[Federal Register Volume 73, Number 188 (Friday, September 26, 2008)]
[Rules and Regulations]
[Pages 55706-55708]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22702]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. 1332]


Risk-Based Capital Guidelines; Leverage Capital Guidelines

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule with request for public comment.

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SUMMARY: To reduce liquidity and other strains being experienced by 
money market mutual funds, the Federal Reserve System adopted on 
September 19, 2008, a special lending facility (ABCP Lending Facility) 
that enables depository institutions and bank holding companies to 
borrow from the Federal Reserve Bank of Boston on a nonrecourse basis 
if they use the proceeds of the loan to purchase certain types of 
asset-backed commercial paper (ABCP) from money market mutual funds. To 
facilitate this Federal Reserve lending program, the Board of Governors 
of the Federal Reserve System (Board) also has adopted, on an interim 
final basis, an exemption from its leverage and risk-based capital 
rules for ABCP held by a state member bank or bank holding company as a 
result of its participation in this program.

DATES: The interim final rule became effective on September 19, 2008. 
Comments must be received on or before October 31, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1332, by 
any of the following methods:
     Agency Web site: http://www.federalreserve.gov Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Street, NW) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Assistant 
General Counsel, (202) 452-2263, or Andrea R. Tokheim, Counsel, (202) 
452-2300, Legal Division; Barbara J. Bouchard, Associate Director, 
(202) 452-3072, or Juan C. Climent, Senior Supervisory Financial 
Analyst, (202) 872-7526, Division of Banking Supervision and 
Regulation. For the hearing impaired only, Telecommunication Device for 
the Deaf (TDD), (202) 263-4869.

SUPPLEMENTARY INFORMATION: In light of the ongoing dislocations in the 
financial markets, and the impact of such dislocations on the 
functioning of the markets for ABCP and on the operations of money 
market mutual funds, the Board adopted the ABCP Lending Facility on 
September 19, 2008. Under the ABCP Lending Facility, depository 
institutions and bank holding companies (banking organizations) are 
able to borrow from the Federal Reserve Bank of Boston on a nonrecourse 
basis on condition that the organizations use the proceeds of the 
Federal Reserve credit to purchase, at amortized cost, certain highly 
rated U.S. dollar-denominated ABCP from money market mutual funds. The 
ABCP purchased must be used to secure the borrowing from the Reserve 
Bank. The purpose of the ABCP Lending Facility is to assist money 
market mutual funds to obtain liquidity by enabling them to sell some 
of their high-credit-quality secured assets at amortized cost. The ABCP 
Lending Facility will expire on January

[[Page 55707]]

30, 2009 (unless further extended by the Board).
    Banking organizations that participate in the ABCP Lending Facility 
must acquire and hold ABCP on their balance sheet. These ABCP holdings 
attract leverage and risk-based capital charges under the Board's 
regulatory capital rules for state member banks and bank holding 
companies. To facilitate the ABCP Lending Facility, and for the reasons 
discussed below, the Board has adopted, on an interim final basis, an 
exemption from its leverage and risk-based capital rules for ABCP 
purchased by a state member bank or bank holding company as a result of 
its participation in the facility. Specifically, the interim final rule 
(i) amends the Board's risk-based capital rules for state member banks 
and bank holding companies to assign a zero percent risk weight to ABCP 
purchased by the banking organization as a result of its participation 
in the facility; and (ii) amends the Board's leverage capital rules for 
state member banks and bank holding companies to permit banking 
organizations to exclude from average total consolidated assets--the 
denominator of the leverage ratio--ABCP purchased by the banking 
organization as a result of its participation in the facility.
    The Board has determined that the current leverage and risk-based 
capital requirements for ABCP acquired by a banking organization 
pursuant to the ABCP Lending Facility do not reflect the substantial 
protections provided to the organization by the Federal Reserve in 
connection with the facility. Because of the non-recourse nature of the 
Federal Reserve's credit extension to the banking organization, the 
organization is not exposed to the credit or market risk of the ABCP 
purchased by the organization and pledged to the Federal Reserve. 
Therefore, the Board believes that it would be appropriate--and 
consistent with the economic substance of the transactions--not to 
impose regulatory capital requirements on the ABCP purchased by a 
banking organization in connection with its service as an intermediary 
in the ABCP Lending Facility.
    Consistent with its purpose to mitigate temporary stresses faced by 
U.S. money market mutual funds, the interim final rule will expire on 
January 30, 2009, unless extended by the Board.

Administrative Procedure Act

    Pursuant to sections 553(b) and (d) of the Administrative Procedure 
Act (5 U.S.C. 553(b) and (d)), the Board finds that there is good cause 
for making the rule effective immediately on September 19, 2008, and 
that it is impracticable, unnecessary, or contrary to the public 
interest to issue a notice of proposed rulemaking and provide an 
opportunity to comment before the effective date. The Board has adopted 
the rule in light of, and to help address, the continuing unusual and 
exigent circumstances in the financial markets. The rule will provide 
immediate regulatory capital relief to state member banks and bank 
holding companies that elect to participate in the Federal Reserve's 
ABCP lending program. The Board is soliciting comment on all aspects of 
the rule and will make such changes that they consider to be 
appropriate or necessary after review of any comments received.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
5 U.S.C. 605(b).
    Pursuant to section 605(b), the Board certifies that this interim 
final rule will not have a significant economic impact on a substantial 
number of small entities. The rule reduces regulatory burden on large 
and small state member banks and bank holding companies by granting an 
exemption from the leverage and risk-based capital rules for state 
member banks and bank holding companies that purchase ABCP from money 
market mutual funds pursuant to the Federal Reserve's ABCP lending 
program.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR Part 1320 Appendix A.1), the Board has reviewed the interim final 
rule under authority delegated to the Board by the Office of Management 
and Budget. The rule contains no collections of information pursuant to 
the Paperwork Reduction Act.

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Board to use 
``plain language'' in all proposed and final rules. In light of this 
requirement, the Board has sought to present the interim final rule in 
a simple and straightforward manner. The Board invites comment on 
whether it could take additional steps to make the rule easier to 
understand.

List of Subjects

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Authority and Issuance

0
For the reasons stated in the preamble, the Board of Governors of the 
Federal Reserve System amends parts 208 and 225 of chapter II of title 
12 of the Code of Federal Regulations as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
1. The authority citation for part 208 continues to read as follows:

    Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j), 
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1835a, 1882, 2901-2907, 
3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g), 
78l(i), 78o-4(c)(5), 78q, 78q-1, and 78w, 6801, and 6805; 31 U.S.C. 
5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.


0
2. In Appendix A to part 208, amend section III.C.1. by adding a new 
third paragraph to read as follows:

Appendix A to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Risk-Based Measure

* * * * *
    III. * * *
    C. * * *
    1. * * *
* * * * *
    This category also includes ABCP (i) purchased by a bank between 
September 19, 2008, and January 30, 2009 (unless extended by the 
Board), from an SEC-registered open-end investment company that 
holds itself out as a money market mutual fund under SEC Rule 2a-7 
(17 CFR 270.2a-7) and (ii) pledged by the bank to a Federal Reserve 
Bank to secure financing from the ABCP lending facility established 
by the Board on September 19, 2008.
* * * * *


0
3. In Appendix B to part 208, amend section II by adding a new 
paragraph h to read as follows:

[[Page 55708]]

Appendix B to Part 208--Capital Adequacy Guidelines for State Member 
Banks: Tier 1 Leverage Measure

* * * * *

II. * * *

    h. Notwithstanding anything in this appendix to the contrary, a 
bank may deduct from its average total consolidated assets the 
amount of any asset-backed commercial paper (i) purchased by the 
bank between September 19, 2008, and January 30, 2009 (unless 
extended by the Board), from an SEC-registered open-end investment 
company that holds itself out as a money market mutual fund under 
SEC Rule 2a-7 (17 CFR 270.2a-7) and (ii) pledged by the bank to a 
Federal Reserve Bank to secure financing from the ABCP lending 
facility established by the Board on September 19, 2008.

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
1. The authority citation for part 225 continues to read as follows:

    Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and 
3909; 15 U.S.C. 6801 and 6805.


0
2. In Appendix A to part 225, amend section III.C.1. by adding a new 
third paragraph to read as follows:

Appendix A to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Risk-Based Measure

* * * * *
    III. * * *
    C. * * *
    1. * * *
* * * * *
    This category also includes ABCP (i) purchased by a bank holding 
company between September 19, 2008, and January 30, 2009 (unless 
extended by the Board), from an SEC-registered open-end investment 
company that holds itself out as a money market mutual fund under 
SEC Rule 2a-7 (17 CFR 270.2a-7) and (ii) pledged by the bank holding 
company to a Federal Reserve Bank to secure financing from the ABCP 
lending facility established by the Board on September 19, 2008.
* * * * *


0
3. In Appendix D to part 225, amend section II by adding new paragraph 
d to read as follows:

Appendix D to Part 225--Capital Adequacy Guidelines for Bank Holding 
Companies: Tier 1 Leverage Measure

* * * * *

II. * * *

    d. Notwithstanding anything in this appendix to the contrary, a 
bank holding company may deduct from its average total consolidated 
assets the amount of any asset-backed commercial paper (i) purchased 
by the bank holding company between September 19, 2008, and January 
30, 2009 (unless extended by the Board), from an SEC-registered 
open-end investment company that holds itself out as a money market 
mutual fund under SEC Rule 2a-7 (17 CFR 270.2a-7) and (ii) pledged 
by the bank holding company to a Federal Reserve Bank to secure 
financing from the ABCP lending facility established by the Board on 
September 19, 2008.

    By order of the Board of Governors of the Federal Reserve 
System, September 19, 2008.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E8-22702 Filed 9-25-08; 8:45 am]
BILLING CODE 6210-01-P