[Federal Register Volume 76, Number 229 (Tuesday, November 29, 2011)]
[Proposed Rules]
[Pages 73526-73534]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30428]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 1, 5, 16, 28, and 160
[Docket No. OCC-2011-0019]
RIN 1557-AD36
Alternatives to the Use of External Credit Ratings in the
Regulations of the OCC
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: Section 939A of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) contains two directives to Federal
agencies including the OCC. First, section 939A directs all Federal
agencies to review, no later than one year after enactment, any
regulation that requires the use of an assessment of creditworthiness
of a security or money market instrument and any references to, or
requirements in, such regulations regarding credit ratings. Second, the
agencies are required to remove any references to, or requirements of
reliance on, credit ratings and substitute such standard of credit-
worthiness as each agency determines is appropriate. The statute
further provides that the agencies shall seek to establish, to the
extent feasible, uniform standards of creditworthiness, taking into
account the entities the agencies regulate and the purposes for which
those entities would rely on such standards.
Through this notice of proposed rulemaking (NPRM), the OCC seeks
comment on a proposal to revise its regulations pertaining to
investment securities, securities offerings, and foreign bank capital
equivalency deposits to replace references to credit ratings with
alternative standards of creditworthiness.
The OCC also is proposing to amend its regulations pertaining to
financial subsidiaries of national banks to better reflect the language
of the underlying statute, as amended by section 939(d) of the Dodd-
Frank Act.
DATES: Comments must be received by December 29, 2011.
ADDRESSES: Commenters are encouraged to use the title ``Alternatives to
the Use of Credit Ratings in the Regulations of the OCC'' to facilitate
the organization and review of comments. Because paper mail in the
Washington, DC area and at the OCC is subject to delay, commenters are
encouraged to submit comments by the Federal eRulemaking Portal or
email, if possible. Please use the title ``Alternatives to the Use of
Credit Ratings in the Regulations of the OCC'' to facilitate the
organization and review of the comments. You may submit comments by any
of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
http://www.regulations.gov, under the ``More Search Options'' tab click
next to the ``Advanced Docket Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2011-0019''
to submit or view public comments and to view supporting and related
materials for this proposed rule. The ``How to Use This Site'' link on
the Regulations.gov home page provides information on using
Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period.
Email: [email protected].
Mail: Office of the Comptroller of the Currency, 250 E
Street SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket Number OCC-2011-0019'' in your comment. In general, OCC will
enter all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this proposed rulemaking by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov, under the ``More Search Options'' tab click next
to the ``Advanced Document Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2011-0019''
to view public comments for this rulemaking action.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
FOR FURTHER INFORMATION CONTACT: Kerri Corn, Director for Market Risk,
Credit and Market Risk Division, (202) 874-4660; Carl Kaminski, Senior
Attorney, or Kevin Korzeniewski, Attorney, Legislative and Regulatory
Activities Division, (202) 874-5090; or Eugene H. Cantor, Counsel,
Securities and Corporate Practices Division, (202) 874-5210, Office of
the Comptroller of the Currency, 250 E Street SW., Washington, DC
20219.
SUPPLEMENTARY INFORMATION:
I. Background
Section 939A of the Dodd-Frank Wall Street Reform and Consumer
Protection Act \1\ (the Dodd-Frank Act) contains two directives to
Federal agencies including the OCC. First, section 939A directs all
Federal agencies to review, no later than one year after enactment, any
regulation that requires the use of an assessment of creditworthiness
of a security or money market instrument and any references to or
requirements in such regulations regarding credit ratings. Second, the
[[Page 73527]]
agencies are required to remove references to, or requirements of
reliance on, credit ratings and substitute such standard of
creditworthiness as each agency determines is appropriate. The statute
further provides that the agencies shall seek to establish, to the
extent feasible, uniform standards of creditworthiness, taking into
account the entities the agencies regulate and the purposes for which
those entities would rely on those standards.
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\1\ Public Law 111-203, Section 939A, 124 Stat. 1376, 1887 (July
21, 2010).
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This NPRM describes the areas where the regulations of the OCC,
other than those that establish regulatory capital requirements,
currently reference credit ratings; sets forth the considerations
underlying such reliance; and then requests comment on the alternatives
we propose to replace credit ratings in those provisions. In connection
with this NPRM, the OCC is simultaneously seeking comment on guidance
to help explain the due diligence national banks and Federal savings
associations should conduct in purchasing investment securities for
their investment portfolios and to reiterate supervisory expectations
for the securities the institution actually purchases. This proposed
guidance is published elsewhere in this issue of the Federal Register.
The regulations subject to this proposal generally require banks to
determine whether a particular security or issuance qualifies, or does
not qualify, for a specific treatment. For example, the OCC's
investment securities regulations generally require a bank to determine
whether or not a security is ``investment grade'' in order to determine
whether purchasing the security is permissible. By contrast, some
aspects of the OCC's risk-based capital regulations require a bank to
place exposures (for example, securitization exposures) into one of
several categories based on gradations of risk, which, in some cases
under the current rules, may be determined by reference to nationally
recognized statistical rating organizations (NRSROs) \2\ credit
ratings. This type of granular risk measurement requires fundamentally
different, more complex analyses than the analysis required to make the
binary--or ``yes/no''--determinations necessary for the rules subject
to this proposal. Separately, the OCC and the other Federal banking
agencies issued a joint advance notice of proposed rulemaking on the
agencies' use of credit ratings in risk-based capital frameworks,\3\
and we continue our efforts to explore the development of alternative
standards appropriate for those frameworks.
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\2\ A nationally recognized statistical rating organization
(NRSRO) is an entity registered with the U.S. Securities and
Exchange Commission (SEC) as an NRSRO under section 15E of the
Securities Exchange Act of 1934. See, 15 U.S.C. 78o-7, as
implemented by 17 CFR 240.17g-1.
\3\ 75 FR 53823 (Aug. 25, 2010).
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A. Non-Capital Regulations That Reference Credit Ratings Regulations
Applicable to National Banks and Federal Branches of Foreign Banks
The OCC's regulations on permissible investment securities,
securities offerings, and foreign bank capital equivalency deposits
each reference or rely on credit ratings issued by NRSROs. These
regulations are described below.
Investment Securities
The OCC's investment securities regulations at 12 CFR part 1 use
credit ratings as a factor for determining the credit quality,
marketability, and appropriate concentration levels of investment
securities purchased and held by national banks. Under the OCC rules,
an investment security must not be ``predominantly speculative in
nature.'' The OCC rules provide that an obligation is not
``predominantly speculative in nature'' if it is rated investment grade
or, if unrated, is the credit equivalent of investment grade.
``Investment grade,'' in turn, is defined as a security rated in one of
the four highest rating categories by two or more NRSROs (or one NRSRO
if the security has been rated by only one NRSRO).
Credit ratings also are used to determine marketability in the case
of a security that is offered and sold under the Securities and
Exchange Commission's (SEC) Rule 144A.\4\ Under part 1, a 144A security
is deemed to be marketable if it is rated investment grade or the
credit equivalent of investment grade. In addition, credit ratings are
used to determine concentration limits on certain investment
securities. For example, OCC rules limit holdings of so-called ``Type
IV'' securities of any one obligor that are rated in the third highest
investment grade rating categories to 25 percent of the bank's capital
and surplus.\5\ There is no concentration limit for small business-
related securities that are rated in the highest or second highest
investment grade categories.
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\4\ Rule 144A provides a safe harbor from the registration
requirements of the Securities Act of 1933 for certain private
resales of restricted securities to qualified institutional buyers.
The restricted securities that fall under this safe harbor are
generally referred to as 144A securities.
\5\ A Type IV investment security includes certain small
business related-securities, commercial mortgage-related securities,
or residential mortgage-related securities. See 12 CFR 1.2(m).
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Securities Offerings
Securities issued by national banks are not covered by the
registration provisions and SEC regulations governing other issuers'
securities under the Securities Act of 1933. However, the OCC has
adopted 12 CFR part 16 to require disclosures related to national bank-
issued securities. Part 16 includes references to ``investment grade''
ratings. For example, Sec. 16.6, which provides an optional
abbreviated registration system for debt securities that meet certain
criteria, requires that a security receive an investment grade credit
rating to qualify for the abbreviated registration system.
International Banking Activities
Under section 4(g) of the International Banking Act (IBA),\6\ each
foreign bank with a Federal branch or agency must establish and
maintain a capital equivalency deposit (CED) with a member bank located
in the state where the Federal branch or agency is located. The IBA
authorizes the OCC to prescribe regulations describing the types and
amounts of assets that qualify for inclusion in the CED, ``as necessary
or desirable for the maintenance of a sound financial condition, the
protection of depositors, creditors, and the public interest.'' \7\ At
12 CFR 28.15, OCC regulations set forth the types of assets eligible
for inclusion in a CED. Among these assets are certificates of deposit
that are payable in the United States and banker's acceptances,
provided that, in either case, the issuer or the instrument is rated
investment grade by an internationally recognized rating organization,
and neither the issuer nor the instrument is rated lower than
investment grade by any such rating organization that has rated the
issuer or the instrument.
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\6\ 12 U.S.C. 3102(g).
\7\ 12 U.S.C. 3102(g)(4).
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Regulations Applicable to Federal Savings Associations
Under Title III of the Dodd-Frank Act, on July 21, 2011, the
rulemaking authority of the Office of Thrift Supervision (OTS) for
Federal savings associations under the Home Owner's Loan Act
transferred to the OCC.\8\ To facilitate the OCC's enforcement and
administration of former OTS rules and to make appropriate changes to
these rules to reflect OCC supervision of Federal savings associations,
the OCC republished the OTS regulations, with
[[Page 73528]]
nomenclature and other technical changes, in the Code of Federal
Regulations at Chapter I, parts 100 through 197 (Republished
Regulations), effective on July 21, 2011.\9\
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\8\ For a more detailed description of the allocation of
jurisdiction over savings associations and savings and loan holding
companies affected by the Dodd-Frank Act, see 76 FR 48950 (August 9,
2011).
\9\ To make it easier for Federal savings associations to use
the republished rules, the OCC has preserved where possible the
OTS's numbering system by republishing these regulations with OCC
part numbers that correspond to the former OTS rules, specifically,
by changing the ``5'' to a ``1''. For example, 12 CFR part 560 was
republished as 12 CFR part 160.
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The lending and investment regulations for Federal savings
associations, now codified at 12 CFR part 160, use credit ratings as a
factor for determining the credit quality, liquidity, and
marketability. For example, under these rules, for a Federal savings
association to purchase an investment security, the security must be
``[r]ated in one of the four highest categories as to the portion of
the security in which the association is investing by a nationally
recognized investment rating service at its most recently published
rating before the date of purchase by the association.'' \10\
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\10\ 12 CFR 160.40(a)(2).
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In addition, lending regulations for all Federal savings
associations, now codified at 12 CFR part 160, subpart B, establish
appropriate concentration levels of investment securities purchased and
held by Federal savings associations. For example, Sec. 160.40 limits
holdings of corporate debt securities of any one issuer that are rated
in the third or fourth highest investment grade rating categories to 15
percent of the association's capital and surplus. For securities that
are rated in the highest or second highest investment grade categories,
that limit is 25 percent of the savings association's capital and
surplus.\11\
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\11\ A Federal savings association may invest up to 10 percent
of its capital and surplus in commercial paper rated in the highest
category by at least two NRSROs, and corporate debt securities rated
in one of the two highest categories by at least one NRSRO. This is
in addition to being able to invest another 15 percent of its
capital and surplus in these securities pursuant to its lending
authority. 12 CFR 160.93(d)(5).
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Credit ratings also are used to determine marketability in the case
of a security that is offered and sold pursuant to the SEC's Rule 144A.
As previously noted, a 144A security is generally deemed to be
marketable if it is rated investment grade.
B. Advance Notices of Proposed Rulemaking
On August 13, 2010, the OCC published an advance notice of proposed
rulemaking (ANPR) that identified the references to credit ratings in
its regulations at 12 CFR parts 1, 16, and 28 and requested comment on
alternative creditworthiness standards.\12\ On October 14, 2010, the
OTS published a similar ANPR describing the references to credit
ratings in the non-capital regulations applicable to savings
associations, including the OTS's investment securities
regulations.\13\ Together, the ANPRs generally described, and requested
comment on, four alternative frameworks for measuring creditworthiness
to replace existing references to credit ratings.
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\12\ 75 FR 49423 (Aug. 13, 2010).
\13\ 75 FR 63107 (Oct. 14, 2010).
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One alternative described in the ANPRs was the use of an approach
currently contained in the existing investment securities regulations
which permit a national bank or Federal savings association to purchase
unrated securities. (An unrated security is one that does not have a
credit rating issued by an NRSRO.) Under this approach, the national
bank or Federal savings association would make the determination as to
whether the security is the ``credit equivalent'' of investment grade
by conducting and documenting its own credit assessment and analysis.
This determination would be subject to examiner review, and national
banks and Federal savings associations would continue to be expected to
understand and manage the associated price, liquidity and other related
risks associated with their investment securities activities.
The ANPRs outlined a second alternative by redefining the
``investment grade'' standard to focus on a broader set of criteria
than the current creditworthiness standard. The current standard
focuses primarily on the timely repayment of principal and interest and
the risk of default and references credit ratings for that purpose. A
broader standard could take into account criteria for marketability,
liquidity, and price risk associated with market volatility, while
removing references to credit ratings. National banks and Federal
savings associations would be required to consider these broader
standards in making determinations on whether securities are
``investment grade.'' These determinations would be subject to examiner
review.
A third option in the ANPRs was to permit national banks and
Federal savings associations to use internal loan classification
systems to rate investment securities. This option borrows from both
existing classification systems used by the Federal banking agencies to
identify problem loans and the bank's or savings association's internal
risk rating systems. The banking agencies classify loans on a scale
reflecting decreasing credit quality. Generally, well-performing loans
are rated ``pass.'' Troubled loans are rated ``special mention,''
``substandard,'' ``doubtful,'' or ``loss,'' depending on the quality of
the credit. In their respective ANPRs, the OCC and the OTS suggested
defining all investments classified ``special mention'' or worse as
predominately speculative and thus not ``investment grade.''
Finally, the OTS ANPR outlined a fourth alternative to using credit
ratings that would permit savings associations to consider external
data, including external data and credit analyses provided by third
parties, to make a creditworthiness determination. Alternative ways to
measure credit risk might be to derive ``implied ratings'' from the
market price of traded instruments. The implied rating could be derived
from the price of equities, debt instruments, or credit default swaps
linked to the security. Investors typically require a higher return for
an investment with a higher risk of default. For example, a yield
spread (the difference between the yield on a corporate bond relative
to a government bond with similar maturity) is often used as a measure
of relative creditworthiness. A larger credit spread reflects a lower
credit quality and higher perceived risk of the issuer's default.
In addition to the proposed alternative frameworks for considering
creditworthiness without reference to credit ratings, the agencies set
forth criteria that appear to be most relevant to evaluating potential
creditworthiness standards. The agencies requested comment on whether
other considerations should be taken into account. Specifically, the
ANPRs stated that any alternative creditworthiness standard should:
Foster prudent risk management;
Be transparent, replicable, and well defined;
Allow different banking organizations to assign the same
assessment of credit quality to the same or similar credit exposures;
Allow for supervisory review;
Differentiate among investments in the same asset class
with different credit risk; and
Provide for the timely and accurate measurement of
negative and positive changes in investment quality, to the extent
practicable.
C. Comments Received on the ANPRs
Notwithstanding the requirements of section 939A of the Dodd-Frank
Act, a majority of commenters on the ANPRs
[[Page 73529]]
said that the agencies should continue to use credit ratings. Most
commenters argued that credit ratings are a valuable tool for national
banks and Federal savings associations (herein, referred to
collectively as ``banks'')--especially small banks--for measuring
credit risk. Several commenters expressed doubt that any of the
suggested alternatives for measuring creditworthiness would yield
results that would be as useful and cost-effective as credit ratings.
The commenters suggested that passage of the Dodd-Frank Act,
specifically measures adding to the SEC's oversight authority over
NRSROs, would improve the accuracy of credit ratings. A number of
commenters stated that the agencies should interpret the statute in a
manner that would permit the continued use of credit ratings or permit
banks to consider credit ratings as one of several factors when
measuring credit risk.
Commenters on the ANPRs focused largely on two issues: Competitive
equity and compliance burden. Community and regional bank commenters
argued that the inability to use credit ratings in evaluating
investments could disadvantage them when compared with larger
institutions that have advanced analytical capabilities. Larger
internationally active banks expressed concern that they will be
disadvantaged when compared to their foreign counterparts who may
continue to use external credit ratings. Commenters also stated that
developing internal rating systems to replace the long-standing use of
NRSRO credit ratings would involve cost considerations greater than
those under the current regulation, without a corresponding benefit to
risk management. While commenters noted that cost and burden would be a
factor for all banks, it would likely be more pronounced for community
and regional banks. These smaller institutions may not currently have
in-house the systems and management capabilities to convert quickly to
new standards. Commenters noted that if smaller financial institutions
are unable to develop processes necessary to comply with the new
standard, it would prevent them from purchasing many of the investment
securities they are currently permitted to hold. Thus, commenters
stated that a cost-effective, simple standardized approach to measuring
credit risk would be particularly important for community and regional
banks.
Commenters generally agreed with and supported the factors and
criteria set forth in the ANPRs as important for evaluating potential
creditworthiness standards. Commenters suggested that, in establishing
alternative creditworthiness measures, the agencies also should seek to
avoid regulatory arbitrage, create parity with international standards,
avoid oversimplified measures, dampen systemic risk, capture market
complexities, identify appropriate time horizons, and allow for
accurate and timely reassessments. Commenters further suggested that
the agencies should consider transparency, replicability, assessment
speed, ease of use, consistency across different regulated entities,
and the existence of credit support.
II. Description of the Proposed Amendments to Non-Capital Regulations
The OCC is proposing to amend the definition of ``investment
grade'' to remove the current reference to credit ratings and to
replace other references to credit ratings with alternative standards
of creditworthiness for the purposes of its regulations at 12 CFR parts
1, 16, 28, and 160.
Parts 1, 16, and 160
This proposal generally removes references to credit ratings
provided by NRSROs and instead generally requires national banks and
Federal savings associations to make assessments of a security's
creditworthiness, similar to the assessments currently required for the
purchase of unrated securities.
National Bank Regulations
Under the proposed amendments to parts 1 and 16, a security would
be ``investment grade'' if the issuer of the security has an adequate
capacity to meet financial commitments under the security for the
projected life of the asset or exposure. The ``adequate capacity to
meet financial commitments'' standard would replace language in
Sec. Sec. 1.2 and 16.2 which currently reference NRSRO credit ratings.
To meet this new standard, national banks must be able to determine
that the risk of default by the obligor is low and the full and timely
repayment of principal and interest is expected.\14\
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\14\ In the case of a structured finance transaction, principal
and interest repayment is not necessarily solely reliant on the
direct debt repaying capacity of the issuer or obligor. That is, the
credit risk profile may be influenced more by the quality of the
underlying collateral as well as the cash flow rules and the
structure of the security itself than by the condition of the
issuer.
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When determining whether a particular issuer has an adequate
capacity to meet financial commitments under a security for the
projected life of the asset or exposure, the OCC expects national banks
to consider a number of factors, to the extent appropriate. While
external credit ratings and assessments remain valuable sources of
information and provide national banks with a standardized credit risk
indicator, banks must supplement the external ratings with due
diligence processes and analyses that are appropriate for the bank's
risk profile and for the size and complexity of the instrument.
Therefore, it would be possible that a security rated in the top four
rating categories by an NRSRO may not satisfy the proposed revised
investment grade standard. Further information for national banks
seeking to comply with the new regulations is being issued as proposed
guidance at the same time as this NPRM.
Additionally, 12 CFR 1.3(e)(2) of the current rules imposes a
concentration limit on a national bank's purchases of certain small
business-related securities for its own account. The provision limits a
national bank's purchase of covered small business-related securities
to 25 percent of the bank's capital and surplus unless the securities
are rated in the highest two investment grade rating categories. The
OCC is proposing to amend this provision to remove the limit since it
is not required by statute. However, under the OCC's proposed
amendment, national banks still may purchase only those securities that
meet the statutory creditworthiness criteria set forth in the
definition of small business-related securities in section 3(a)(53)(A)
of the Securities Exchange Act of 1934.\15\ Currently, the statutory
criteria include a requirement that the security be rated in one of the
four highest investment grade rating categories by an NRSRO. However,
the Dodd-Frank Act provides that this ratings-based requirement will be
removed by July 21, 2012, and replaced with an alternative standard
developed by the SEC.
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\15\ 15 U.S.C. 78c(a)(53)(A).
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Similarly, Sec. Sec. 1.2(m)(2) and (3) include references to NRSRO
credit ratings and references the definition of ``mortgage-related
security'' in section 3(a)(41) of the Securities Exchange Act of
1934.\16\ This statutory definition includes a requirement that the
security be rated in the top two investment grade categories by an
NRSRO. Like the definition of small business-related security, the
Dodd-Frank Act removes the reference to credit ratings in July 2012 and
directs the SEC to develop an alternative creditworthiness standard.
Consistent with the Dodd-Frank Act, the OCC is proposing to delete the
explicit references to credit ratings in its
[[Page 73530]]
regulations at 12 CFR 1.2(m)(2) and (3). However, these provisions
would continue to refer to the definition of mortgage-related security
in the Securities Exchange Act of 1934.
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\16\ 15 U.S.C. 78c(a)(41).
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Federal Savings Association Regulations
Notably, under current law, savings associations generally are
prohibited by statute from investing in corporate debt securities
unless they are rated ``investment grade'' by an NRSRO.\17\ However,
the Dodd-Frank Act provides that on July 21, 2012, this statutory
requirement will be replaced by ``standards of creditworthiness
established by the [FDIC].'' \18\ In this NPRM, the OCC is proposing to
define the term ``investment grade,'' as it is used in Part 160, to
refer to 12 U.S.C. 1831e. Therefore, it will continue to reference the
current ratings-based requirement until such time as that requirement
is replaced by the FDIC.
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\17\ 12 U.S.C. 1831e(d)(1).
\18\ Public Law 111-203, Section 939(a)(2) (July 21, 2010).
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Additionally, in Sec. 160.40, the regulations applicable to
Federal savings associations distinguish between commercial paper rated
in the highest two rating categories, and in Sec. 160.93, the
regulations distinguish between commercial paper rated in the highest
rating category and corporate debt securities rated in the two highest
rating categories. Section 160.40(a)(1)(ii) generally provides that
Federal savings associations may invest in commercial paper only if it
rated in the highest two investment grade categories or guaranteed by a
company with such a rating. Section 160.93(d)(5)(i) provides a less
restrictive lending limitation for commercial paper that is rated in
the highest rating category, and Sec. 160.93(d)(5)(ii) provides a less
restrictive lending limitation for corporate debt securities rated in
the two highest rating categories. In this NPRM, the OCC is proposing
to remove these references to credit ratings. Under the revised rules,
Federal savings associations would be permitted to invest in commercial
paper if it meets the standards set forth at 12 U.S.C. 1831e(d)(1),
which currently limits all savings associations to purchasing corporate
debt securities that are of investment grade, but will, after July 21,
2012, include a new creditworthiness standard established by the FDIC.
Additionally, the less restrictive lending limitations would apply to
all commercial paper and corporate debt securities that meet the
revised creditworthiness standards.
Finally, at Sec. 160.42, Federal savings associations are subject
to certain limitations with regard to purchases of state and local
government obligations. Currently, Federal savings associations may
hold state or municipal revenue bonds that have ratings in one of the
four highest investment grade rating categories from one issuer up to a
limit of 10 percent of total capital without prior OCC approval. Under
the revised rules, this provision would apply to state or municipal
revenue bonds if the issuer has an adequate capacity to meet financial
commitments under the security for the projected life of the asset or
exposure. An issuer has an adequate capacity to meet financial
commitments if the risk of default by the obligor is low and the full
and timely repayment of principal and interest is expected.
Safety and Soundness Regulations
In addition to regulatory provisions that generally limit national
banks and Federal savings associations to purchasing securities that
are of investment grade, OCC regulations require that national banks
and Federal savings associations conduct their investment activities in
a manner that is consistent with safe and sound practices.\19\
Specifically, national banks and Federal savings associations must
consider the interest rate, credit, liquidity, price and other risks
presented by investments, and the investments must be appropriate for
the particular bank.\20\ In addition to determining whether a security
is of investment grade, national banks and Federal savings associations
with substantial securities portfolios, in particular, must have and
maintain robust risk management frameworks in place to ensure that an
investment in a particular security appropriately fits within its goals
and that the institution will remain in compliance with all relevant
concentration limits.
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\19\ 12 CFR 1.5; 12 CFR 160.1(b), 160.40(c).
\20\ 12 CFR 1.5(a); 12 CFR 160.1(b), 160.40(c).
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Consistency With Other Federal Regulations
Consistent with section 939A's directive that the Federal agencies
seek to establish, to the extent feasible, uniform standards of
creditworthiness, in developing this proposal, the OCC has considered
the approaches in the two recent proposals issued by the SEC,\21\ as
well as a recent proposal issued by the National Credit Union
Administration (NCUA).\22\
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\21\ See 76 FR 12896 (March 9, 2011); 76 FR 26550 (May 6, 2011).
\22\ 76 FR 11164 (March 1, 2011).
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On March 9, 2011, the SEC published a notice of proposed rulemaking
to implement Section 939A with respect to its regulations governing
investments made by mutual funds.\23\ The proposal includes replacing
creditworthiness standards that reference credit ratings with standards
that would reflect evaluating other criteria. The proposal would
replace a requirement that a security purchased by a money-market
mutual fund be rated in ``one of the two highest short-term rating
categories'' with a standard that the security have minimal credit
risk. The determination would be based on factors pertaining to credit
quality and the issuer's ability to meet its short-term financial
obligations. Under the SEC's proposed rule 2a-7, while the board of
directors of a mutual fund must independently determine that an
investment has minimal risk, they would be permitted to continue using
credit ratings as one factor to make that determination.\24\
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\23\ 76 FR 12896 (March 9, 2011).
\24\ Specifically, the SEC proposal states:
Nothing in the proposed rule would prohibit a money market fund
from relying on policies and procedures it has adopted to comply
with the current rule as long as the board concluded that the
[credit] ratings specified in the policies and procedures establish
similar standards to those proposed and are credible and reliable
for that use.
76 FR 12899 n.32. The SEC's March 9 proposal also notes that in
addition to referencing credit ratings, the SEC rules already
require a mutual fund board of directors to determine that a
security meets the requisite investment standards based on factors
``in addition to any ratings assigned.'' Thus, under the SEC's
current rule a mutual fund may not purchase an investment based on
the credit rating alone.
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On May 6, 2011, the SEC published a proposal to amend additional
rules, including the Broker-Dealer Net Capital Rule, to remove
references to credit ratings.\25\ The Net Capital Rule currently
applies lower capital requirements to certain types of securities held
by broker-dealers if the securities are rated in high rating categories
by at least two NRSROs. Under the proposal, to receive a favorable
treatment for commercial paper, nonconvertible debt, and preferred
stock, a broker-dealer would be required to establish, maintain, and
enforce written policies and procedures designed to assess the credit
and liquidity risks applicable to a security, and based on this
process, would have to determine that the investment has only a
``minimal amount of credit risk.''
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\25\ 76 FR 26550 (May 6, 2011).
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Under the SEC's proposed amendments, a broker-dealer could consider
various factors in assessing the credit risk for a security. These
factors could include credit spreads, securities-related research,
internal or external credit risk assessments (including credit
[[Page 73531]]
ratings), and default statistics. The SEC proposal's preamble states
that the criteria are meant to capture securities that should generally
qualify as investment grade under the current ratings-based standard
``without placing undue reliance on third-party credit ratings.''
Similarly, the OCC's amendments would allow national banks and Federal
savings associations to review multiple factors in evaluating the
creditworthiness of a security.
On March 1, 2011, the NCUA published a proposal to amend a number
of its regulations to remove references to credit ratings and replace
those references with narratives based on ratings descriptions
published by Standard and Poor's and Fitch.\26\ For example, where NCUA
regulations refer to an investment with an ``AA'' rating, the proposal
would revise the reference to refer to a security that a credit union
determines has a ``very strong capacity to meet financial
commitments.'' Similarly, where NCUA regulations currently refer to an
investment with an ``A'' rating, the proposal would revise the
reference to refer to a security that a credit union determines has a
``strong capacity to meet financial commitments,'' in line with the S&P
definition; and likewise, where NCUA regulations currently refer to an
investment with a ``BBB'' rating, the proposal would revise the
reference to refer to a security that a credit union determines has an
``adequate'' capacity to meet financial commitments. Under the NCUA
proposal, a Federal credit union must reach these conclusions through
its own analysis, rather than exclusively relying on credit ratings.
However, part of that analysis may include the consideration of credit
ratings.
---------------------------------------------------------------------------
\26\ 76 FR 11164 (March 1, 2011).
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The NCUA proposal also provides that when a Federal credit union
considers the creditworthiness of a security, the credit union must
consider whether the security will continue to have the capacity to
meet financial commitments, even under adverse economic conditions. The
OCC is not currently proposing to include similar language in its
investment securities regulations. However, the OCC invites comment on
whether such a standard would be appropriate, and on how such a
standard could be implemented.
In the preamble to its proposal, the NCUA stated that it has and
will continue to require Federal credit unions to conduct internal
credit analyses that go beyond simple reliance on credit ratings,
therefore, the NCUA does not believe that the proposed approach would
result in significant changes for most Federal credit unions.
Similarly, the OCC's proposed amendments would not change the OCC's
continuing expectation that national banks and Federal savings
associations consider and evaluate multiple factors when evaluating the
creditworthiness of a security, and that they supplement the use of
external ratings with due diligence processes and analyses that are
appropriate for the bank's risk profile and for the size and complexity
of the instrument.
Part 28--Foreign Banking Institutions
The OCC's capital equivalency deposit regulation at 12 CFR 28.15
currently allows for the use of certificates of deposit or bankers'
acceptances as part of the deposit, if its issuer is rated investment
grade by an internationally recognized rating organization. The OCC
proposes to remove the requirement referencing credit ratings provided
by ratings organizations. Instead, the issuer of the certificate of
deposit or banker's acceptance must have ``an adequate capacity to meet
financial commitments for the projected life of the asset or
exposure.''
Part 5--Financial Subsidiaries
Finally, the OCC is proposing to make a technical change to 12 CFR
5.39, which pertains to financial subsidiaries of national banks.
Currently, this regulation contains language that appeared in Section
5136A of title LXII of the Revised Statutes (12 U.S.C. 24a), as added
by the Gramm-Leach-Bliley Act.\27\ Prior to its amendment by the Dodd-
Frank Act, section 5136A permitted a national bank, directly or
indirectly, to control a financial subsidiary or hold an interest in a
financial subsidiary only if the bank was one of the largest 100
insured depository institutions and has at least one issue of
outstanding debt rated in one of the top three investment grade
categories by an NRSRO. The Dodd-Frank Act amended section 5136A to
remove the reference to investment grade ratings.\28\
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\27\ Public Law 106-102, Section 121, 113 Stat. 1338, 1373-81
(Nov. 12, 1999).
\28\ Public Law 111-203 at Section 939(d), 124 Stat. at 1886.
---------------------------------------------------------------------------
The OCC is proposing to revise this provision to conform with the
revised statutory language. The new language would provide that a
national bank may, directly or indirectly, control a financial
subsidiary or hold an interest in a financial subsidiary only if the
bank is one of the 100 largest insured banks and the bank has not fewer
than one issue of outstanding debt that meets such applicable standard
or criteria established by the Treasury Department and the Federal
Reserve Board pursuant to Section 5136A of title LXII of the Revised
Statutes (12 U.S.C. 24a).
III. Implementation Guidance
Together with this NPRM, the OCC is publishing proposed updates and
revisions to its guidance for national bank and Federal savings
association investment activities. This guidance reflects the OCC's
expectations for national banks and Federal savings associations as
they review their systems and consider any changes necessary to comply
with the revisions proposed in this NPRM. The guidance describes
factors institutions should consider with respect to certain types of
investment securities to assess creditworthiness and continue
conducting their activities in a safe and sound manner. Commenters are
strongly encouraged to review and provide comment on the guidance in
conjunction with their review of and comment on this NPRM.
As noted above, OCC regulations require that national banks and
Federal savings associations conduct their investment activities in a
manner that is consistent with safe and sound practices.\29\ Neither
this NPRM, nor the proposed guidance, would change this requirement.
The OCC expects national banks and Federal savings associations to
continue to follow safe and sound practices in their investment
activities.
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\29\ 12 CFR 1.5; 12 CFR 160.1(b), 160.40(c).
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IV. Request for Comment
The OCC seeks comment on all aspects of this NPRM and the revised
proposed revision to the term ``investment grade'' as it is referenced
in the OCC's regulations pertaining to investment securities,
securities offerings, and foreign bank capital equivalency deposits.
Commenters are also strongly encouraged to provide comments on the
proposed guidance the OCC released in connection with this NPRM, which
describes how national banks and Federal savings associations could
implement the new standards. In addition, the OCC seeks comment on the
specific questions set forth below.
1. Does the proposed revision to the definition of investment grade
satisfy the OCC's stated goals of applying a standard that:
Fosters prudent risk management;
Is transparent, replicable, and well defined;
[[Page 73532]]
Allows different banks or savings associations to assign
the same or similar assessment of credit quality to the same or similar
credit exposures;
Allows for supervisory review;
Differentiates among investments in the same asset class
with different credit risk; and
Provides for the timely and accurate measurement of
negative and positive changes in investment quality, to the extent
practicable?
2. Commenters on the ANPRs suggested a number of additional
objectives to consider in developing creditworthiness standards,
including avoidance of regulatory arbitrage; avoidance of
oversimplified measures; dampening systemic risk; capturing market
complexities; identifying appropriate time horizons; and, allowing for
accurate and timely reassessments. Does the OCC's proposed revision to
the definition of ``investment grade'' satisfy these objectives? What
changes could the OCC make to the proposed investment grade definition
to better address these objectives?
3. The OCC recognizes that any measure of creditworthiness likely
will involve tradeoffs between more refined differentiation of
creditworthiness and greater implementation burden. Does the proposed
revised definition strike an appropriate balance between measurement of
credit risk and implementation burden in considering alternative
measures of creditworthiness? Are there other alternatives permissible
under Dodd-Frank Section 939A that strike a more appropriate balance?
4. The OCC notes that the proposed ``investment grade'' standard
for national bank investment securities activities is generally
consistent with proposals published by the SEC and the NCUA (although
the OCC's proposed standard does not include the NCUA's provision
specifically referencing the consideration of adverse economic
circumstances). The OCC requests comment on whether establishing
consistent standards is appropriate in light of the different types of
entities subject to OCC, SEC, and NCUA jurisdiction.
5. This proposal would apply separate creditworthiness standards
for national bank and Federal savings association investments in
corporate debt securities. The OCC requests comment on how best to
align these standards consistent with section 939A's direction that
Federal agencies shall seek to establish, to the extent feasible,
uniform standards of creditworthiness.
V. Regulatory Analyses
A. Paperwork Reduction Act
This notice of proposed rulemaking amends several regulations for
which the OCC currently has approved collections of information under
the Paperwork Reduction Act (44 U.S.C. 3501-3520) (OMB Control Nos.
1557-0014; 1557-0190; 1557-0120; 1557-0205). The amendments in this
proposal do not introduce any new collections of information into the
rules, nor do they amend the rules in a way that substantively modifies
the collections of information that OMB has previously approved.
Therefore, no additional OMB PRA approval is required at this time.
B. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act,\30\
(RFA), the regulatory flexibility analysis otherwise required under
section 604 of the RFA is not required if an agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities (defined for purposes of the RFA to include
banks with assets less than or equal to $175 million) and publishes its
certification and a short, explanatory statement in the Federal
Register along with its rule.
---------------------------------------------------------------------------
\30\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
This proposal would affect all 578 small national banks and all 288
small federally chartered savings associations.\31\ However, because
banks have long been expected to maintain a risk management process to
ensure that credit risk is effectively identified, measured, monitored,
and controlled, most if not all of the institutions affected by the
proposed rule already engage in appropriate risk management activity.
Although the proposed rule will affect a substantial number of small
banks and federally chartered savings associations, it will not have a
significant effect on a substantial number of those institutions.
Therefore, the OCC certifies that the proposed rule would not have a
significant impact on a substantial number of small entities.
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\31\ All totals are as of June 30, 2011.
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C. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (UMRA) requires that an agency prepare a budgetary impact
statement before promulgating a rule that includes a Federal mandate
that may result in the expenditure by state, local, and Tribal
governments, in the aggregate, or by the private sector of $100 million
or more (adjusted annually for inflation) in any one year. If a
budgetary impact statement is required, section 205 of the UMRA also
requires an agency to identify and consider a reasonable number of
regulatory alternatives before promulgating a rule.
The OCC has determined that its proposed rule would not result in
expenditures by state, local, and Tribal governments, or by the private
sector, of $100 million or more. Accordingly, the OCC has not prepared
a budgetary impact statement or specifically addressed the regulatory
alternatives considered.
List of Subjects
12 CFR Part 1
Banks, Banking, National banks, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 16
National banks, Reporting and recordkeeping requirements,
Securities.
12 CFR Part 28
Foreign banking, National banks, Reporting and recordkeeping
requirements.
12 CFR Part 160
Banks, Banking, Consumer protection, Investments, manufactured
homes, Mortgages, Reporting and recordkeeping requirements, Savings
associations, Securities, Surety bonds.
Department of the Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the preamble, the Office of the
Comptroller of the Currency proposes to amend parts 1, 16, 28, and 160
of chapter I of Title 12, Code of Federal Regulations as follows:
PART 1--INVESTMENT SECURITIES
1. The authority citation for part 1 continues to read as follows:
Authority: 12 U.S.C. 1, et seq., 12 U.S.C. 24 (Seventh), and 12
U.S.C. 93a.
2. In part 1, in Sec. 1.2, revise paragraphs (d) through (f), and
(h), and (m) through (n), as follows:
Sec. 1.2 Definitions.
* * * * *
(d) Investment grade means the issuer of a security has an adequate
capacity to meet financial commitments under the security for the
projected life of the asset or exposure. An issuer has an adequate
capacity to meet financial commitments
[[Page 73533]]
if the risk of default by the obligor is low and the full and timely
repayment of principal and interest is expected.
(e) Investment security means a marketable debt obligation that is
investment grade and not predominately speculative in nature.
(f) Marketable means that the security:
(1) Is registered under the Securities Act of 1933, 15 U.S.C. 77a
et seq.;
(2) Is a municipal revenue bond exempt from registration under the
Securities Act of 1933, 15 U.S.C. 77c(a)(2);
(3) Is offered and sold pursuant to Securities and Exchange
Commission Rule 144A, 17 CFR 230.144A, and investment grade; or
(4) Can be sold with reasonable promptness at a price that
corresponds reasonably to its fair value.
* * * * *
(h) [reserved]
* * * * *
(m) Type IV security means:
(1) A small business-related security as defined in section
3(a)(53)(A) of the Securities Exchange Act of 1934, 15 U.S.C.
78c(a)(53)(A), that is fully secured by interests in a pool of loans to
numerous obligors.
(2) A commercial mortgage-related security that is offered or sold
pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C.
77d(5), that is investment grade, or a commercial mortgage-related
security as described in section 3(a)(41) of the Securities Exchange
Act of 1934, 15 U.S.C. 78c(a)(41), that represents ownership of a
promissory note or certificate of interest or participation that is
directly secured by a first lien on one or more parcels of real estate
upon which one or more commercial structures are located and that is
fully secured by interests in a pool of loans to numerous obligors.
(3) A residential mortgage-related security that is offered and
sold pursuant to section 4(5) of the Securities Act of 1933, 15 U.S.C.
77d(5), that is investment grade, or a residential mortgage-related
security as described in section 3(a)(41) of the Securities Exchange
Act of 1934, 15 U.S.C. 78c(a)(41)) that does not otherwise qualify as a
Type I security.
(n) Type V security means a security that is:
(1) Investment grade;
(2) Marketable;
(3) Not a Type IV security; and
(4) Fully secured by interests in a pool of loans to numerous
obligors and in which a national bank could invest directly.
3. In Sec. 1.3, revise paragraphs (e) and (h) as follows:
Sec. 1.3 Limitations on dealing in, underwriting, and purchase and
sale of securities.
* * * * *
(e) Type IV securities. A national bank may purchase and sell Type
IV securities for its own account. The amount of the Type IV securities
that a bank may purchase and sell is not limited to a specified
percentage of the bank's capital and surplus.
* * * * *
(h) Pooled investments--(1) General. A national bank may purchase
and sell for its own account investment company shares provided that:
(i) The portfolio of the investment company consists exclusively of
assets that the national bank may purchase and sell for its own
account; and
(ii) The bank's holdings of investment company shares do not exceed
the limitations in section 1.4(e).
(2) Other issuers. The OCC may determine that a national bank may
invest in an entity that is exempt from registration as an investment
company under section 3(c)(1) of the Investment Company Act of 1940,
provided that the portfolio of the entity consists exclusively of
assets that a national bank may purchase and sell for its own account.
(3) Investments made under this paragraph (h) must comply with
section 1.5 of this part, conform with applicable published OCC
precedent, and must be:
(i) Marketable and investment grade, or
(ii) Satisfy the requirements of Sec. 1.3(i).
* * * * *
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
4. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1, et seq., 12 U.S.C. 93a, 215a-2, 215a-3,
481, and section 5136A of the Revised Statutes (12 U.S.C. 24a).
5. In Sec. 5.39, revise paragraphs (g)(3) through (5) and (j)(2)
to read as follows:
Sec. 5.39 Financial subsidiaries.
* * * * *
(g) * * *
(3) The national bank is one of the 100 largest insured banks,
determined on the basis of the bank's consolidated total assets at the
end of the calendar year; and
(4) The bank has not fewer than one issue of outstanding debt that
meets such applicable standard or criteria established by the Treasury
Department and the Federal Reserve Board pursuant to Section 5136A of
title LXII of the Revised Statutes (12 U.S.C. 24a).
(5) Paragraph (g)(3) does not apply if the financial subsidiary is
engaged solely in activities in an agency capacity.
* * * * *
(j) * * *
(2) Eligible debt requirement. A national bank that does not
continue to meet the qualification requirements set forth in paragraphs
(g)(3) and (g)(4) of this section, applicable where the bank's
financial subsidiary is engaged in activities other than solely in an
agency capacity, may not directly or through a subsidiary, purchase or
acquire any additional equity capital of any such financial subsidiary
until the bank meets the requirement in paragraph (g)(3) and (g)(4) of
this section. For purposes of this paragraph (j)(2), the term ``equity
capital'' includes, in addition to any equity investment, any debt
instrument issued by the financial subsidiary if the instrument
qualifies as capital of the subsidiary under federal or state law,
regulation, or interpretation applicable to the subsidiary.
* * * * *
PART 16--SECURITIES OFFERING DISCLOSURE RULES
6. The authority citation for part 16 continues to read as follows:
Authority: 12 U.S.C. 1, et seq., 12 U.S.C. 93a.
7. In Sec. 16.2, revise paragraph (g) as follows:
Sec. 16.2 Definitions.
* * * * *
(g) Investment grade means the issuer of a security has an adequate
capacity to meet financial commitments under the security for the
projected life of the asset or exposure. An issuer has an adequate
capacity to meet financial commitments if the risk of default by the
obligor is low and the full and timely repayment of principal and
interest is expected.
* * * * *
8. In Sec. 16.6, revise paragraph (a)(4) as follows:
Sec. 16.6 Sales of nonconvertible debt.
(a) * * *
(4) The debt is investment grade.
* * * * *
PART 28--INTERNATIONAL BANKING ACTIVITIES
9. The authority citation for part 28 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24 (Seventh), 93a, 161, 602,
1818, 3101 et seq., and 3901 et seq.
10. In Sec. 28.15, revise paragraph (a)(1)(iii) as follows:
[[Page 73534]]
Sec. 28.15 Capital equivalency deposits.
(a) * * * (1) * * *
(iii) Certificates of deposit, payable in the United States, and
banker's acceptances, provided that, in either case, the issuer has an
adequate capacity to meet financial commitments for the projected life
of the asset or exposure. An issuer has an adequate capacity to meet
financial commitments if the risk of default by the obligor is low and
the full and timely repayment of principal and interest is expected
* * * * *
PART 160--LENDING AND INVESTMENT
11. The authority citation for part 160 continues to read as
follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3,
1828, 3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.
12. In Sec. 160.3, add the following definition in alphabetical
order:
Sec. 160.3 Definitions.
* * * * *
Investment grade means a security that meets the creditworthiness
standards described in 12 U.S.C. 1831e.
* * * * *
13. In Sec. 160.40, revise paragraphs (a)(1)(i) and (a)(2)(ii) as
follows:
Sec. 160.40 Commercial paper and corporate debt securities.
(a) * * * (1) * * *
(i) Investment grade as of the date of purchase; or
(ii) Guaranteed by a company having outstanding paper that meets
the standard set forth in paragraph (a)(1)(i) of this section.
(2) * * *
(i) * * *
(ii) Investment grade.
* * * * *
14. In Sec. 160.42, revise paragraphs (a) and (d) to read as
follows:
Sec. 160.42 State and local government obligations.
(a) Pursuant to HOLA section 5(c)(1)(H), a Federal savings
association may invest in obligations issued by any state, territory,
possession, or political subdivision thereof (``governmental entity''),
subject to appropriate underwriting and the following conditions:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aggregate limitation Per-issuer limitation
--------------------------------------------------------------------------------------------------------------------------------------------------------
(1) General obligations.......... None...................................................... None.
(2) Other obligations of a None...................................................... 10% of the institution's total capital.
governmental entity (e.g.,
revenue bonds) if the issuer has
an adequate capacity to meet
financial commitments under the
security for the projected life
of the asset or exposure. An
issuer has an adequate capacity
to meet financial commitments if
the risk of default by the
obligor is low and the full and
timely repayment of principal
and interest is expected.
(3) Obligations of a governmental As approved by the OCC.................................... 10% of the institution's total capital.
entity that do not qualify under
any other paragraph but are
approved by the OCC.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * *
(d) For all securities, the institution must perform its own
detailed analysis of credit quality. In doing so, the institution must
consider, as appropriate, the interest rate, credit, liquidity, price,
transaction, and other risks associated with the investment activity
and determine that such investment is appropriate for the institution.
The institution must also determine that the obligor has adequate
resources and willingness to provide for all required payments on its
obligations in a timely manner.
* * * * *
15. In Sec. 160.93, revise paragraph (d)(5) introductory text and
paragraph (d)(5)(i) to read as follows:
Sec. 160.93 Lending limitations.
(d) * * *
(5) Notwithstanding the limit set forth in paragraphs (c)(1) and
(c)(2) of this section, a savings association may invest up to 10
percent of unimpaired capital and unimpaired surplus in the obligations
of one issuer evidenced by:
(i) Commercial paper or corporate debt securities that are, as of
the date of purchase, investment grade.
* * * * *
16. In Sec. 160.121, revise paragraphs (b)(1) and (2) to read as
follows:
Sec. 160.93.121 Investments in state housing corporations.
(b) * * *
(1) The obligations are investment grade; or
(2) The obligations are approved by the OCC. The aggregate
outstanding direct investment in obligations under paragraph (b) of
this section shall not exceed the amount of the Federal savings
association's total capital.
* * * * *
Dated: November 18, 2011.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2011-30428 Filed 11-28-11; 8:45 am]
BILLING CODE 4810-33-P