranche and
remaining balance of financial assets supporting such tranche, if
applicable, and the percentage of each tranche in relation to the
securitization as a whole; and
(D) In connection with the issuance of obligations, the documents
shall require that the nature and amount of compensation paid to the
originator, sponsor, rating agency or third-party advisor, any mortgage
or other broker, and the servicer(s), and the extent to which any risk
of loss on the underlying assets is retained by any of them for such
securitization be disclosed. The securitization documents shall require
the issuer to provide to investors while obligations are outstanding any
changes to such information and the amount and nature of payments of any
deferred compensation or similar arrangements to any of the parties.
(ii) Requirements applicable only to securitizations in which the
financial assets include any residential mortgage loans:
(A) Prior to issuance of obligations, sponsors shall disclose loan
level information about the financial assets including, but not limited
to, loan type, loan structure (for example, fixed or adjustable, resets,
interest rate caps, balloon payments, etc.), maturity, interest rate
and/or Annual Percentage Rate, and location of property; and
(B) Prior to issuance of obligations, sponsors shall affirm
compliance in all material respects with applicable statutory and
regulatory standards for origination of mortgage loans, including that
the mortgages are underwritten at the fully indexed rate relying on
documented income, and comply with supervisory guidance governing the
underwriting of residential mortgages, including the Interagency
Guidance on Non-Traditional Mortgage Products, October 5, 2006, and the
Interagency Statement on Subprime Mortgage Lending, July 10, 2007, and
such other or additional guidance applicable at the time of loan
origination. Sponsors shall disclose a third party due diligence report
on compliance with such standards and the representations and warranties
made with respect to the financial assets; and
(C) The documents shall require that prior to issuance of
obligations and while obligations are outstanding, servicers shall
disclose any ownership interest by the servicer or an affiliate of the
servicer in other whole loans secured by the same real property that
secures a loan included in the financial asset pool. The ownership of an
obligation, as defined in this regulation, shall not constitute an
ownership interest requiring disclosure.
(3) Documentation and recordkeeping. The documents creating the
securitization must specify the respective contractual rights and
responsibilities of all parties and include the requirements described
in paragraph (b)(3) of this section and use as appropriate any available
standardized documentation for each different asset class.
(i) Requirements applicable to all securitizations. The documents
shall define the contractual rights and responsibilities of the parties,
including but not limited to representations and warranties and ongoing
disclosure requirements, and any measures to avoid conflicts of
interest; and provide authority for the parties, including but not
limited to the originator, sponsor, servicer, and investors, to fulfill
their respective duties and exercise their rights under the contracts
and clearly distinguish between any multiple roles performed by any
party.
(ii) Requirements applicable only to securitizations in which the
financial assets include any residential mortgage loans:
(A) Servicing and other agreements must provide servicers with
authority, subject to contractual oversight by any master servicer or
oversight advisor, if any, to mitigate losses on financial assets
consistent with maximizing the net present value of the financial asset.
Servicers shall have the authority to
[[Page 169]]
modify assets to address reasonably foreseeable default, and to take
other action to maximize the value and minimize losses on the
securitized financial assets. The documents shall require that the
servicers apply industry best practices for asset management and
servicing. The documents shall require the servicer to act for the
benefit of all investors, and not for the benefit of any particular
class of investors, that the servicer maintain records of its actions to
permit full review by the trustee or other representative of the
investors and that the servicer must commence action to mitigate losses
no later than ninety (90) days after an asset first becomes delinquent
unless all delinquencies have been cured, provided that this requirement
shall not be deemed to require that the documents include any provision
concerning loss mitigation that requires any action that may conflict
with the requirements of Regulation X (12 CFR part 1024), as Regulation
X may be amended or modified from time to time.
(B) The servicing agreement shall not require a primary servicer to
advance delinquent payments of principal and interest for more than
three payment periods, unless financing or reimbursement facilities are
available, which may include, but are not limited to, the obligations of
the master servicer or issuing entity to fund or reimburse the primary
servicer, or alternative reimbursement facilities. Such ``financing or
reimbursement facilities'' under this paragraph shall not be dependent
for repayment on foreclosure proceeds.
(4) Compensation. The following requirements apply only to
securitizations in which the financial assets include any residential
mortgage loans. Compensation to parties involved in the securitization
of such financial assets must be structured to provide incentives for
sustainable credit and the long-term performance of the financial assets
and securitization as follows:
(i) The documents shall require that any fees or other compensation
for services payable to credit rating agencies or similar third-party
evaluation companies shall be payable, in part, over the five (5) year
period after the first issuance of the obligations based on the
performance of surveillance services and the performance of the
financial assets, with no more than sixty (60) percent of the total
estimated compensation due at closing; and
(ii) The documents shall provide that compensation to servicers
shall include incentives for servicing, including payment for loan
restructuring or other loss mitigation activities, which maximizes the
net present value of the financial assets. Such incentives may include
payments for specific services, and actual expenses, to maximize the net
present value or a structure of incentive fees to maximize the net
present value, or any combination of the foregoing that provides such
incentives.
(5) Origination and retention requirements--(i) Requirements
applicable to all securitizations. (A) Prior to the applicable
compliance date for regulations required under Section 15G of the
Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the
documents creating the securitization shall require that the sponsor
retain an economic interest in a material portion, defined as not less
than five (5) percent, of the credit risk of the financial assets. This
retained interest may be either in the form of an interest of not less
than five (5) percent in each of the credit tranches sold or transferred
to the investors or in a representative sample of the securitized
financial assets equal to not less than five (5) percent of the
principal amount of the financial assets at transfer. This retained
interest may not be sold, pledged or hedged, except for the hedging of
interest rate or currency risk, during the term of the securitization.
(B) For any securitization that closes upon or following the
applicable compliance date for regulations required under Section 15G of
the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section
941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act,
the documents creating the securitization shall instead require
retention of an economic interest in the credit risk of the financial
assets in
[[Page 170]]
accordance with such regulations, including the restrictions on sale,
pledging and hedging set forth therein.
(C) Notwithstanding paragraph (b)(5)(i)(A) of this section, for any
securitization that closes following ________ November 24, 2015 and
prior to the applicable compliance date for regulations required under
Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., added
by Section 941(b) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, at the option of the sponsor, the requirements of
paragraph (b)(5)(i)(B) of this section may be satisfied if (in lieu of
the requirement set forth in paragraph (b)(5)(i)(A) of this section) the
documents creating the securitization require retention of an economic
interest in the credit risk of the financial assets in accordance with
the requirements of the Section 15G regulations as though such
regulations were then in effect.
(ii) Requirements applicable only to securitizations in which the
financial assets include any residential mortgage loans:
(A) The documents shall require the establishment of a reserve fund
equal to at least five (5) percent of the cash proceeds of the
securitization payable to the sponsor to cover the repurchase of any
financial assets required for breach of representations and warranties.
The balance of such fund, if any, shall be released to the sponsor one
year after the date of issuance.
(B) The documents shall include a representation that the assets
shall have been originated in all material respects in compliance with
statutory, regulatory, and originator underwriting standards in effect
at the time of origination. The documents shall include a representation
that the mortgages included in the securitization were underwritten at
the fully indexed rate, based upon the borrowers' ability to repay the
mortgage according to its terms, and rely on documented income and
comply with all existing supervisory guidance governing the underwriting
of residential mortgages, including the Interagency Guidance on Non-
Traditional Mortgage Products, October 5, 2006, and the Interagency
Statement on Subprime Mortgage Lending, July 10, 2007, and such other or
additional regulations or guidance applicable to insured depository
institutions at the time of loan origination. Residential mortgages
originated prior to the issuance of such guidance shall meet all
supervisory guidance governing the underwriting of residential mortgages
then in effect at the time of loan origination.
(c) Other requirements. (1) The transaction should be an arms
length, bona fide securitization transaction. The documents shall
require that the obligations issued in a securitization shall not be
predominantly sold to an affiliate (other than a wholly-owned subsidiary
consolidated for accounting and capital purposes with the sponsor) or
insider of the sponsor;
(2) The securitization agreements are in writing, approved by the
board of directors of the bank or its loan committee (as reflected in
the minutes of a meeting of the board of directors or committee), and
have been, continuously, from the time of execution in the official
record of the bank;
(3) The securitization was entered into in the ordinary course of
business, not in contemplation of insolvency and with no intent to
hinder, delay or defraud the bank or its creditors;
(4) The transfer was made for adequate consideration;
(5) The transfer and/or security interest was properly perfected
under the UCC or applicable state law;
(6) The transfer and duties of the sponsor as transferor must be
evidenced in a separate agreement from its duties, if any, as servicer,
custodian, paying agent, credit support provider or in any capacity
other than the transferor; and
(7) The documents shall require that the sponsor separately identify
in its financial asset data bases the financial assets transferred into
any securitization and maintain an electronic or paper copy of the
closing documents for each securitization in a readily accessible form,
a current list of all of its outstanding securitizations and issuing
entities, and the most recent Form 10-K, if applicable, or other
periodic financial report for each securitization and issuing entity.
The
[[Page 171]]
documents shall provide that to the extent serving as servicer,
custodian or paying agent for the securitization, the sponsor shall not
comingle amounts received with respect to the financial assets with its
own assets except for the time, not to exceed two business days,
necessary to clear any payments received. The documents shall require
that the sponsor shall make these records readily available for review
by the FDIC promptly upon written request.
(d) Safe harbor--(1) Participations. With respect to transfers of
financial assets made in connection with participations, the FDIC as
conservator or receiver shall not, in the exercise of its statutory
authority to disaffirm or repudiate contracts, reclaim, recover, or
recharacterize as property of the institution or the receivership any
such transferred financial assets, provided that such transfer satisfies
the conditions for sale accounting treatment under generally accepted
accounting principles, except for the ``legal isolation'' condition that
is addressed by this section. The foregoing paragraph shall apply to a
last-in, first-out participation, provided that the transfer of a
portion of the financial asset satisfies the conditions for sale
accounting treatment under generally accepted accounting principles that
would have applied to such portion if it had met the definition of a
``participating interest,'' except for the ``legal isolation'' condition
that is addressed by this section.
(2) Transition period safe harbor. With respect to:
(i) Any participation or securitization for which transfers of
financial assets were made on or before December 31, 2010 or
(ii) Any obligations of revolving trusts or master trusts, for which
one or more obligations were issued as of the date of adoption of this
rule, or
(iii) Any obligations issued under open commitments up to the
maximum amount of such commitments as of the date of adoption of this
rule if one or more obligations were issued under such commitments on or
before December 31, 2010, the FDIC as conservator or receiver shall not,
in the exercise of its statutory authority to disaffirm or repudiate
contracts, reclaim, recover, or recharacterize as property of the
institution or the receivership the transferred financial assets
notwithstanding that the transfer of such financial assets does not
satisfy all conditions for sale accounting treatment under generally
accepted accounting principles as effective for reporting periods after
November 15, 2009, provided that such transfer satisfied the conditions
for sale accounting treatment under generally accepted accounting
principles in effect for reporting periods before November 15, 2009,
except for the ``legal isolation'' condition that is addressed by this
paragraph and the transaction otherwise satisfied the provisions of
Sec. 360.6 in effect prior to the effective date of this regulation.
(3) For securitizations meeting sale accounting requirements. With
respect to any securitization for which transfers of financial assets
were made after December 31, 2010, or from a master trust or revolving
trust established after adoption of this rule or from any open
commitments that do not meet the requirements of paragraph (d)(2) of
this section, and which complies with the requirements applicable to
that securitization as set forth in paragraphs (b) and (c) of this
section, the FDIC as conservator or receiver shall not, in the exercise
of its statutory authority to disaffirm or repudiate contracts, reclaim,
recover, or recharacterize as property of the institution or the
receivership such transferred financial assets, provided that such
transfer satisfies the conditions for sale accounting treatment under
generally accepted accounting principles in effect for reporting periods
after November 15, 2009, except for the ``legal isolation'' condition
that is addressed by this paragraph (d)(3).
(4) For securitization not meeting sale accounting requirements.
With respect to any securitization for which transfers of financial
assets were made after December 31, 2010, or from a master trust or
revolving trust established after adoption of this rule or from any open
commitments that do not meet the requirements of paragraph (d)(2) or
(d)(3) of this section, and which complies with the requirements
applicable to
[[Page 172]]
that securitization as set forth in paragraphs (b) and (c) of this
section, but where the transfer does not satisfy the conditions for sale
accounting treatment set forth by generally accepted accounting
principles in effect for reporting periods after November 15, 2009:
(i) Monetary default. If at any time after appointment, the FDIC as
conservator or receiver is in a monetary default under a securitization
due to its failure to pay or apply collections from the financial assets
received by it in accordance with the securitization documents, whether
as servicer or otherwise, and remains in monetary default for ten (10)
business days after actual delivery of a written notice to the FDIC
pursuant to paragraph (f) of this section requesting the exercise of
contractual rights because of such monetary default, the FDIC hereby
consents pursuant to 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C. 1825(b)(2)
to the exercise of any contractual rights in accordance with the
documents governing such securitization, including but not limited to
taking possession of the financial assets and exercising self-help
remedies as a secured creditor under the transfer agreements, provided
no involvement of the receiver or conservator is required other than
such consents, waivers, or execution of transfer documents as may be
reasonably requested in the ordinary course of business in order to
facilitate the exercise of such contractual rights. Such consent shall
not waive or otherwise deprive the FDIC or its assignees of any seller's
interest or other obligation or interest issued by the issuing entity
and held by the FDIC or its assignees, but shall serve as full
satisfaction of the obligations of the insured depository institution in
conservatorship or receivership and the FDIC as conservator or receiver
for all amounts due.
(ii) Repudiation. If the FDIC as conservator or receiver provides a
written notice of repudiation of the securitization agreement pursuant
to which the financial assets were transferred, and the FDIC does not
pay damages, defined in this paragraph, within ten (10) business days
following the effective date of the notice, the FDIC hereby consents
pursuant to 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C. 1825(b)(2) to the
exercise of any contractual rights in accordance with the documents
governing such securitization, including but not limited to taking
possession of the financial assets and exercising self-help remedies as
a secured creditor under the transfer agreements, provided no
involvement of the receiver or conservator is required other than such
consents, waivers, or execution of transfer documents as may be
reasonably requested in the ordinary course of business in order to
facilitate the exercise of such contractual rights. For purposes of this
paragraph, the damages due shall be in an amount equal to the par value
of the obligations outstanding on the date of appointment of the
conservator or receiver, less any payments of principal received by the
investors through the date of repudiation, plus unpaid, accrued interest
through the date of repudiation in accordance with the contract
documents to the extent actually received through payments on the
financial assets received through the date of repudiation. Upon payment
of such repudiation damages, all liens or claims on the financial assets
created pursuant to the securitization documents shall be released. Such
consent shall not waive or otherwise deprive the FDIC or its assignees
of any seller's interest or other obligation or interest issued by the
issuing entity and held by the FDIC or its assignees, but shall serve as
full satisfaction of the obligations of the insured depository
institution in conservatorship or receivership and the FDIC as
conservator or receiver for all amounts due.
(iii) Effect of repudiation. If the FDIC repudiates or disaffirms a
securitization agreement, it shall not assert that any interest payments
made to investors in accordance with the securitization documents before
any such repudiation or disaffirmance remain the property of the
conservatorship or receivership.
(e) Consent to certain actions. Prior to repudiation or, in the case
of a monetary default referred to in paragraph (d)(4)(i) of this
section, prior to the effectiveness of the consent referred to therein,
the FDIC as conservator or receiver consents pursuant to 12 U.S.C.
1821(e)(13)(C) to the making of, or if
[[Page 173]]
serving as servicer, shall make, the payments to the investors to the
extent actually received through payments on the financial assets (but
in the case of repudiation, only to the extent supported by payments on
the financial assets received through the date of the giving of notice
of repudiation) in accordance with the securitization documents, and,
subject to the FDIC's rights to repudiate such agreements, consents to
any servicing activity required in furtherance of the securitization or,
if acting as servicer the FDIC as receiver or conservator shall perform
such servicing activities in accordance with the terms of the applicable
servicing agreements, with respect to the financial assets included in
securitizations that meet the requirements applicable to that
securitization as set forth in paragraphs (b) and (c) of this section.
(f) Notice for consent. Any party requesting the FDIC's consent as
conservator or receiver under 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C.
1825(b)(2) pursuant to paragraph (d)(4)(i) of this section shall provide
notice to the Deputy Director, Division of Resolutions and
Receiverships, Federal Deposit Insurance Corporation, 550 17th Street,
NW., F-7076, Washington, DC 20429-0002, and a statement of the basis
upon which such request is made, and copies of all documentation
supporting such request, including without limitation a copy of the
applicable agreements and of any applicable notices under the contract.
(g) Contemporaneous requirement. The FDIC will not seek to avoid an
otherwise legally enforceable agreement that is executed by an insured
depository institution in connection with a securitization or in the
form of a participation solely because the agreement does not meet the
``contemporaneous'' requirement of 12 U.S.C. 1821(d)(9), 1821(n)(4)(I),
or 1823(e).
(h) Limitations. The consents set forth in this section do not act
to waive or relinquish any rights granted to the FDIC in any capacity,
pursuant to any other applicable law or any agreement or contract except
as specifically set forth herein. Nothing contained in this section
alters the claims priority of the securitized obligations.
(i) No waiver. Except as specifically set forth herein, this section
does not authorize, and shall not be construed as authorizing the waiver
of the prohibitions in 12 U.S.C. 1825(b)(2) against levy, attachment,
garnishment, foreclosure, or sale of property of the FDIC, nor does it
authorize nor shall it be construed as authorizing the attachment of any
involuntary lien upon the property of the FDIC. Nor shall this section
be construed as waiving, limiting or otherwise affecting the rights or
powers of the FDIC to take any action or to exercise any power not
specifically mentioned, including but not limited to any rights, powers
or remedies of the FDIC regarding transfers or other conveyances taken
in contemplation of the institution's insolvency or with the intent to
hinder, delay or defraud the institution or the creditors of such
institution, or that is a fraudulent transfer under applicable law.
(j) No assignment. The right to consent under 12 U.S.C.
1821(e)(13)(C) or 12 U.S.C. 1825(b)(2), may not be assigned or
transferred to any purchaser of property from the FDIC, other than to a
conservator or bridge bank.
(k) Repeal. This section may be repealed by the FDIC upon 30 days
notice provided in the Federal Register, but any repeal shall not apply
to any issuance made in accordance with this section before such repeal.
[75 FR 60297, Sept. 30, 2010, as amended at 80 FR 73089, Nov. 24, 2015;
81 FR 41423, June 27, 2016]
Sec. 360.7 Post-insolvency interest.
(a) Purpose and scope. This section establishes rules governing the
calculation and distribution of post-insolvency interest to creditors
with proven claims in all FDIC-administered receiverships established
after June 13, 2002.
(b) Definitions--(1) Equityholder. The owner of an equity interest
in a failed depository institution, whether such ownership is
represented by stock, membership in a mutual association, or otherwise.
(2) Post-insolvency interest. Interest calculated from the date the
receivership is established on proven creditor claims in receiverships
with surplus funds.
[[Page 174]]
(3) Post-insolvency interest rate. For any calendar quarter, the
coupon equivalent yield of the average discount rate set on the three-
month Treasury bill at the last auction held by the United States
Treasury Department during the preceding calendar quarter, and adjusted
each quarter thereafter.
(4) Principal amount. The proven claim amount and any interest
accrued thereon as of the date the receivership is established.
(5) Proven claim. A claim that is allowed by a receiver or upon
which a final non-appealable judgment has been entered in favor of a
claimant against a receivership by a court with jurisdiction to
adjudicate the claim.
(c) Post-insolvency interest distributions. (1) Post-insolvency
interest shall only be distributed following satisfaction by the
receiver of the principal amount of all creditor claims.
(2) The receiver shall distribute post-insolvency interest at the
post-insolvency interest rate prior to making any distribution to
equityholders. Post-insolvency interest distributions shall be made in
the order of priority set forth in section 11(d)(11)(A) of the Federal
Deposit Insurance Act, 12 U.S.C. 1821(d)(11)(A).
(3) Post-insolvency interest distributions shall be made at such
time as the receiver determines that such distributions are appropriate
and only to the extent of funds available in the receivership estate.
Post-insolvency interest shall be calculated on the outstanding balance
of a proven claim, as reduced from time to time by any interim dividend
distributions, from the date the receivership is established until the
principal amount of a proven claim has been fully distributed but not
thereafter. Post-insolvency interest shall be calculated on a contingent
claim from the date such claim becomes proven.
(4) Post-insolvency interest shall be determined using a simple
interest method of calculation.
[67 FR 34386, May 14, 2002]
Sec. 360.8 Method for determining deposit and other liability
account balances at a failed insured depository institution.
(a) Purpose. The purpose of this section is to describe the process
the FDIC will use to determine deposit and other liability account
balances for insurance coverage and receivership purposes at a failed
insured depository institution.
(b) Definitions. (1) The FDIC Cutoff Point means the point in time
the FDIC establishes after it has been appointed receiver of a failed
insured depository institution and takes control of the failed
institution.
(2) The Applicable Cutoff Time for a specific type of deposit
account transaction means the earlier of either the failed institution's
normal cutoff time for that specific type of transaction or the FDIC
Cutoff Point.
(3) Close-of-Business Account Balance means the closing end-of-day
ledger balance of a deposit or other liability account on the day of
failure of an insured depository institution determined by using the
Applicable Cutoff Times. This balance may be adjusted to reflect steps
taken by the receiver to ensure that funds are not received by or
removed from the institution after the FDIC Cutoff Point.
(4) A sweep account is an account held pursuant to a contract
between an insured depository institution and its customer involving the
pre-arranged, automated transfer of funds from a deposit account to
either another account or investment vehicle located within the
depository institution (internal sweep account), or an investment
vehicle located outside the depository institution (external sweep
account).
(c) Principles. (1) In making deposit insurance determinations and
in determining the value and nature of claims against the receivership
on the institution's date of failure, the FDIC, as insurer and receiver,
will treat deposits and other liabilities of the failed institution
according to the ownership and nature of the underlying obligations
based on end-of-day ledger balances for each account using, except as
expressly provided otherwise in this section, the
[[Page 175]]
depository institution's normal posting procedures.
(2) In its role as receiver of a failed insured depository
institution, in order to ensure the proper distribution of the failed
institution's assets under the FDI Act (12 U.S.C. 1821(d)(11)) as of the
FDIC Cutoff Point, the FDIC will use its best efforts to take all steps
necessary to stop the generation, via transactions or transfers coming
from or going outside the institution, of new liabilities or
extinguishing existing liabilities for the depository institution.
(3) End-of-day ledger balances are subject to corrections for posted
transactions that are inconsistent with the above principles.
(d) Determining closing day balances. (1) In determining account
balances for insurance coverage and receivership purposes at a failed
insured depository institution, the FDIC will use Close-of-Business
Account Balances.
(2) A check posted to the Close-of-Business Account Balance but not
collected by the depository institution will be included as part of the
balance, subject to the correction of errors and omissions and
adjustments for uncollectible items that the FDIC may make in its role
as receiver of the failed depository institution.
(3) In determining Close-of-Business Account Balances involving
sweep accounts:
(i) For internal sweep accounts, the FDIC will determine the
ownership of the funds and the nature of the receivership claim based on
the records established and maintained by the institution for that
specific account or investment vehicle as of the closing day end-of-day
ledger balance. (For example, if a sweep account entails the daily
transfer of funds from a demand deposit account to a Eurodollar account
at a foreign branch of the insured depository institution, if the
institution should fail on that day, the FDIC would treat the funds
swept to the Eurodollar account, as reflected on the institution's end-
of-day records, as an unsecured general creditor's claim against the
receivership.);
(ii) For external sweep accounts, the FDIC will treat swept funds
consistent with their status in the end-of-day ledger balances of the
depository institution and the external entity, as long as the transfer
of funds is completed prior to the Applicable Cutoff Time. (For example,
if funds held in connection with a money market sweep account are wired
from a customer's deposit account at the insured depository institution
to the mutual fund prior to the Applicable Cutoff Time, if the
institution should fail on that day, the FDIC would recognize that sweep
transaction as completed for claims and receivership purposes.);
(iii) For repurchase agreement sweep accounts, where, as a result of
the sweep transaction, the customer becomes either the legal owner of
identified assets subject to repurchase or obtains a perfected security
interest in those assets, the FDIC will recognize, for receivership
purposes, the customer's ownership interest or security interest in the
assets.
(4) For deposit insurance and receivership purposes in connection
with the failure of an insured depository institution, the FDIC will
determine the rights of the depositor or other liability holder as of
the point the Close-of-Business Account Balance is calculated.
(e) Disclosure requirements. Beginning July 1, 2009, in all new
sweep account contracts, in renewals of existing sweep account contracts
and within sixty days after July 1, 2009, and no less than annually
thereafter, institutions must prominently disclose in writing to sweep
account customers whether their swept funds are deposits within the
meaning of 12 U.S.C. 1813(l). If the funds are not deposits, the
institution must further disclose the status such funds would have if
the institution failed--for example, general creditor status or secured
creditor status. Such disclosures must be consistent with how the
institution reports such funds on its quarterly Consolidated Reports of
Condition and Income or Thrift Financial Reports. The disclosure
requirements imposed under this provision do not apply to sweep accounts
where: The transfers are within a single account, or a sub-account; or
the sweep account involves only deposit-to-deposit sweeps, such as zero-
balance accounts, unless the sweep results in a
[[Page 176]]
change in the customer's insurance coverage.
[74 FR 5806, Feb. 2, 2009]
Sec. 360.9 Large-bank deposit insurance determination modernization.
(a) Purpose and scope. This section is intended to allow the deposit
and other operations of a large insured depository institution (defined
as a ``Covered Institution'') to continue functioning on the day
following failure. It also is intended to permit the FDIC to fulfill its
legal mandates regarding the resolution of failed insured institutions
to provide liquidity to depositors promptly, enhance market discipline,
ensure equitable treatment of depositors at different institutions and
reduce the FDIC's costs by preserving the franchise value of a failed
institution.
(b) Definitions. (1) A covered Institution means an insured
depository institution which, based on items as defined in Reports of
Income and Condition or Thrift Financial Reports filed with the
applicable federal regulator, has at least $2 billion in deposits and at
least either:
(i) 250,000 deposit accounts; or
(ii) $20 billion in total assets, regardless of the number of
deposit accounts.
(2) Deposits, number of deposit accounts and total assets are as
defined in the instructions for the filing of Reports of Income and
Condition and Thrift Financial Reports, as applicable to the insured
depository institution for determining whether it qualifies as a covered
institution. A foreign deposit means an uninsured deposit liability
maintained in a foreign branch of an insured depository institution. An
international banking facility deposit is as defined by the Board of
Governors of the Federal Reserve System in Regulation D (12 CFR Sec.
204.8(a)(2)). A demand deposit account, NOW account, money market
deposit account, savings deposit account and time deposit account are as
defined in the instructions for the filing of Reports of Income and
Condition and Thrift Financial Reports.
(3) Sweep account arrangements consist of a deposit account linked
to an interest-bearing investment vehicle whereby funds are swept to and
from the deposit account according to prearranged rules, usually on a
daily basis, where the sweep investment vehicle is not a deposit and is
reflected on the books and records of the Covered Institution.
(4) Automated credit account arrangements consist of a deposit
account into which funds are automatically credited from an interest-
bearing investment vehicle where the funds in the interest-bearing
investment vehicle were not invested by prearranged rules.
(5) Non-covered institution means an insured depository institution
that does not meet the definition of a covered institution.
(6) Provisional hold means an effective restriction on access to
some or all of a deposit or other liability account after the failure of
an insured depository institution.
(c) Posting and removing provisional holds. (1) A covered
institution shall have in place an automated process for implementing a
provisional hold on deposit accounts, foreign deposit accounts and sweep
and automated credit account arrangements immediately following the
determination of the close-of-business account balances, as defined in
Sec. 360.8(b)(3), at the failed covered institution.
(2) The system requirements under paragraph (c)(1) must have the
capability of placing the provisional holds prescribed under that
provision no later than 9 a.m. local time the day following the FDIC
cutoff point, as defined in Sec. 360.8(b)(1).
(3) Pursuant to instructions to be provided by the FDIC, a covered
institution must notify the FDIC of the person(s) responsible for
producing the standard data download and administering provisional
holds, both while the functionality is being constructed and on an on-
going basis.
(4) For deposit accounts held in domestic offices of an insured
depository institution, the provisional hold algorithm must be designed
to exempt accounts below a specific account balance threshold, as
determined by the FDIC. The account balance threshold could be any
amount, including zero. For accounts above the account balance threshold
determined by the FDIC, the algorithm must be designed to calculate and
place a hold equal to the dollar amount of funds in excess of
[[Page 177]]
the account balance threshold multiplied by the provisional hold
percentage determined by the FDIC. The provisional hold percentage could
be any amount, from zero to one hundred percent. The account balance
threshold as well as the provisional hold percentage could vary for the
following four categories, as the covered institution customarily
defines consumer accounts:
(i) Consumer demand deposit, NOW and money market deposit accounts;
(ii) Other consumer deposit accounts (time deposit and savings
accounts, excluding NOW and money market deposit accounts);
(iii) Non-consumer demand deposit, NOW and money market deposit
accounts; and
(iv) Other non-consumer deposit accounts (time deposit and savings
accounts, excluding NOW and money market deposit accounts).
(5) For deposit accounts held in foreign offices of an insured
depository institution, other than those connected to a sweep or
automated credit arrangement, the provisional hold algorithm will apply
a provisional hold percentage to the entire account balance. For deposit
accounts held in foreign offices the provisional hold percentage may
differ from that applied to deposit accounts. Also, the provisional hold
percentage would not vary by account category (i.e., consumer versus
non-consumer and transaction versus non-transaction) as is the case with
deposit accounts.
(6) For international banking facility deposits, other than those
connected to a sweep or automated credit arrangements, the provisional
hold algorithm will apply a provisional hold percentage to the entire
account balance. For IBF deposits the provisional hold percentage may
differ from that applied to deposit or foreign deposit accounts. Also,
the provisional hold percentage would not vary by account category
(i.e., consumer versus non-consumer, and transaction versus non-
transaction) as is the case with deposit accounts.
(7) For the interest-bearing investment vehicle of a sweep
arrangement, the provisional hold algorithm must be designed with the
capability to place a provisional hold on the interest-bearing
investment vehicle with possibly a different account balance threshold
and a different hold percentage according to the type of interest-
bearing investment vehicle.
(8) For the interest-bearing investment vehicle of an automated
credit account arrangement, the provisional hold algorithm must be
designed with the capability to place a provisional hold on the
interest-bearing investment vehicle with possibly a different account
balance threshold and a different hold percentage according to the type
of interest-bearing investment vehicle.
(9) A covered institution may submit a request to the FDIC, using
the address indicated in Sec. 360.9(g): to develop a provisional hold
process involving memo holds or alternative account mechanisms; or to
exempt from the provisional hold requirements of this section those
account systems servicing a relatively small number of accounts where
the manual application of provisional holds is feasible. Such requests
may be in the form of a letter and must include a justification for the
request and address the relative effectiveness of the alternative for
posting provisional holds in the event of failure. The FDIC will
consider such requests on a case-by-case basis in light of the
objectives of this section.
(10) The automated process for provisional holds required by
paragraph (c)(1) of this section must include the capability of removing
provisional holds in batch mode and, during the same processing cycle,
applying debits, credits or additional holds on the deposit or other
accounts from which the provisional holds were removed, as determined by
the FDIC. The FDIC will provide files listing the accounts subject to:
removal of provisional holds or additional holds (file format as
specified in appendix A); application of debits or credits (file format
as specified in appendix B); and application of additional holds (file
format as specified in appendix A). In addition to the batch process
used to remove provisional holds, the Covered Institution is required to
have in place a mechanism for manual removal of provisional holds on a
case-by-case basis.
[[Page 178]]
(d) Providing a standard data format for generating deposit account
and customer data. (1) A covered institution must have in place
practices and procedures for providing the FDIC in a standard format
upon the close of any day's business with required depositor and
customer data for all deposit accounts held in domestic and foreign
offices and interest-bearing investment accounts connected with sweep
and automated credit arrangements. Such standard data files are to be
created through a mapping of pre-existing data elements and internal
institution codes into standard data formats. Deposit account and
customer data provided must be current as of the close of business for
that day.
(2) The requirements of paragraph (d)(1) of this section shall be
provided in five separate files, as indicated in the appendices C
through G to this part 360.
(3) Upon request by the FDIC, a covered institution must submit the
data required by paragraph (d)(1) of this section to the FDIC, in a
manner prescribed by the FDIC.
(4) In providing the data required under paragraph (d)(1) of this
section to the FDIC, the Covered Institution must be able to reconcile
the total deposit balances and the number of deposit accounts to the
institution's subsidiary system control totals.
(e) Implementation requirements. (1) A covered institution must
comply with the requirements of this section no later than February 18,
2010.
(2) An insured depository institution not within the definition of a
covered institution on the effective date of this section must comply
with the requirements of this section no later than eighteen months
following the end of the second calendar quarter for which it meets the
criteria for a covered institution.
(3) Upon the merger of two or more non-covered institutions, if the
resulting institution meets the criteria for a covered institution, that
covered institution must comply with the requirements of this section no
later than eighteen months after the effective date of the merger.
(4) Upon the merger of two or more covered institutions, the merged
institution must comply with the requirements of this section within
eighteen months following the effective date of the merger. This
provision, however, does not supplant any preexisting implementation
date requirement, in place prior to the date of the merger, for the
individual covered institution(s) involved in the merger.
(5) Upon the merger of one or more covered institutions with one or
more non-covered institutions, the merged institution(s) must comply
with the requirements of this section within eighteen months following
the effective date of the merger. This provision, however, does not
supplant any preexisting implementation date requirement for the
individual covered institution(s) involved in the merger.
(6) Notwithstanding the general requirements of this paragraph (e),
on a case-by-case basis, the FDIC may accelerate, upon notice, the
implementation timeframe of all or part of the requirements of this
section for a covered institution that: Has a composite rating of 3, 4,
or 5 under the Uniform Financial Institution's Rating System, or in the
case of an insured branch of a foreign bank, an equivalent rating; is
undercapitalized, as defined under the prompt corrective action
provisions of 12 CFR part 324; or is determined by the appropriate
Federal banking agency or the FDIC in consultation with the appropriate
Federal banking agency to be experiencing a significant deterioration of
capital or significant funding difficulties or liquidity stress,
notwithstanding the composite rating of the institution by its
appropriate Federal banking agency in its most recent report of
examination. In implementing this paragraph (e)(6), the FDIC must
consult with the covered institution's primary federal regulator and
consider the: Complexity of the institution's deposit systems and
operations, extent of the institution's asset quality difficulties,
volatility of the institution's funding sources, expected near-term
changes in the institution's capital levels, and other relevant factors
appropriate for the FDIC to consider in its roles as insurer and
possible receiver of the institution.
[[Page 179]]
(7) Notwithstanding the general requirements of this paragraph (e),
a covered institution may request, by letter, that the FDIC extend the
deadline for complying with the requirements of this section. A request
for such an extension is subject to the FDIC's rules of general
applicability under 12 CFR. 303.251.
(f) A covered institution may apply to the FDIC for an exemption
from the requirements of this Sec. 360.9 if it has a high concentration
of deposits incidental to credit card operations. The FDIC will consider
such applications on a case-by-case basis in light of the objectives of
this section.
(g) Requests for exemptions from the requirements of this section,
for flexibility in the use of provisional holds or for extensions of the
implementation requirements of this section and the submission of point-
of-contact information should be submitted in writing to: Office of the
Director, Division of Resolutions and Receiverships, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429-0002.
(h) Testing requirements. Covered institutions must provide
appropriate assistance to the FDIC in its testing of the systems
required by this section. The FDIC will provide testing details to
covered institutions through the issuance of subsequent procedures and/
or guidelines.
[73 FR 41195, July 17, 2008, as amended at 78 FR 55595, Sept. 10, 2013;
83 FR 17741, Apr. 24, 2018]
Sec. 360.10 Resolution plans required for insured depository
institutions with $50 billion or more in total assets.
(a) Scope and purpose. This section requires each insured depository
institution with $50 billion or more in total assets to submit
periodically to the FDIC a plan for the resolution of such institution
in the event of its failure. This section also establishes the rules and
requirements regarding the submission and content of a resolution plan
as well as procedures for review by the FDIC of a resolution plan. This
section requires a covered insured depository institution to submit a
resolution plan that should enable the FDIC, as receiver, to resolve the
institution under Sections 11 and 13 of the Federal Deposit Insurance
Act (``FDI Act''), 12 U.S.C. 1821 and 1823, in a manner that ensures
that depositors receive access to their insured deposits within one
business day of the institution's failure (two business days if the
failure occurs on a day other than Friday), maximizes the net present
value return from the sale or disposition of its assets and minimizes
the amount of any loss realized by the creditors in the resolution. This
rule is intended to ensure that the FDIC has access to all of the
material information it needs to resolve efficiently a covered insured
depository institution in the event of its failure.
(b) Definitions--(1) Affiliate has the same meaning given such term
in Section 3(w)(6) of the FDI Act, 12 U.S.C. 1813(w)(6).
(2) Company has the same meaning given such term in Sec. 362.2(d)
of the FDIC's Regulations, 12 CFR 362.2(d).
(3) Core business lines means those business lines of the covered
insured depository institution (``CIDI''), including associated
operations, services, functions and support, that, in the view of the
CIDI, upon failure would result in a material loss of revenue, profit,
or franchise value.
(4) Covered insured depository institution (``CIDI'') means an
insured depository institution with $50 billion or more in total assets,
as determined based upon the average of the institution's four most
recent Reports of Condition and Income or Thrift Financial Reports, as
applicable to the insured depository institution.
(5) Critical services means services and operations of the CIDI,
such as servicing, information technology support and operations, human
resources and personnel that are necessary to continue the day-to-day
operations of the CIDI.
(6) Foreign-based company means any company that is not incorporated
or organized under the laws of the United States.
(7) Insured depository institution shall have the meaning given such
term in Section 3(c)(2) of the FDI Act, 12 U.S.C. 1813(c)(2).
(8) Material entity means a company that is significant to the
activities of a critical service or core business line.
[[Page 180]]
(9) Parent company means the company that controls, directly or
indirectly, an insured depository institution. In a multi-tiered holding
company structure, parent company means the top-tier of the multi-tiered
holding company only.
(10) Parent company affiliate means any affiliate of the parent
company other than the CIDI and subsidiaries of the CIDI.
(11) Resolution plan means the plan described in paragraph (c) of
this section for resolving the CIDI under Sections 11 and 13 of the FDI
Act, 12 U.S.C. 1821 and 1823.
(12) Subsidiary has the same meaning given such term in Section
3(w)(4) of the FDI Act, 12 U.S.C. 1813(w)(4).
(13) Total assets are defined in the instructions for the filing of
Reports of Condition and Income and Thrift Financial Reports, as
applicable to the insured depository institution, for determining
whether it qualifies as a CIDI.
(14) 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.
(c) Resolution Plans to be submitted by CIDI to FDIC--(1) General.
(i) Initial Resolution Plans Required. Each CIDI shall submit a
resolution plan to the FDIC, Attention: Office of Complex Financial
Institutions, 550 17th Street NW., Washington, DC 20429, on or before
the date set forth below (``Initial Submission Date''):
(A) July 1, 2012, with respect to a CIDI whose parent company, as of
November 30, 2011, had $250 billion or more in total nonbank assets (or
in the case of a parent company that is a foreign-based company, such
company's total U.S. nonbank assets);
(B) July 1, 2013, with respect to any CIDI not described paragraph
(c)(1)(i)(A) of this section whose parent company, as of November 30,
2011, had $100 billion or more in total nonbank assets (or, in the case
of a parent company that is a foreign-based company, such company's
total U.S. nonbank assets); and
(C) December 31, 2013, with respect to any CIDI not described in of
this paragraph (c)(1)(i)(A) or (B) of this section.
(ii) Submission by New CIDIs. An insured depository institution that
becomes a CIDI after April 1, 2012 shall submit its initial resolution
plan no later than the next July 1 following the date the insured
depository institution becomes a CIDI, provided such date occurs no
earlier than 270 days after the date on which the insured depository
institution became a CIDI.
(iii) After filing its initial Resolution Plan pursuant to paragraph
(c)(1)(i) or (c)(1)(ii) of this section, each CIDI shall submit a
Resolution Plan to the FDIC annually on or before each anniversary date
of its Initial Submission Date.
(iv) Notwithstanding anything to the contrary in this paragraph
(c)(1), the FDIC may determine that a CIDI shall file its initial or
annual Resolution Plan by a date other than as provided in this
paragraph (c). The FDIC shall provide a CIDI with written notice of a
determination under this paragraph (c)(1)(iv) no later than 180 days
prior to the date on which the FDIC determines to require the CIDI to
submit its Resolution Plan.
(v) Notice of Material Events. (A) Each CIDI shall file with the
FDIC 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 CIDI. Such notice shall describe the event, occurrence or change
and explain why the event, occurrence or change may require changes to
the resolution plan. The CIDI shall address any event, occurrence or
change with respect to which it has provided notice pursuant hereto in
the following resolution plan submitted by the CIDI.
(B) A CIDI shall not be required to file a notice under paragraph
(c)(1)(v)(A) of this section if the date on which the CIDI would be
required to submit a notice under paragraph (c)(1)(v)(A) would be within
90 days prior to the date on which the CIDI is required to file an
annual Resolution Plan under paragraph (c)(1)(iii) of this section.
[[Page 181]]
(vi) Incorporation of data and other information from a Dodd-Frank
Act resolution plan. The CIDI may incorporate data and other information
from a resolution plan filed pursuant to Section 165(d) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 5365(d),
by its parent company.
(2) Content of the Resolution Plan. The resolution plan submitted
should enable the FDIC, as receiver, to resolve the CIDI in the event of
its insolvency under the FDI Act in a manner that ensures that
depositors receive access to their insured deposits within one business
day of the institution's failure (two business days if the failure
occurs on a day other than Friday), maximizes the net present value
return from the sale or disposition of its assets and minimizes the
amount of any loss realized by the creditors in the resolution in
accordance with Sections 11 and 13 of the FDI Act, 12 U.S.C. 1821 and
1823. The resolution plan strategies should take into account that
failure of the CIDI may occur under the baseline, adverse and severely
adverse economic conditions developed by the Board of Governors of the
Federal Reserve System pursuant to 12 U.S.C. 5365(i)(1)(B); provided,
however, a CIDI 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 CIDI. At a minimum,
the resolution plan shall:
(i) Executive Summary. Include an executive summary describing the
key elements of the CIDI's strategic plan for resolution under the FDI
Act in the event of its insolvency. After the CIDI files its initial
plan, each annual resolution plan shall also describe:
(A) Material events, such as acquisitions, sales, litigation and
operational changes, since the most recently filed plan that may have a
material effect on the plan;
(B) Material changes to the CIDI's resolution plan from its most
recently filed plan; and
(C) Any actions taken by the CIDI since filing of the previous plan
to improve the effectiveness of its resolution plan or remediate or
otherwise mitigate any material weaknesses or impediments to the
effective and timely execution of the resolution plan.
(ii) Organizational Structure: Legal Entities; Core Business Lines
and Branches. Provide the CIDI's, parent company's, and affiliates'
legal and functional structures and identify core business lines.
Provide a mapping of core business lines, including material asset
holdings and liabilities related thereto, to material entities. Discuss
the CIDI's overall deposit activities including, among other things,
unique aspects of the deposit base or underlying systems that may create
operational complexity for the FDIC, result in extraordinary resolution
expenses in the event of failure and a description of the branch
organization, both domestic and foreign. Identify key personnel tasked
with managing core business lines and deposit activities and the CIDI's
branch organization.
(iii) Critical Services. Identify critical services and providers of
critical services. Provide a mapping of critical services to material
entities and core business lines. Describe the CIDI's strategy for
continuing critical services in the event of the CIDI's failure. When
critical services are provided by the parent company or a parent company
affiliate, describe the CIDI's strategy for continuing critical services
in the event of the parent company's or parent company affiliate's
failure. Assess the ability of each parent company affiliate providing
critical services to function on a stand-alone basis in the event of the
parent company's failure.
(iv) Interconnectedness to Parent Company's Organization; Potential
Barriers or Material Obstacles to Orderly Resolution. Identify the
elements or aspects of the parent company's organizational structure,
the interconnectedness of its legal entities, the structure of legal or
contractual arrangements, or its overall business operations that would,
in the event the CIDI were placed in receivership, diminish the CIDI's
franchise value, obstruct its continued business operations or increase
the operational complexity to the FDIC of resolution of the CIDI.
Identify potential barriers or other material obstacles to an orderly
resolution of the
[[Page 182]]
CIDI, inter-connections and inter-dependencies that hinder the timely
and effective resolution of the CIDI, and include the remediation steps
or mitigating responses necessary to eliminate or minimize such barriers
or obstacles.
(v) Strategy to Separate from Parent Company's Organization. Provide
a strategy to unwind or separate the CIDI and its subsidiaries from the
organizational structure of its parent company in a cost-effective and
timely fashion. Describe remediation or mitigating steps that could be
taken to eliminate or mitigate obstacles to such separation.
(vi) Strategy for the Sale or Disposition of Deposit Franchise,
Business Lines and Assets. Provide a strategy for the sale or
disposition of the deposit franchise, including branches, core business
lines and major assets of the CIDI in a manner that ensures that
depositors receive access to their insured deposits within one business
day of the institution's failure (two business days if the failure
occurs on a day other than Friday), maximizes the net present value
return from the sale or disposition of such assets and minimizes the
amount of any loss realized in the resolution of cases.
(vii) Least Costly Resolution Method. Describe how the strategies
for the separation of the CIDI and its subsidiaries from its parent
company's organization and sale or disposition of deposit franchise,
core business lines and major assets can be demonstrated to be the least
costly to the Deposit Insurance Fund of all possible methods for
resolving the CIDI.
(viii) Asset Valuation and Sales. Provide a detailed description of
the processes the CIDI employs for:
(A) Determining the current market values and marketability of core
business lines and material asset holdings;
(B) Assessing the feasibility of the CIDI's plans, under baseline,
adverse and severely adverse economic condition scenarios for executing
any sales, divestitures, restructurings, recapitalizations, or similar
actions contemplated in the CIDI's resolution plan; and
(C) Assessing the impact of any sales, divestitures, restructurings,
recapitalizations, or other similar actions on the value, funding and
operations of the CIDI and its core business lines.
(ix) Major Counterparties. Identify the major counterparties of the
CIDI and describe the interconnections, interdependencies and
relationships with such major counterparties. 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 CIDI.
(x) Off-balance-sheet Exposures. Describe any material off-balance-
sheet exposures (including unfunded commitments, guarantees and
contractual obligations) of the CIDI and map those exposures to core
business lines.
(xi) Collateral Pledged. Identify and describe processes used by the
CIDI to:
(A) Determine to whom the CIDI has pledged collateral;
(B) Identify the person or entity that holds such collateral; and
(C) 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 CIDI.
(xii) Trading, derivatives and hedges. Describe the practices of the
CIDI and its core business lines related to the booking of trading and
derivative activities. Identify each system on which the CIDI conducts a
material number or value amount of trades. Map each trading system to
the CIDI's legal entities and core business lines. Identify material
hedges of the CIDI and its core business lines related to trading and
derivative activities, including a mapping to legal entity. Describe
hedging strategies of the CIDI.
(xiii) Unconsolidated Balance Sheet of CIDI; Material Entity
Financial Statements. Provide an unconsolidated balance sheet for the
CIDI and a consolidating schedule for all material entities that are
subject to consolidation with the CIDI. Provide financial statements for
material entities. When available, audited financial statements should
be provided.
(xiv) Payment, clearing and settlement systems. Identify each
payment, clearing and settlement system of which the
[[Page 183]]
CIDI, directly or indirectly, is a member. Map membership in each such
system to the CIDI's legal entities and core business lines.
(xv) Capital Structure; Funding Sources. Provide detailed
descriptions of the funding, liquidity and capital needs of, and
resources available to, the CIDI and its material entities, which shall
be mapped to core business lines and critical services. Describe the
material components of the liabilities of the CIDI and its material
entities and identify types and amounts of short-term and long-term
liabilities by type and term to maturity, secured and unsecured
liabilities and subordinated liabilities.
(xvi) Affiliate Funding, Transactions, Accounts, Exposures and
Concentrations. Describe material affiliate funding relationships,
accounts, and exposures, including terms, purpose, and duration, that
the CIDI or any of its subsidiaries have with its parent or any parent
company affiliate. Include in such description material affiliate
financial exposures, claims or liens, lending or borrowing lines and
relationships, guaranties, asset accounts, deposits, or derivatives
transactions. Clearly identify the nature and extent to which parent
company or parent company affiliates serve as a source of funding to the
CIDI and its subsidiaries, the terms of any contractual arrangements,
including any capital maintenance agreements, the location of related
assets, funds or deposits and the mechanisms by which funds can be
downstreamed from the parent company to the CIDI and its subsidiaries.
(xvii) Systemically Important Functions. Describe systemically
important functions that the CIDI, its subsidiaries and affiliates
provide, including the nature and extent of the institution's
involvement in payment systems, custodial or clearing operations, large
sweep programs, and capital markets operations in which it plays a
dominant role. Discuss critical vulnerabilities, estimated exposure and
potential losses, and why certain attributes of the businesses detailed
in previous sections could pose a systemic risk to the broader economy.
(xviii) Cross-Border Elements. Describe material components of the
CIDI's structure that are based or located outside the United States,
including foreign branches, subsidiaries and offices. Provide detail on
the location and amount of foreign deposits and assets. Discuss the
nature and extent of the CIDI's cross-border assets, operations,
interrelationships and exposures and map to legal entities and core
business lines.
(xix) Management Information Systems; Software Licenses;
Intellectual Property. Provide 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 CIDI and its subsidiaries.
Identify the legal owner or licensor of the systems identified above;
describe the use and function of the system or application, and provide
a listing of service level agreements and any software and systems
licenses or associated intellectual property related thereto. Identify
and discuss any disaster recovery or other backup plans. Identify common
or shared facilities and systems as well as personnel necessary to
operate such facilities and systems. Describe the capabilities of the
CIDI's processes and systems to collect, maintain, and report the
information and other data underlying the resolution plan to management
of the CIDI and, upon request to the FDIC. Describe any deficiencies,
gaps or weaknesses in such capabilities and the actions the CIDI intends
to take to promptly address such deficiencies, gaps, or weaknesses, and
the time frame for implementing such actions.
(xx) Corporate Governance. Include a detailed description of:
(A) How resolution planning is integrated into the corporate
governance structure and processes of the CIDI;
(B) The CIDI's policies, procedures, and internal controls governing
preparation and approval of the resolution plan; and
(C) The identity and position of the senior management official of
the CIDI who is primarily responsible and accountable for the
development, maintenance, implementation, and filing of the resolution
plan and for the CIDI's compliance with this section.
[[Page 184]]
(xxi) Assessment of the Resolution Plan. Describe the nature,
extent, and results of any contingency planning or similar exercise
conducted by the CIDI since the date of the most recently filed
resolution plan to assess the viability of or improve the resolution
plan.
(xxii) Any other material factor. Identify and discuss any other
material factor that may impede the resolution of the CIDI.
(3) Approval. The CIDI's board of directors must approve the
resolution plan. Such approval shall be noted in the Board minutes.
(4) Review of Resolution Plan.
(i) Each resolution plan submitted shall be credible. A resolution
plan is credible if its strategies for resolving the CIDI, and the
detailed information required by this section, are well-founded and
based on information and data related to the CIDI that are observable or
otherwise verifiable and employ reasonable projections from current and
historical conditions within the broader financial markets.
(ii) After receiving a resolution plan, the FDIC shall determine
whether the submitted plan satisfies the minimum informational
requirements of paragraph (c)(2) of this section; and either acknowledge
acceptance of the plan for review or return the resolution plan if the
FDIC determines that it is incomplete or that substantial additional
information is required to facilitate review of the resolution plan.
(iii) If the FDIC determines that a resolution plan is
informationally incomplete or that additional information is necessary
to facilitate review of the plan, the FDIC shall inform the CIDI in
writing of the area(s) in which the plan is informationally incomplete
or with respect to which additional information is required.
(iv) The CIDI shall resubmit an informationally complete resolution
plan or such additional information as requested to facilitate review of
the resolution plan no later than 30 days after receiving the notice
described in paragraph (c)(4)(iii) of this section, or such other time
period as the FDIC may determine.
(v) Upon acceptance of a resolution plan as informationally
complete, the FDIC will review the resolution plan in consultation with
the appropriate Federal banking agency for the CIDI and its parent
company. If, after consultation with the appropriate Federal banking
agency for the CIDI, the FDIC determines that the resolution plan of a
CIDI submitted is not credible, the FDIC shall notify the CIDI in
writing of such determination. Any notice provided under this paragraph
shall identify the aspects of the resolution plan that the FDIC
determines to be deficient.
(vi) Within 90 days of receiving a notice of deficiencies issued
pursuant to the preceding paragraph, or such shorter or longer period as
the FDIC may determine, a CIDI shall submit a revised resolution plan to
the FDIC that addresses the deficiencies identified by the FDIC and
discusses in detail the revisions made to address such deficiencies.
(vii) Upon its own initiative or a written request by a CIDI, the
FDIC may extend any time period under this section. Each extension
request shall be in writing and shall describe the basis and
justification for the request.
(d) Implementation Matters. (1) In order to allow evaluation of the
resolution plan, each CIDI must provide the FDIC such information and
access to such personnel of the CIDI as the FDIC determines is necessary
to assess the credibility of the resolution plan and the ability of the
CIDI to implement the resolution plan. The FDIC will rely to the fullest
extent possible on examinations conducted by or on behalf of the
appropriate Federal banking agency for the relevant company.
(2) Within a reasonable period of time, as determined by the FDIC,
following its Initial Submission Date, the CIDI shall demonstrate its
capability to produce promptly, in a time frame and format acceptable to
the FDIC, the information and data underlying its resolution plan. The
FDIC shall consult with the appropriate Federal banking agency for the
CIDI before finding that the CIDI's capability to produce the
information and data underlying its resolution plan is unacceptable.
(3) Notwithstanding the general requirements of paragraph (c)(1) of
this section, on a case-by-case basis, the
[[Page 185]]
FDIC may extend, on its own initiative or upon written request, the
implementation and updating time frames for all or part of the
requirements of this section.
(4) FDIC may, on its own initiative or upon written request, exempt
a CIDI from one or more of the requirements of this section.
(e) No limiting effect on FDIC. No resolution plan provided pursuant
to this section shall be binding on the FDIC as supervisor, deposit
insurer or receiver for a CIDI or otherwise require the FDIC to act in
conformance with such plan.
(f) Form of Resolution Plans; Confidential Treatment of Resolution
Plans. (1) Each resolution plan of a CIDI shall be divided into a Public
Section and a Confidential Section. Each CIDI 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 CIDI and includes, to
the extent material to an understanding of the CIDI:
(i) The names of material entities;
(ii) A description of core business lines;
(iii) Consolidated financial information regarding assets,
liabilities, capital and major funding sources;
(iv) A description of derivative activities and hedging activities;
(v) A list of memberships in material payment, clearing and
settlement systems;
(vi) A description of foreign operations;
(vii) The identities of material supervisory authorities;
(viii) The identities of the principal officers;
(ix) A description of the corporate governance structure and
processes related to resolution planning;
(x) A description of material management information systems; and
(xi) A description, at a high level, of the CIDI's resolution
strategy, covering such items as the range of potential purchasers of
the CIDI, its material entities and core business lines.
(2) The confidentiality of resolution plans shall be determined in
accordance with applicable exemptions under the Freedom of Information
Act (5 U.S.C. 552(b)) and the FDIC's Disclosure of Information Rules (12
CFR part 309).
(3) Any CIDI submitting a resolution plan or related materials
pursuant to this section that desires confidential treatment of the
information submitted pursuant to 5 U.S.C. 552(b)(4) and the FDIC's
Disclosure of Information Rules (12 CFR part 309) and related policies
may file a request for confidential treatment in accordance with those
rules.
(4) To the extent permitted by law, information comprising the
Confidential Section of a resolution plan will be treated as
confidential.
(5) To the extent permitted by law, the submission of any
nonpublicly available data or information under this section 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).
[77 FR 3084, Jan. 23, 2012]
Sec. 360.11 Records of failed insured depository institutions.
(a) Definitions. For purposes of this section, the following
definitions apply--
(1) Failed insured depository institution is an insured depository
institution for which the FDIC has been appointed receiver pursuant to
12 U.S.C. 1821(c)(1).
(2) Insured depository institution has the same meaning as provided
by 12 U.S.C. 1813(c)(2).
(3) Records means any reasonably accessible document, book, paper,
map, photograph, microfiche, microfilm, computer or electronically-
created record generated or maintained by an insured depository
institution in the course of and necessary to its transaction of
business.
(i) Examples of records include, without limitation, board or
committee meeting minutes, contracts to which the insured depository
institution was a party, deposit account information,
[[Page 186]]
employee and employee benefits information, general ledger and financial
reports or data, litigation files, and loan documents.
(ii) Records do not include:
(A) Multiple copies of records; or
(B) Examination, operating, or condition reports prepared by, on
behalf of, or for the use of the FDIC or any agency responsible for the
regulation or supervision of insured depository institutions.
(b) Determination of records. In determining whether particular
documentary material obtained from a failed insured depository
institution is a record for purposes of 12 U.S.C. 1821(d)(15)(D), the
FDIC in its discretion will consider the following factors:
(1) Whether the documentary material related to the business of the
insured depository institution,
(2) Whether the documentary material was generated or maintained as
records in the regular course of the business of the insured depository
institution in accordance with its own recordkeeping practices and
procedures or pursuant to standards established by its regulators,
(3) Whether the documentary material is needed by the FDIC to carry
out its receivership function, and
(4) The expected evidentiary needs of the FDIC.
(c) The FDIC's determination that documentary material from a failed
insured depository institution constitutes records is solely for the
purpose of identifying that documentary material that must be maintained
pursuant to 12 U.S.C. 1821(d)(15)(D) and shall not bear on the
discoverability or admissibility of such documentary material in any
court, tribunal or other adjudicative proceeding, nor on whether such
documentary material is subject to release under the Freedom of
Information Act, the Privacy Act or other law.
(d) Destruction of records. (1) Except as provided in paragraph
(d)(2) of this section, after the end of the six-year period beginning
on the date the FDIC is appointed as receiver of a failed insured
depository institution, the FDIC may destroy any records of an
institution which the FDIC, in its discretion, determines to be
unnecessary unless directed not to do so by a court of competent
jurisdiction or governmental agency, prohibited by law, or subject to a
legal hold imposed by the FDIC.
(2) Notwithstanding paragraph (d)(1) of this section, the FDIC may
destroy records of a failed insured depository institution which are at
least 10 years old as of the date on which the FDIC is appointed as the
receiver of such institution in accordance with paragraph (d)(1) of this
section at any time after such appointment is final, without regard to
the six-year period of limitation contained in paragraph (d)(1) of this
section.
(e) Transfer of records. If the FDIC transfers records to a third
party in connection with a transaction involving the purchase and
assumption of assets and liabilities of an insured depository
institution, the recordkeeping requirements of 12 U.S.C. 1821(d)(15)(D),
and paragraph (d) of this section shall be satisfied if the transferee
agrees that it will not destroy such records for at least six years from
the date the FDIC was appointed as receiver of such failed insured
depository institution unless otherwise notified in writing by the FDIC.
(f) Policies and procedures. The FDIC may establish policies and
procedures with respect to the retention and destruction of records that
are consistent with this section.
[78 FR 54376, Sept. 4, 2013]
Sec. Appendix A to Part 360--Non-Monetary Transaction File Structure
This is the structure of the data file the FDIC will provide to
remove or add a FDIC hold for an individual account or sub-account. The
file will be in a tab- or pipe-delimited ASCII format and provided
through FDICconnect or Direct Connect. The file will be encrypted using
an FDIC-supplied algorithm.
[[Page 187]]
----------------------------------------------------------------------------------------------------------------
Field name Field description Comments Format
----------------------------------------------------------------------------------------------------------------
1. DP_Acct_Identifier............... Account Identifier..... The Account Identifier Character (25).
The primary field used may be composed of
to identify the more than one
account. This field physical data
may be the Account element. If multiple
Number.. fields are required
to identify the
account, data should
be placed in separate
fields and the FDIC
instructed how these
fields are combined
to uniquely identify
the account.
2. DP_Acct_Identifier--2............ Account Identifier--2.. ...................... Character (25).
If necessary, the
second element used to
identify the account.
3. DP_Acct_Identifier--3............ Account Identifier--3.. ...................... Character (25).
If necessary, the third
element used to
identify the account.
4. DP_Acct_Identifier--4............ Account Identifier--4.. ...................... Character (25).
If necessary, the
fourth element used to
identify the account.
5. DP_Acct_Identifier--5............ Account Identifier--5.. ...................... Character (25).
If necessary, the fifth
element used to
identify the account.
6. DP_Sub_Acct_Identifier........... Sub-Account Identifier. The Sub-Account Character (25).
If available, the Sub- Identifier may
Account identifier for identify separate
the account.. deposits tied to this
account where there
are different
processing parameters
such as interest
rates or maturity
dates, but all owners
are the same.
7. PH_Hold_Action................... Hold Action............ ...................... Character (1).
The requested hold
action to be taken for
this account or sub-
account..
Possible values are:
R =
Remove.
A =
Add.
8. PH_Hold_Amt...................... Hold Amount............ ...................... Decimal (14,2).
Dollar amount of the
FDIC hold to be
removed or added.
9. PH_Hold_Desc..................... Hold Description....... ...................... Character (225).
FDIC hold to be removed
or added.
----------------------------------------------------------------------------------------------------------------
[73 FR 41197, July 17, 2008]
Sec. Appendix B to Part 360--Debit/Credit File Structure
This is the structure of the data file the FDIC will provide to
apply debits and credits to an individual account or sub-account after
the removal of FDIC holds. The file will be in a tab- or pipe-delimited
ASCII format and provided through FDICconnect or Direct Connect. The
file will be encrypted using an FDIC-supplied algorithm.
----------------------------------------------------------------------------------------------------------------
Field name Field description Comments Format
----------------------------------------------------------------------------------------------------------------
1. DP_Acct_Identifier............... Account Identifier..... The Account Identifier Character (25).
The primary field used may be composed of
to identify the more than one
account. This field physical data
may the Account element. If multiple
Number.. fields are required
to identify the
account, data should
be placed in separate
fields and the FDIC
instructed how these
fields are combined
to uniquely identify
the account.
2. DP_Acct_Identifier--2............ Account Identifier--2.. ...................... Character (25).
If necessary, the
second element used to
identify the account.
3. DP_Acct_Identifier--3............ Account Identifier--3.. ...................... Character (25).
If necessary, the third
element used to
identify the account.
4. DP_Acct_Identifier--4............ Account Identifier--4.. ...................... Character (25).
[[Page 188]]
If necessary, the
fourth element used to
identify the account.
5. DP_Acct_Identifier--5............ Account Identifier--5.. ...................... Character (25).
If necessary, the fifth
element used to
identify the account.
6. DP_Sub_Acct_Identifier........... Sub-Account Identifier. The Sub-Account Character (25).
If available, the sub- Identifier may
account identifier for identify separate
the account.. deposits tied to this
account where there
are different
processing parameters
such as interest
rates or maturity
dates, but all owners
are the same.
7. DC_Debit_Amt..................... Debit Amount........... ...................... Decimal (14,2).
Dollar amount of the
debit to be applied to
the account or sub-
account.
8. DC_Credit_Amt.................... Credit Amount.......... ...................... Decimal (14,2).
Dollar amount of the
credit to be applied
to the account or sub-
account.
9. DC_Transaction_Desc.............. Debit/Credit ...................... Character (225).
Description.
FDIC message associated
with the debit or
credit transaction.
----------------------------------------------------------------------------------------------------------------
[73 FR 41197, July 17, 2008]
Sec. Appendix C to Part 360--Deposit File Structure
This is the structure for the data file to provide deposit data to
the FDIC. If data or information are not maintained or do not apply, a
null value in the appropriate field should be indicated. The file will
be in a tab-or pipe-delimited ASCII format. Each file name will contain
the institution's FDIC Certificate Number, an indication that it is a
deposit file type and the date of the extract. The files will be
encrypted using an FDIC-supplied algorithm. The FDIC will transmit to
the covered institution the encryption algorithm over FDICconnect.
The total deposit balances and the number of deposit accounts in
each deposit file must be reconciled to the subsidiary system control
totals.
The FDIC intends to fully utilize a covered institution's
understanding of its customers and the data maintained around deposit
accounts. Should additional information be available to the covered
institution to help the FDIC more quickly complete its insurance
determination process, it may add this information to the end of this
data file. Should additional data elements be provided, a complete data
dictionary for these elements must be supplied along with a description
of how this information could be best used to establish account
ownership or insurance category.
The deposit data elements provide information specific to deposit
account balances and account data. The sequencing of these elements,
their physical data structures and the field data format and field
length must be provided to the FDIC along with the data structures
identified below.
A header record will also be required at the beginning of this file.
This record will contain the number of accounts to be included in this
file, the maximum number of characters contained in largest account
title field maintained within the deposit file and the maximum number of
characters contained in largest address field maintained within the
deposit file.
Note: Each record must contain the account title/name and current
account statement mailing address. Fields 17-33 relate to the account
name and address information. Some systems provide for separate fields
for account title/name, street address, city, state, ZIP, and country,
all of which are parsed out. Others systems may simply provide multiple
lines for name, street address, city, state, ZIP, with no distinction.
Populate fields that best fit the system's data, either fields 17-27 or
fields 28-33.
[[Page 189]]
----------------------------------------------------------------------------------------------------------------
Field name Field description Comments Format
----------------------------------------------------------------------------------------------------------------
1. DP_Acct_Identifier............... Account Identifier..... The Account Identifier Character (25).
The primary field used may be composed of
to identify the more than one
account. This field physical data
may be the Account element. If multiple
Number.. fields are required
to identify the
account, data should
be placed in separate
fields and the FDIC
instructed how these
fields are combined
to uniquely identify
the account.
2. DP_Acct_Identifier--2............ Account Identifier--2.. ...................... Character (25).
If necessary, the
second element used to
identify the account..
3. DP_Acct_Identifier--3............ Account Identifier--3.. ...................... Character (25).
If necessary, the third
element used to
identify the account..
4. DP_Acct_Identifier--4............ Account Identifier--4.. ...................... Character (25).
If necessary, the
fourth element used to
identify the account..
5. DP_Acct_Identifier--5............ Account Identifier--5.. ...................... Character (25).
If necessary, the fifth
element used to
identify the account..
6. DP_Sub_Acct_Identifier........... Sub-Account Identifier. The Sub-Account Character (25).
If available, the sub- Identifier may
account identifier for identify separate
the account.. deposits tied to this
account where there
are different
processing parameters
such as interest
rates or maturity
dates, but all owners
are the same.
7. DP_Bank_No....................... Bank Number............ ...................... Character (15).
The bank number
assigned to the
deposit account..
8. DP_Tax_ID........................ Tax ID................. For consumer accounts, Character (15).
The tax identification typically, this would
number maintained on be the primary
the account.. account holder's
social security
number (``SSN''). For
business accounts it
would be the federal
tax identification
number (``TIN'').
Hyphens are optional
in this field.
9. DP_Tax_Code...................... Tax ID Code............ Generally deposit Character (1).
The type of the tax systems have flags or
identification number. indicators set to
Possible values are:. indicate whether the
S = number is an SSN or
Social Security TIN.
Number..
T =
Federal Tax
Identification Number..
O =
Other..
10. DP_Branch....................... Branch Number.......... In lieu of a branch Character (15).
The branch or office number this field may
associated with the represent a specialty
account.. department or
division.
11. DP_Cost_Center.................. Cost Center or G/L Code This field ties to the Character (20).
The identifier used for general ledger
organization reporting accounts.
or ownership of the
account. Insert null
value if the cost
center is not carried
in the deposit record..
12. DP_Dep_Type..................... Deposit Type Indicator. A deposit--also called Character (1).
The type of deposit by a ``domestic
office location. deposit''--includes
Possible values are:. only deposit
D = liabilities payable
Deposit (Domestic).. in the United States,
F = typically those
Foreign Deposit.. deposits maintained
in a domestic office
of an insured
depository
institution, as
defined in section
3(l) of the Federal
Deposit Insurance Act
(12 U.S.C. 1813(l)).
A foreign deposit is
a deposit liability
in a foreign branch
payable solely at a
foreign branch or
branches.
13. DP_Currency_Type................ Currency Type.......... ...................... Character (3).
The ISO 4217 currency
code..
[[Page 190]]
14. DP_Ownership_Ind................ Customer Ownership Single: Accounts owned Character (2).
Indicator. by an individual and
The type of ownership those accounts held
at the account level. as Minor Accounts,
Possible values are:. Estate Accounts, Non-
S = Minor Custodian/
Single.. Guardian Accounts,
J = Attorney in Fact
Joint Account.. Accounts and Sole
P = Proprietorships.
Partnership account.. Joint Account:
C = Accounts owned by two
Corporation.. or more individuals,
B = but does not include
Brokered Deposits.. the ownership of a
I = Payable on Death
IRA Accounts.. Account or Trust
U = Account..
Unincorporated Partnership Account:
Association.. Accounts owned by a
R = Partnership.
Revocable Trust.. Corporation: Accounts
IR = owned by a
Irrevocable Trust.. Corporation (e.g.
G = Inc., L.L.C., or
Government Accounts.. P.C.)..
E = Brokered Deposits:
Employee Benefit Plan Accounts placed by a
Accounts.. deposit broker who
O = acts as an
Other.. intermediary for the
actual owner or sub-
broker..
IRA Accounts: Accounts
for which the owner
has the right to
direct how the funds
are invested
including Keoghs and
other Self-Directed
Retirement Accounts..
Unincorporated
Association: An
account owned by an
association of two or
more persons formed
for some religious,
educational,
charitable, social or
other non-commercial
purpose.
Revocable Trusts:
Including PODs and
formal revocable
trusts (e.g. Living
Trusts, Intervivos
Trusts or Family
Trusts).
Irrevocable Trusts:
Accounts held by a
trust established by
statute or written
trust in which the
grantor relinquishes
all power to revoke
the trust.
Government Accounts:
Accounts owned by a
government entity
(e.g. City, State,
County or Federal
government entities
and their sub-
divisions).
Employee Benefit Plan:
Accounts established
by the administrator
of an Employee
Benefit Plan
including defined
contribution, defined
benefit and employee
welfare plans.
Other Accounts:
Accounts owned by an
entity not described
above.
15. DP_Prod_Cat..................... Product Category....... Product Category is Character (3).
The product sometimes referred to
classification. as ``application
Possible values are:. type'' or ``system
type''.
DDA
= Non-Interest Bearing
Checking accounts.
NOW
= Interest Bearing
Checking accounts.
MMA
= Money Market Deposit
Accounts.
SAV
= Other savings
accounts.
[[Page 191]]
CDS
= Time Deposit
accounts and
Certificate of Deposit
accounts, including
any accounts with
specified maturity
dates that may or may
not be renewable.
16. DP_Stat_Code.................... Status Code............ Character (1).
Status or condition of
the account. Possible
values are:.
O =
Open.
D =
Dormant.
I =
Inactive.
E =
Escheatment.
A =
Abandoned.
C =
Closing.
R =
Restricted/Frozen/
Blocked.
17. DP_Acct_Title--1................ Account Title Line 1... These data will be Character (100).
Account styling or used to identify the
titling of the owners and
account.. beneficiaries of the
account.
18. DP_Acct_Title--2................ Account Title Line 2... ...................... Character (100).
If available, the
second account title
line..
19. DP_Acct_Title--3................ Account Title Line 3... ...................... Character (100).
If available, the third
account title line..
20. DP_Acct_Title--4................ Account Title Line 4... ...................... Character (100).
If available, the
fourth account title
line..
21. DP_Street_Add_Ln--1............. Street Address Line 1.. ...................... Character (100).
The current account
statement mailing
address of record..
22. DP_Street_Add_Ln--2............. Street Address Line 2.. ...................... Character (100).
If available, the
second mailing address
line..
23. DP_Street_Add_Ln--3............. Street Address Line 3.. ...................... Character (100).
If available, the third
mailing address line..
24. DP_City......................... City................... ...................... Character (50).
The city associated
with the mailing
address..
25. DP_State........................ State.................. Use a two-character Character (2).
The state abbreviation state code (official
associated with the U.S. Postal Service
mailing address.. abbreviations).
26. DP_ZIP.......................... ZIP.................... If the `` + 4'' code Character (10).
The ZIP + 4 code is not available
associated with the provide only the 5-
mailing address.. digit ZIP code.
Hyphens are optional
in this field.
27. DP_Country...................... Country................ Provide the country Character (10).
The country associated name or the standard
with the mailing IRS country code.
address..
28. DP_NA_Line--1................... Name/Address Line 1.... Fields 28-33 are to be Character (100).
Alternate name/address used if address data
format for the current are not parsed to
account statement populate Fields 17-
mailing address of 27.
record, first line..
29. DP_NA_Line--2................... Name/Address Line 2.... ...................... Character (100).
Alternate name/address
format, second line..
30. DP_NA_Line--3................... Name/Address Line 3.... ...................... Character (100).
Alternate name/address
format, third line..
31. DP_NA_Line--4................... Name/Address Line 4.... ...................... Character (100).
Alternate name/address
format, fourth line..
32. DP_NA_Line--5................... Name/Address Line 5.... ...................... Character (100).
Alternate name/address
format, fifth line..
33. DP_NA_Line--6................... Name/Address Line 6.... ...................... Character (100).
Alternate name/address
format, sixth line..
[[Page 192]]
34. DP_Cur_Bal...................... Current Balance........ This balance should Decimal (14,2).
The current balance in not be reduced by
the account at the end float or holds. For
of business on the CDs and time
effective date of this deposits, the balance
file.. should reflect the
principal balance
plus any interest
paid and available
for withdrawal not
already included in
the principal (do not
include accrued
interest). The total
of all current
balances in this file
should reconcile to
the total deposit
trial balance totals
or other summary
reconciliation of
deposits performed by
the institution.
35. DP_Int_Rate..................... Interest Rate.......... Interest rate should Decimal (10,9).
The current interest be expressed in
rate in effect for decimal format, i.e.,
interest bearing 2.0% should be
accounts.. represented as
0.020000000.
36. DP_Acc_Int...................... Accrued Interest....... ...................... Decimal (14,2).
The amount of interest
that has been earned
but not yet paid to
the account as of the
date of the file..
37. DP_Lst_Int_Pd................... Date Last Interest Paid ...................... Date (YYYYMMDD).
The date through which
interest was last paid
to the account..
38. DP_Lst_Deposit.................. Date Last Deposit...... For example, a deposit Date (YYYYMMDD).
The date of the last that included checks
deposit transaction and/or cash.
posted to the account..
39. DP_Int_Term_No.................. Interest Term Number... ...................... Decimal (3,0).
The number of months in
the current interest
term..
40. DP_Nxt_Mat...................... Date of Next Maturity.. For non-renewing CDs Date (YYYYMMDD).
For CD and time deposit that have matured and
accounts, the next are waiting to be
date the account is to redeemed this date
mature.. may be in the past.
41. DP_Open_DT...................... Account Open Date...... If the account had Date (YYYYMMDD).
The date the account previously been
was opened.. closed and re-opened,
this should reflect
the most recent re-
opened date.
42. DP_Sweep_Code................... Sweep Code............. ...................... Character (1).
Indicates if the
account is a sweep
account. Possible
values are:
Y =
Yes.
N =
No.
43. DP_Hold_To_Post................. Full Hold on the ...................... Character (1).
account: Indicator if
all postings to this
account are
restricted. Possible
values are:
Y =
Yes.
N =
No.
44. DP_Issue_Val_Amt................ Issued Value Amount.... For CDs only. Decimal (14,2).
The value of the
current CD when
issued..
45. DP_Int_CD_Cde................... Type of Interest for CD For CDs only. Character (1).
Possible values are:
C =
Rate Change Allowed.
N =
Rate Change Not
Allowed.
R =
Change Rate to Default
at Renewal.
T =
Rate Change Allowed
Only During the Term.
[[Page 193]]
46. DP_IRA_Cde...................... IRA Code............... Optional code field to Character (1).
The type of IRA. be used if available
Possible values are:. to help further
C = identify the types of
Corporate Retirement. IRA accounts.
E =
Educational IRA..
I =
IRA Account..
K =
Keogh Account..
R =
Roth IRA Account..
S =
SEP Account..
T =
Transitional Roth IRA..
V =
Versa Account..
H =
Health Savings
Account..
47. DP_Deposit_Class_Type........... Deposit Class Type..... The institution may Character (10).
The deposit class. also use more or
Possible values are:. fewer class types.
RTL
= Retail.
FED
= Federal government.
STATE = State
government.
COMM
= Commercial.
CORP
= Corporate.
BANK
= Bank Owned.
DUE
TO = Other Banks.
48. DP_Product_Class_Cde............ Deposit Class Codes.... These Product Class Character (2).
The deposit class codes are used in
codes. Possible values conjunction with the
are:. Deposit Class Types
RTL.................... in field 51. This
1 = field is to be used
Payable on Death.. in concert with
2 = fields 12 and 13
Individual.. identified above to
3 = enable the financial
Living Trust-- institution to
Intervivos or Family.. capture more detailed
4 = information
Irrevocable Trust concerning account
(includes Educational types. It is the
IRAs).. intent of the FDIC to
5 = have the financial
Estate.. institution map its
6 = detailed account
Attorney in Fact.. types to the codes
7 = identified in this
Minor--(includes all field. The
variations of Uniform institution may also
Gifts to Minor use additional codes,
Accounts).. but in this event the
8 = institution must
Bankruptcy Personal.. supply the detailed
9 = description and code
Pre-Need Burial.. value for each
10 = additional code used.
Escrow.. If no additional
11 = account product type
Representative Payee/ detail is available
Beneficiary.. then this field
12 = should be left blank.
Sole Proprietorship..
13 =
Joint..
14 =
Non-Minor Custodian/
Guardian..