[Federal Register Volume 74, Number 24 (Friday, February 6, 2009)]
[Rules and Regulations]
[Pages 6226-6228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2338]


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

FEDERAL RESERVE SYSTEM

12 CFR Part 223

[Regulation W; Docket No. R-1331]


Transactions Between Member Banks and Their Affiliates: Exemption 
for Certain Purchases of Asset-Backed Commercial Paper by a Member Bank 
From an Affiliate

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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

SUMMARY: To reduce liquidity and other strains being experienced by 
money market mutual funds, the Board of Governors of the Federal 
Reserve System (Board) adopted on September 19, 2008, the Asset-Backed 
Commercial Paper Money Market Mutual Fund Lending Facility (AMLF), that 
enables depository institutions and bank holding companies to borrow 
from the Federal Reserve Bank of Boston on a non-recourse 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 
use of the AMLF by member banks, the Board also has adopted regulatory 
exemptions for member banks from certain provisions of sections 23A and 
23B of the Federal Reserve Act and the Board's Regulation W. The 
exemptions increase the capacity of a member bank to purchase ABCP from 
affiliated money market mutual funds in connection with the AMLF.

DATES: Effective January 30, 2009.

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; or Norah M. Barger, Deputy Director, (202) 
452-2402, 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 ABCP markets 
and on the operations of money market mutual funds, the Board adopted 
the AMLF on September

[[Page 6227]]

19, 2008. Under the facility, depository institutions and bank holding 
companies (banking organizations) are able to borrow from the Federal 
Reserve Bank of Boston on a non-recourse 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 AMLF 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 AMLF, which was initially scheduled to 
expire on January 31, 2009, has been extended to April 30, 2009.\1\
---------------------------------------------------------------------------

    \1\ Board of Governors of the Federal Reserve System (2008), 
``Federal Reserve announces the extension of three liquidity 
facilities through April 30, 2009,'' press release, December 2, 
2008.
---------------------------------------------------------------------------

    To facilitate usage of the AMLF, on September 19, 2008, the Board 
adopted on an interim basis, and requested public comment on, 
exemptions from sections 23A and 23B of the Federal Reserve Act (12 
U.S.C. 371c, 371c-1) and the Board's Regulation W (12 CFR part 223).\2\ 
The exemptions were designed to increase the capacity of a member bank 
to purchase ABCP from an affiliated money market mutual fund in 
connection with the AMLF. Under the final rule, a member bank may use 
the exemptions only if the bank has not been specifically informed by 
the Board, after consultation with the bank's appropriate Federal 
banking agency, that the bank may not use these exemptions. If the 
Board believes, after such consultation, that use of the exemptions 
would not be appropriate for the member bank, the Board may withdraw 
the exemptions for the bank or may impose supplemental conditions on 
the bank's use of the exemptions.
---------------------------------------------------------------------------

    \2\ 73 FR 55708.
---------------------------------------------------------------------------

    After considering the comments, the Board has adopted a final rule 
that is largely identical to the interim final rule but includes minor 
changes to reflect the extended duration of the AMLF. The interim final 
rule provided that the exemptions applied only to purchases of ABCP 
from an affiliated 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) between September 19, 2008, and January 30, 2009. This 
timeframe coincided with the dates of the AMLF. In the final rule, the 
date range for eligible ABCP purchases has been eliminated, but the 
rule continues to provide that the exemptions are available only for 
purchases of ABCP where the ABCP is used to secure borrowing from the 
AMLF. As a result, the exemptions effectively will no longer be 
available once the AMLF expires.
    The Board has determined that these exemptions are in the public 
interest and consistent with the purposes of sections 23A and 23B. The 
substantial protections provided to intermediaries by the Federal 
Reserve in connection with the AMLF largely mitigate the safety-and-
soundness concerns that sections 23A and 23B were designed to address. 
Because Federal Reserve extensions of credit to a member bank under the 
AMLF are on a non-recourse basis, the bank should bear no risk of loss 
from purchases of ABCP under the facility. Therefore, the Board 
believes that it is appropriate to exempt a member bank that serves as 
an intermediary in the AMLF from the requirements of sections 23A and 
23B and Regulation W.

Administrative Procedure Act

    Pursuant to sections 553(d) of the Administrative Procedure Act (5 
U.S.C. 553(d)), the Board finds that there is good cause for making the 
rule effective immediately on January 30, 2009. 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 relief to depository institutions that elect to participate 
in the ABCP Lending Facility.

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 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 insured depository institutions by granting exemptions from 
the Federal transactions with affiliates regime for insured depository 
institutions that purchase ABCP from affiliated money market mutual 
funds pursuant to the AMLF.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR 1320 Appendix A.1), the Board has reviewed the 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 final rule in a simple 
and straightforward manner. The Board invited comment on whether it 
could take additional steps to make the rule easier to understand. The 
Board received no comments on this subject.

List of Subjects in 12 CFR Part 223

    Banks, Banking, Federal Reserve System.

Authority and Issuance

0
For the reasons set forth in the preamble, the Board amends Chapter II 
of Title 12 of the Code of Federal Regulations as follows:

PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES 
(REGULATION W)

0
1. The authority citation for part 223 continues to read as follows:

    Authority: 12 U.S.C. 371c and 371c-1.


0
2. In Sec.  223.42, revise paragraph (o) to read as follows:


Sec.  223.42  What covered transactions are exempt from the 
quantitative limits, collateral requirements, and low-quality asset 
prohibition?

* * * * *
    (o) Purchases of certain asset-backed commercial paper. Purchases 
of asset-backed commercial paper from an affiliated 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), if the member bank:
    (1) Purchases the asset-backed commercial paper on or after 
September 19, 2008;
    (2) Pledges the asset-backed commercial paper to a Federal Reserve 
Bank to secure financing from the asset-backed commercial paper lending 
facility (AMLF) established by the Board on September 19, 2008; and
    (3) Has not been specifically informed by the Board, after 
consultation with the member bank's appropriate Federal

[[Page 6228]]

banking agency, that the member bank may not use this exemption.

0
3. Revise Sec.  223.56 to read as follows:


Sec.  223.56  What transactions are exempt from the market-terms 
requirement of section 23B?

    The following transactions are exempt from the market-terms 
requirement of Sec.  223.51.
    (a) Purchases of certain asset-backed commercial paper. Purchases 
of asset-backed commercial paper from an affiliated 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), if the member bank:
    (1) Purchases the asset-backed commercial paper on or after 
September 19, 2008;
    (2) Pledges the asset-backed commercial paper to a Federal Reserve 
Bank to secure financing from the asset-backed commercial paper lending 
facility (AMLF) established by the Board on September 19, 2008; and
    (3) Has not been specifically informed by the Board, after 
consultation with the member bank's appropriate Federal banking agency, 
that the member bank may not use this exemption.
    (b) [Reserved].

    By order of the Board of Governors of the Federal Reserve 
System, January 30, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-2338 Filed 2-5-09; 8:45 am]
BILLING CODE 6210-01-P