[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Proposed Rules]
[Pages 27801-27814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-10956]


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FEDERAL RESERVE SYSTEM

12 CFR Part 251

[Regulation XX; Docket No. R-1489]
RIN 7100-AE 18


Concentration Limits on Large Financial Companies

AGENCY: Board of Governors of the Federal Reserve System (``Board'').

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board invites comment on a proposed rule (Regulation XX) 
that would implement section 622 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. Section 622, which adds a new section 14 
to the Bank Holding Company Act of 1956, establishes a financial sector 
concentration limit that generally prohibits a financial company from 
merging or consolidating with, or acquiring, another company if the 
resulting company's liabilities upon consummation would exceed 10 
percent of the aggregate liabilities of all financial companies as 
calculated under that section. In addition, the proposal would 
establish reporting requirements for certain financial companies that 
are necessary to implement section 622.

DATES: Comments must be received no later than July 8, 2014.

ADDRESSES: You may submit comments, identified by Docket No. R-1489 and 
RIN 7100 AE 18, 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.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Laurie S. Schaffer, Associate General 
Counsel, (202) 452-2272, Christine Graham, Counsel, (202) 452-3005, or 
Joe Carapiet, Senior Attorney, (202) 973-6957, Legal Division; Felton 
Booker, Senior Supervisory Financial Analyst, (202) 912-4651, or Sean 
Healey, Senior Financial Analyst, (202) 912-4611, Division of Banking 
Supervision and Regulation; Dean Amel, Senior Economist, (202) 452-
2911; Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Financial Sector Concentration Limit
III. Administrative Law Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Solicitation of Comments on Use of Plain Language

I. Background

    Section 622 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) established a financial sector 
concentration limit that prevents a financial company from merging or 
consolidating with, acquiring all or substantially all of the assets 
of, or otherwise acquiring control of another company (``covered 
acquisition'') if the resulting company's consolidated liabilities 
would exceed 10 percent of the aggregate consolidated liabilities of 
all financial companies.
    The concentration limit supplements the nationwide deposit cap in 
Federal banking law by imposing an additional limit on liabilities of 
financial companies.\1\ ``Financial companies'' subject to the 
concentration limit include insured depository institutions, bank 
holding companies, savings and loan holding companies, other companies 
that control an insured depository institution, foreign banks or 
companies that are treated as bank holding companies, and nonbank 
financial companies supervised by the Board.\2\ Section 622 measures 
``liabilities'' of a financial company as risk-weighted assets minus 
regulatory capital. For foreign financial companies, only the 
liabilities of the U.S. operations of the company are considered in 
applying the concentration limit.
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    \1\ 12 U.S.C. 1467a(e)(2)(E), 1828(c), 1842(d)(2), 1843(i)(8). 
The nationwide deposit cap generally prohibits the appropriate 
Federal banking agency from approving an application by a bank 
holding company, insured depository institution, or savings and loan 
holding company to acquire an insured depository institution located 
in a different home state than the acquiring company if the 
acquiring company controls, or following the acquisition would 
control, more than 10 percent of the total amount of deposits of 
insured depository institutions in the United States.
    \2\ Nonbank financial companies supervised by the Board are 
companies that have been designated by the Financial Stability 
Oversight Council for supervision by the Board pursuant to section 
113 of the Dodd-Frank Act. See 12 U.S.C. 5323.
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    Section 622 directs the Financial Stability Oversight Council 
(Council) to complete a study of the extent to which the statutory 
concentration limit would affect financial stability, moral hazard in

[[Page 27802]]

the financial system, the efficiency and competitiveness of U.S. 
financial firms and financial markets, and the cost and availability of 
credit and other financial services to households and businesses in the 
United States. The Council is further directed to make recommendations 
regarding any modifications to the concentration limit that the Council 
determines would more effectively implement section 622.\3\
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    \3\ See 12 U.S.C. 1852(e)(1).
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    On January 18, 2011, the Council issued its study on the 
concentration limit and recommended three modifications to more 
effectively implement section 622 (Council study).\4\ In the Council 
study, the Council expressed the view that the concentration limit 
would have a positive impact on U.S. financial stability by reducing 
the systemic risks created by increased financial sector concentration 
arising from covered acquisitions involving the largest U.S. financial 
companies. It concluded that the concentration limit was likely to have 
little or no effect on moral hazard. With respect to the impact of the 
concentration limit on competitiveness, the Council expected the effect 
to be positive generally, but expressed concern that the limit 
introduces the potential for disparate treatment of covered 
acquisitions between the largest U.S. and foreign firms, depending on 
which firm is the acquirer or the target. Specifically, the statutory 
concentration limit could allow a large foreign-based firm with a small 
U.S. presence to purchase a U.S. target but prevent an equally-sized 
U.S.-based firm from making the same acquisition because the statute 
would count only the U.S. assets of a foreign acquirer, but would count 
the global assets of a U.S. acquirer, when determining compliance with 
the concentration limit. The Council also found that the concentration 
limit is unlikely to have a significant effect on the cost and 
availability of credit and other financial services.
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    \4\ Study and Recommendations Regarding Concentration Limits on 
Large Financial Companies (January 2011), available at: http://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdf.
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    The Council made three recommendations to more effectively 
implement section 622:
     Measure liabilities of financial companies not subject to 
consolidated risk-based capital rules using U.S. generally accepted 
accounting principles (GAAP) or other applicable accounting standards.
     Use a two-year average to calculate aggregate financial 
sector liabilities and publish annually by July 1 the current aggregate 
financial sector liabilities applicable to the period of July 1 through 
June 30 of the following year.
     Extend the ``failing bank exception'' to apply to the 
acquisition of any type of insured depository institution in default or 
in danger of default.\5\
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    \5\ See 76 FR 6756 (Feb. 8, 2011). The Council noted that it 
would review and, if appropriate, revise these recommendations in 
light of the comments it received. As of the date of this notice, 
the Council had not revised any recommendation made regarding the 
concentration limit and, as such, the proposal reflects the 
recommendations set forth in the Council's last publication in the 
Federal Register.
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    The Council also noted that the differences in treatment between 
U.S. and foreign firms could increase the degree to which the largest 
firms operating in the U.S. financial sector are foreign-owned, and 
recommended that the Board continue to monitor and report on the effect 
of the concentration limit on the ability of U.S. firms to compete with 
foreign banking organizations. The Council stated that it would make a 
recommendation to Congress to address adverse competitive dynamics if 
the Council were to later determine that there are any significant 
negative effects of the concentration limit because of the disparate 
treatment of U.S. and foreign firms.
    Section 622 provides that the concentration limit is ``subject to'' 
any recommendations made by the Council that the Council determines 
would more effectively implement section 622, and the Board is required 
to issue final regulations implementing section 622 that ``reflect any 
recommendations made by the Council.'' \6\ Section 622 also explicitly 
authorizes the Board to issue interpretations or guidance regarding 
application of the concentration limit to an individual financial 
company or to financial companies in general.\7\ This proposal would 
implement section 622, as modified by the Council's recommendations.
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    \6\ See 12 U.S.C. 1852(e). As noted in the Senate report that 
accompanied the Senate Banking Committee reported bill which became 
the Dodd-Frank Act, ``[t]he intent [of this authority] is to have 
the Council determine how to effectively implement the concentration 
limit. . . .'' See S. Rep. 111-176 at 92 (Apr. 30, 2010).
    \7\ 12 U.S.C. 1852(d).
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II. Financial Sector Concentration Limit

    Under section 622, a financial company is prohibited from 
consummating a covered acquisition if the ratio of the resulting 
financial company's liabilities to the aggregate consolidated 
liabilities of all financial companies exceeds 10 percent. A 
``financial company'' is defined as a company that is a U.S. insured 
depository institution; a bank holding company; a foreign bank or 
company that is treated as a bank holding company for purposes of the 
Bank Holding Company Act; a savings and loan holding company; any other 
company that controls an insured depository institution (such as an 
industrial loan company, limited-purpose credit card bank, or limited-
purpose trust bank); or a nonbank financial company designated by the 
Council for supervision by the Board. Financial companies that are not 
affiliated with an insured depository institution, such as stand-alone 
broker-dealers or insurance companies, are not subject to the 
concentration limit unless they have been designated by the Council for 
supervision by the Board. The concentration limit also does not 
constrain internal growth by a financial company, so long as that 
growth does not involve a covered acquisition such that the resulting 
company would exceed the limit.

A. Calculating a Financial Company's Liabilities

    Section 622 measures ``liabilities'' of a financial company (other 
than an insurance company or other nonbank financial company supervised 
by the Board) as total risk-weighted assets, as determined under the 
risk-based capital rules applicable to bank holding companies, adjusted 
by an amount to reflect exposures that are deducted from regulatory 
capital, minus total regulatory capital under the risk-based capital 
rules. For foreign financial companies, the statute provides that only 
the liabilities of the U.S. operations of the company are considered in 
applying the concentration limit. The statute further provides that 
liabilities of an insurance company or a nonbank financial company 
supervised by the Board are defined as assets of the company, as 
specified by the Board, in order to provide for consistent and 
equitable treatment of such companies.
    The Council recommended a modification to the definition of 
``liabilities'' to address the calculation of ``liabilities'' for a 
company (other than an insurance company, a nonbank financial company 
supervised by the Board, or a foreign bank or a foreign-based financial 
company that is or is treated as a bank holding company) that is not 
subject to consolidated risk-based capital rules that are substantially 
similar to those applicable to bank holding companies. For such a 
financial company, the Council recommended

[[Page 27803]]

that ``liabilities'' be calculated pursuant to GAAP or other 
appropriate accounting standards applicable to such company, until such 
time that these companies are subject to risk-based capital rules or 
are required to report risk-weighted assets and regulatory capital. The 
proposal incorporates this recommendation.
1. U.S. Financial Companies Subject to Consolidated Risk-Based Capital 
Rules
    Under the proposal, U.S. financial companies subject to 
consolidated risk-based capital rules would calculate liabilities as 
the difference between their risk-weighted assets (as adjusted upward 
to reflect amounts that are deducted from regulatory capital elements 
pursuant to section 22 of the agencies' regulatory capital rules) \8\ 
and their total capital. Bank holding companies and insured depository 
institutions are subject to consolidated risk-based capital rules 
imposed by the Board, Federal Deposit Insurance Corporation (FDIC), or 
Office of the Comptroller of the Currency (OCC). For purposes of 
calculating their liabilities under section 622, these institutions 
would use the risk-based capital rules that are applicable to them.
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    \8\ The proposal refers to these amounts as ``deducted from 
regulatory capital.'' See 12 CFR 3.22 (OCC); 12 CFR 217.22 (Board); 
and 12 CFR 324.22 (FDIC).
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    With respect to savings and loan holding companies, the Board has 
determined to apply the regulatory capital framework for bank holding 
companies to certain savings and loan holding companies.\9\ 
Accordingly, savings and loan holding companies (other than those that 
are substantially engaged in insurance or commercial activities) will 
become subject to the risk-based capital rules beginning January 1, 
2015.\10\ When savings and loan holding companies are subject to 
consolidated risk-based capital rules, they will calculate liabilities 
for purposes of section 622 using their risk-weighted assets and 
regulatory capital under such rules.
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    \9\ 78 FR 62018 (October 11, 2013).
    \10\ The Board continues to consider how to design capital rules 
for savings and loan holding companies that are insurance companies 
or that have subsidiaries engaged in insurance underwriting or are 
substantially engaged in commercial activities.
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    With respect to nonbank financial companies supervised by the 
Board, three nonbank financial companies--American International Group, 
General Electric Capital Corporation, and Prudential Financial, Inc.--
have been designated by the Council for supervision by the Board. The 
Dodd-Frank Act requires the Board to impose enhanced prudential 
standards, including risk-based and leverage capital requirements, on 
nonbank financial companies supervised by the Board.\11\ The Board is 
currently considering how to apply capital rules to nonbank financial 
companies supervised by the Board.
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    \11\ 12 U.S.C. 5365.
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a. Adjustments for Amounts Deducted From Regulatory Capital
    In calculating liabilities under the risk-weighted asset 
methodology under section 622, the statute requires a financial company 
to adjust its total risk-weighted assets to reflect exposures that are 
deducted from regulatory capital.\12\
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    \12\ See 12 U.S.C. 1852(a)(3)(A)(i) and (B)(i). Under the 
Federal banking agencies' regulatory capital rules, bank holding 
companies and insured depository institutions are required to deduct 
fully certain assets from regulatory capital, such as goodwill, 
certain mortgage servicing rights, deferred tax assets, and other 
intangibles. See 12 CFR 3.22 (OCC); 12 CFR 217.22 (Board); and 12 
CFR 324.22 (FDIC).
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    The risk-based capital rules generally require institutions to 
calculate risk-weighted assets by applying risk-weights to assets and 
other exposures, and to hold a minimum of total capital equal to 8 
percent of the total risk-weighted assets. In certain instances, the 
risk-based capital rules require an institution to deduct certain 
exposures, including intangible assets such as goodwill, from 
regulatory capital elements before calculating total capital. This 
deduction, in effect, requires the institutions to hold a dollar of 
capital against each dollar of such exposure. As section 622 measures a 
firm's systemic footprint using the risk-based capital methodology, the 
proposal would upwardly adjust an institution's risk-weighted assets as 
if the deducted amounts were risk-weighted and the firm's total capital 
ratio were held constant.
    While section 622 mandates that an institution adjust its risk-
weighted assets to reflect exposures that are deducted from regulatory 
capital, it is silent as to how to make the adjustment to risk-weighted 
assets to reflect the deducted exposures. In determining how to assign 
a risk-weight to the deducted exposures, the Board considered two 
methods. One method uses a standard risk-weight that would be applied 
to all deducted exposures for all institutions. The second method is an 
institution-specific approach that would apply a risk-weight for 
deducted exposures that is specific to each institution based on that 
institution's total risk-based capital ratio.
    Under the first method, an institution would apply an 1150 percent 
risk-weight to all deducted exposures. Because a regulatory capital 
deduction requires an institution to hold $1 of regulatory capital 
against each $1 of asset subject to deduction, the equivalent risk 
weight for these assets would be 1250 percent given an 8 percent 
minimum total capital ratio ($1 asset * 1250% risk-weight * 8% total 
capital ratio = $1 of capital). In addition, the amount of the asset 
that had been deducted from regulatory capital would be added back to 
regulatory capital, or alternatively, the risk-weight initially applied 
to the deducted asset would be reduced by 100 percent (to 1150 
percent). This method is simple and transparent and adjusts the 
deducted assets to take into account the greater risk that was the 
basis for the deduction. This approach, however, does not take into 
account the fact that institutions generally hold capital in excess of 
the 8 percent minimum total capital ratio and therefore would result in 
more risk-weighted assets than would result were the institution 
required to hold dollar-for-dollar capital against exposures deducted 
from regulatory capital elements.
    The second method, which is the proposed method, would apply an 
institution-specific risk-weight to deducted exposures that would vary 
depending on the institution's actual total capital ratio. This 
institution-specific risk-weight would be equal to the inverse of the 
institution's total capital ratio minus one. Thus, the proposal would 
provide that an institution with a higher capital ratio would apply a 
smaller multiplier to the amounts deducted from regulatory capital. The 
formula subtracts one from the inverse of the total capital ratio to 
account for the fact that amounts deducted from regulatory capital are 
not added back into regulatory capital under section 622. To illustrate 
this method, if an institution's total capital ratio is equal to 8 
percent (the regulatory minimum), the institution-specific factor would 
equal \1/.08\ - 1, or 12.5 - 1, or 11.5. If an institution's total 
capital ratio is equal to 16 percent (twice the regulatory minimum), 
the institution-specific factor would equal \1/.16\ - 1 or 6.25 - 1, or 
5.25. This adjustment would have the effect of risk-weighting these 
assets as if the institution allocated a dollar of capital to each 
dollar of asset deducted from regulatory capital. This method is 
proposed as the arithmetically most precise way to convert a capital 
deduction to a risk-weighted asset amount without

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changing the total capital ratio of the institution and would further 
the statutory purpose by measuring liabilities in an institution-
specific manner.\13\
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    \13\ See 54 FR 4186, 4196 (Jan. 27, 1989) (Board); 54 FR 4168, 
4175 (Jan. 27, 1989) (OCC); 54 FR 11509 (Mar. 21, 1989) (FDIC); 12 
U.S.C. 1828(n).
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    Either of the adjustment methods described above would 
significantly increase the liabilities measure of firms that have large 
amounts of goodwill and deferred tax assets--thereby making the 
limitation more binding for these firms. However, under the proposed 
method, this effect would be smaller for those institutions that had 
higher total capital ratios.
    Question 1: Would an alternative adjustment method better achieve 
the purpose of the statute? Describe the alternative adjustment method 
and provide an explanation of why it would better achieve the purpose 
of the statute.
    Question 2: Should the Board apply a risk-weight of 100 percent for 
some or all items deducted directly from capital? If so, provide a 
detailed explanation to support the alternative proposal.
    Question 3: Should the Board apply a risk-weight of 1250 percent 
(equivalent to a risk-weighting where the minimum total risk-based 
capital ratio is 8 percent) for some or all items deducted directly 
from capital? If so, provide a detailed explanation to support the 
alternative proposal.
b. Advanced Approaches Financial Companies
    Under the agencies' risk-based capital rules, companies subject to 
the advanced approaches capital rules must calculate total risk-
weighted assets using the methodologies under both the generally 
applicable risk-based capital rules and the advanced approaches capital 
rules.\14\ Beginning in 2015, standardized total risk-weighted assets 
will be the generally applicable measure of risk-weighted assets. For 
purposes of the concentration limit, an advanced approaches institution 
that has successfully completed its parallel run would be required to 
use the greater of its generally applicable total risk-weighted assets 
and its advanced approaches total risk-weighted assets in calculating 
its liabilities, and the Board would use the greater of those two 
amounts in calculating an institution's contribution to financial 
sector liabilities.
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    \14\ See 12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); and 12 CFR 
324.10 (FDIC).
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    If the institution's advanced approaches risk-weighted assets were 
larger than its generally applicable risk-weighted assets, the 
institution's regulatory capital would be its advanced-approaches-
adjusted total capital as defined in section 10(c)(3)(ii) of the 
regulatory capital rules.\15\ This provision adjusts total capital by 
deducting any allowance for loan and lease losses included in tier 2 
capital and adding any excess eligible credit reserves over total 
expected credit loss, to the extent that the excess reserve amount does 
not exceed 0.6 percent of the institution's credit risk-weighted 
assets.
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    \15\ 12 CFR 3.10(c)(3)(ii) (OCC); 12 CFR 217.10(c)(3)(ii) 
(Board); and 12 CFR 324.10(c)(3)(ii) (FDIC).
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2. U.S. Financial Companies That Are Not Subject to Risk-Based Capital 
Rules
    As noted above, section 622 generally measures ``liabilities'' of a 
financial company as risk-weighted assets minus regulatory capital. In 
its recommendations, the Council recommended that the Board measure 
liabilities of financial companies not subject to consolidated risk-
based capital rules using U.S. generally accepted accounting principles 
(GAAP) or other applicable accounting standards. Consistent with the 
Council's recommendation, the proposed rule would require a U.S. 
financial company that is not subject to consolidated risk-based 
capital rules to calculate its liabilities in accordance with 
applicable accounting standards. Currently, U.S. savings and loan 
holding companies, nonbank financial companies supervised by the Board, 
bank holding companies with total consolidated assets of less than $500 
million, and U.S. depository institution holding companies that are not 
bank holding companies or savings and loan holding companies fall into 
this category.\16\ However, as noted above, the Board is in the process 
of applying risk-based capital rules to savings and loan holding 
companies and the nonbank financial companies that are currently 
supervised by the Board.
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    \16\ Generally, bank holding companies with total consolidated 
assets of less than $500 million remain subject to the Board's Small 
Bank Holding Company Policy Statement. See 12 CFR part 225, appendix 
C (Small Bank Holding Company Policy Statement).
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    ``Applicable accounting standards'' are defined for purposes of the 
proposed rule as GAAP, or such other accounting standards applicable to 
the company that the Board determines are appropriate. The Board 
expects that most U.S. financial companies that are not subject to 
consolidated risk-based capital rules would use GAAP in calculating 
their liabilities. However, there are a small number of U.S. financial 
companies that only file financial statements in accordance with 
Statutory Accounting Principles (SAP) and do not report consolidated 
financial statements under GAAP. To avoid requiring financial companies 
that do not file consolidated GAAP financial statements to undertake 
the full burden of preparing consolidated GAAP financial statements, 
the proposal would allow such a company to request that it be permitted 
to file an estimate of its total consolidated liabilities using a 
method of estimation to convert SAP financial statements to GAAP 
financial statements. The Board may, subject to review and adjustment, 
permit the company to provide estimated total consolidated liabilities 
on an annual basis using that method of estimation.
    To the maximum extent possible, the Board proposes to use 
information already reported by financial companies. For instance, bank 
holding companies report their risk-weighted assets, regulatory 
deductions, and total capital on the FR Y-9C, and the Board will use 
this information to calculate liabilities of these firms. For bank 
holding companies with total consolidated assets of less than $500 
million, the Board proposes to measure consolidated liabilities by 
taking the difference between total consolidated assets minus the 
equity capital of such company on a consolidated basis, which amounts 
are reported on the Parent Company Only Financial Statements for Small 
Holding Companies (FR Y-9SP).
    At present, U.S. financial companies (other than insured depository 
institutions, bank holding companies, and savings and loan holding 
companies) are not required to report the information necessary for the 
Board to calculate aggregate financial sector liabilities for purposes 
of the concentration limit. In March 2013, the Federal Financial 
Institutions Examination Council (FFIEC) proposed to amend the Bank 
Consolidated Reports of Condition and Income (Call Reports) to require 
an insured depository institution to report an estimate of the 
liabilities of its parent holding company, to the extent that the 
holding company was not a bank holding company or savings and loan 
holding company. Commenters provided views on this proposed collection. 
For instance, one commenter requested that the Board collect this 
information directly from the parent holding company in light of the 
depository institution's limited ability to certify this information, 
and asked that the Board move the timing back until after the parent 
company audits are complete. Another commenter

[[Page 27805]]

asserted that liabilities of some parent holding companies are not 
public information and requested that the Board permit filers to 
request confidential treatment of liabilities of the parent holding 
company. Another commenter requested that the Board permit an 
institution to use SAP in calculating liabilities.
    In light of these comments, as explained below in section II.B.2 of 
this proposal, the Board is seeking comment on a reporting proposal 
that supersedes the March 2013 FFIEC proposal and would require 
financial companies that do not otherwise report consolidated financial 
information to the Board or other appropriate Federal banking agency to 
report their consolidated liabilities to the Board on an annual basis. 
Until these reporting requirements are adopted, the Board proposes to 
rely on publicly available information in order to estimate the total 
consolidated liabilities of these financial companies.
    Section 622 defines the term ``liabilities'' for nonbank financial 
companies supervised by the Board to mean ``assets of the company as 
the Board shall specify by rule, in order to provide for consistent and 
equitable treatment of such companies.'' \17\ The proposal provides for 
consistent and equitable treatment of nonbank financial companies 
supervised by the Board by permitting each nonbank financial company to 
calculate its liabilities using applicable accounting standards until 
such companies are subject to risk-based capital requirements. As noted 
above, the Board expects that the applicable accounting standard 
generally would be GAAP. However, the proposal would permit a company 
to request to use a standard other than GAAP to calculate its 
liabilities for purposes of the proposal if the company does not 
calculate its total consolidated assets under GAAP for any regulatory 
purpose. The Board may, in its discretion, subject to review and 
adjustment, permit the company to provide estimated total consolidated 
assets on an annual basis using this other accounting standard or 
method of estimation. After a nonbank financial company is subject to 
risk-based capital rules, the nonbank financial company would calculate 
liabilities using the risk-weighted asset methodology under those risk-
based capital rules.
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    \17\ See section 622 of the Dodd-Frank Act; 12 U.S.C. 
1852(a)(3)(C).
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    Question 4: Requiring a financial company to calculate its 
liabilities using applicable accounting standards could lead to a 
greater amount of liabilities for the company, and therefore a more 
binding limit for the company, than if the company measured liabilities 
as the difference between risk-weighted assets, as modified to reflect 
amounts that are deducted from regulatory capital, and regulatory 
capital. Should the Board permit U.S. financial companies that are not 
insured depository institutions, bank holding companies or saving and 
loan holding companies to make a permanent, one-time election to 
measure their liabilities using the risk-weighted methodology in the 
same manner as bank holding companies for purposes of the concentration 
limit? If so, how should a company that meets the threshold for an 
advanced approaches banking organization calculate risk-weighted 
assets?
    Question 5: Are there instances where a company that is not subject 
to consolidated risk-based capital rules should be permitted to use a 
methodology other than applicable accounting standards?
    Question 6: In what instances may a company request that the Board 
consider an alternative accounting standard or method of estimation 
other than GAAP? What factors should the Board consider in determining 
whether to permit a financial company to use an accounting standard or 
method of estimation other than GAAP in calculating its liabilities for 
purposes of the concentration limit?
3. Foreign Banking Organizations
    Section 622 provides that the liabilities of a foreign financial 
company are to be calculated for purposes of the concentration limit 
based on the risk-weighted assets and regulatory capital attributable 
to the company's U.S. operations. The proposal would define ``U.S. 
operations'' of a foreign banking organization as the liabilities of 
all U.S. branches, agencies, and subsidiaries domiciled in the United 
States on a consolidated basis (including any lower-tier subsidiary of 
the U.S. subsidiary, whether domestic or foreign).\18\
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    \18\ This is consistent with the definition of ``combined U.S. 
assets'' set forth in the Board's final rule implementing section 
165 of the Dodd-Frank Act for foreign banking organizations. 
Enhanced Prudential Standards for Bank Holding Companies and Foreign 
Banking Organizations (February 18, 2014), available at: http://www.federalreserve.gov/aboutthefed/boardmeetings/20140218openmaterials.htm.
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    While foreign banking organizations are subject to risk-based 
capital requirements on a consolidated basis established by their home 
country supervisors, they currently are not required to calculate the 
risk-weighted assets and risk-based capital of their U.S. operations 
independently from their consolidated group. An exception to this rule 
would be where a foreign banking organization conducts its U.S. 
operations through a U.S. bank holding company or directly through a 
U.S. insured depository institution, both of which would be subject to 
risk-based capital requirements.\19\
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    \19\ See, e.g., 12 U.S.C. 3105(d); 12 U.S.C. 1842(c)(3)(B).
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    In furtherance of the Council's recommendations and to minimize 
burden on foreign banking organizations, the proposal would calculate 
``liabilities'' of a foreign banking organization using GAAP assets to 
the extent that all or a portion of the foreign banking organization's 
U.S. operations does not calculate and report to the Board risk-
weighted assets independently from the consolidated foreign banking 
organization. The ``liabilities'' figure for U.S. branches and agencies 
of foreign banks would not be reduced by equity capital because U.S. 
branches and agencies are not required to hold capital separately from 
their foreign bank parent. The amount of GAAP assets would include any 
net amounts that the branch, agency, or U.S. subsidiary has lent to the 
foreign bank's non-U.S. offices or non-U.S. affiliates (other than 
those non-U.S. affiliates owned by a U.S. subsidiary of the foreign 
banking organization). These balances represent exposures of the U.S. 
branch, agency, or U.S. subsidiary to the non-U.S. affiliates that are 
part of the institution's U.S. operations. However, the amount of GAAP 
assets would exclude amounts corresponding to balances and transactions 
between and among its U.S. branches, agencies, and U.S. subsidiaries 
(including any non-U.S. lower-tier subsidiaries of such U.S. 
subsidiaries) to the extent such items are not already eliminated in 
consolidation, to avoid double counting of assets by affiliates.
    Top-tier U.S. subsidiaries of foreign banking organizations that 
are subject to U.S. consolidated risk-based capital requirements, such 
as bank holding companies or insured depository institutions, would 
measure liabilities based on their consolidated risk-weighted assets, 
modified to reflect amounts that are deducted from regulatory capital, 
and regulatory capital.\20\ Similarly, top-tier U.S. subsidiaries that 
currently rely on Supervision and Regulation Letter SR

[[Page 27806]]

01-01 (SR 01-01) report their risk-weighted assets and regulatory 
capital amounts to the Board as if they were subject to U.S. 
consolidated risk-based capital requirements and, therefore, would 
measure liabilities based on consolidated risk-weighted assets, 
adjusted to reflect amounts deducted from regulatory capital, and 
regulatory capital calculated under U.S. consolidated risk-based 
capital requirements.
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    \20\ The adjustment to reflect amounts that are deducted from 
regulatory capital applicable to U.S. subsidiaries would be 
calculated using the same methodology used for insured depository 
institutions and U.S. bank holding companies, as described in 
section II.A.1.a of this preamble.
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    On February 18, 2014, the Board approved a final rule adopting 
enhanced prudential standards for large U.S. and foreign banking 
organizations. The final rule would require foreign banking 
organizations with $50 billion or more in global total consolidated 
assets and $50 billion or more in total non-branch U.S. assets to 
organize their U.S. subsidiaries under a single top-tier U.S. 
intermediate holding company.\21\ Under the final rule, the U.S. 
intermediate holding company is generally subject to the same risk-
based capital requirements applicable to U.S. bank holding companies 
(other than the advanced approaches rules). A foreign banking 
organization that is required to form a U.S. intermediate holding 
company will be required to measure liabilities of its U.S. 
intermediate holding company as its risk-weighted assets, adjusted to 
reflect amounts deducted from regulatory capital, minus its regulatory 
capital calculated under the applicable U.S. risk-based capital 
requirements. The measure of total liabilities for the foreign banking 
organization generally will be the sum of the total liabilities for the 
U.S. intermediate holding company plus the total assets of the U.S. 
branches and agencies of the foreign banking organization.
---------------------------------------------------------------------------

    \21\ Enhanced Prudential Standards for Bank Holding Companies 
and Foreign Banking Organizations (February 18, 2014), available at: 
http://www.federalreserve.gov/aboutthefed/boardmeetings/20140218openmaterials.htm.
---------------------------------------------------------------------------

    In 2013, the Board amended the Capital and Asset Report for Foreign 
Banking Organizations (FR Y-7Q) to require foreign banking 
organizations to report a new item entitled ``Total combined assets of 
U.S. operations, net of intercompany balances and transactions between 
U.S. domiciled affiliates, branches, and agencies.'' Foreign banking 
organizations will begin reporting this item as of March 31, 2014.\22\ 
As discussed in section II.B.1 of this preamble, the proposal would 
measure aggregate financial sector liabilities as the average of the 
financial sector liabilities as of December 31 of each of the preceding 
two calendar years. In order to permit the Board to calculate the 
aggregate financial sector liabilities as of the end of 2013, the Board 
intends to request foreign banking organizations to report their 
liabilities as of December 31, 2013.
---------------------------------------------------------------------------

    \22\ Some respondents will not report the new item on the FR Y-
7Q until December 2014.
---------------------------------------------------------------------------

    Otherwise, the Board intends to use information from the Board's 
regulatory reports, including information reported on the FR Y-7Q, in 
calculating the liabilities of a foreign banking organization. To the 
extent that the foreign banking organization owns a U.S. insured 
depository institution or bank holding company, the Board also intends 
to use information reported on the FR Y-9C and the Call Report to 
calculate the U.S. liabilities of that foreign banking 
organization.\23\
---------------------------------------------------------------------------

    \23\ In calculating total combined U.S. assets, a foreign 
banking organization does not include assets attributable to 
investments in section 2(h)(2) companies; accordingly, these assets 
will not be included in liabilities for purposes of section 622. 
Until total combined U.S. assets are reported, the Board will use 
information provided on the Report of Assets and Liabilities of U.S. 
Branches and Agencies of Foreign Banks (FFIEC 002) and the Financial 
Statements of U.S. Nonbank Subsidiaries Held by Foreign Banking 
Organizations (FR Y-7N/FR Y-7NS) as a proxy for liabilities.
---------------------------------------------------------------------------

    Question 7: What alternative methods for calculating liabilities 
should the Board consider for foreign banking organizations? Should the 
Board calculate the liabilities of a foreign banking organization by 
multiplying its U.S. assets by the ratio of the foreign banking 
organization's total global consolidated risk-weighted assets to total 
global consolidated assets?
4. Foreign Financial Companies That Are Not Foreign Banking 
Organizations
    Foreign financial companies subject to the concentration limit 
include foreign savings and loan holding companies, foreign companies 
that control U.S. insured depository institutions such as industrial 
loan companies and limited-purpose credit card banks, and foreign 
nonbank financial companies supervised by the Board.\24\ ``U.S. 
operations'' of such a foreign company would include the operations of 
all subsidiaries domiciled in the United States on a consolidated basis 
(including any lower-tier subsidiary of the U.S. subsidiary, whether 
domestic or foreign). At present, there are foreign companies that 
control U.S. insured depository institutions, but there are no foreign 
savings and loan holding companies or foreign nonbank financial 
companies supervised by the Board.
---------------------------------------------------------------------------

    \24\ A foreign nonbank financial company supervised by the Board 
is a nonbank financial company designated by the Council for 
supervision by the Board that is incorporated or organized in a 
country other than the United States.
---------------------------------------------------------------------------

    Liabilities of such foreign financial companies would equal the sum 
of the liabilities of all top-tier U.S. subsidiaries subject to risk-
based capital rules (calculated based on risk-weighted assets, adjusted 
to reflect amounts deducted from regulatory capital, and regulatory 
capital as determined under risk-based capital rules) and the sum of 
the liabilities of all other top-tier U.S. subsidiaries (calculated 
under applicable accounting rules).\25\
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    \25\ As noted above, the Board contemplates that such a company 
would generally use GAAP in calculating liabilities. However, the 
proposal would permit a company to request to use a standard other 
than GAAP to calculate its liabilities if the company does not 
calculate its total consolidated assets or liabilities under GAAP 
for any regulatory purpose. The Board may, in its discretion and 
subject to Board review and adjustment, permit the company to 
provide estimated total consolidated liabilities on an annual basis 
using this other accounting standard or method of estimation.
---------------------------------------------------------------------------

    Consistent with the treatment of foreign banking organizations, the 
proposal would permit a foreign financial company to exclude amounts 
corresponding to balances and transactions between its U.S. 
subsidiaries (including any non-U.S. lower-tier subsidiaries of such 
U.S. subsidiaries) to the extent such items are not already eliminated 
in consolidation.
    As noted above, section 622 requires the Board to establish the 
methodology for calculating the liabilities of an insurance company or 
other nonbank financial company supervised by the Board in order to 
provide for consistent and equitable treatment of such companies. For 
the reasons stated above, the proposal provides for consistent and 
equitable treatment of nonbank financial companies supervised by the 
Board by permitting each nonbank financial company to calculate its 
liabilities using applicable accounting standards.
    Currently, foreign financial companies that are not bank holding 
companies or savings and loan holding companies do not report 
consolidated financial information to the Board. Accordingly, the Board 
proposes to issue a reporting proposal that would require such 
institutions to report their liabilities to the Board on an annual 
basis, as discussed further in section II.B.2 of this preamble.
    Question 8: What alternative methods for calculating liabilities of 
a foreign nonbank financial company should the Board consider?

[[Page 27807]]

B. Measuring Aggregate Financial Sector Liabilities

1. Timing of Measurement
    Section 622 applies the liability cap based on the aggregate 
consolidated liabilities of all financial companies operating in the 
United States. Under the statute, the aggregate consolidated 
liabilities of all financial companies is measured as of the end of the 
calendar year preceding the transaction. The Council recommended 
modifying the concentration limit to measure the average amount of 
aggregate consolidated liabilities of all financial companies as 
reported by the Board as of the end of the two most recent calendar 
years.\26\ The Council expressed the view that measuring the 
denominator for any given year as of a single date (i.e., the end of 
the calendar year) may introduce excessive volatility into the 
concentration limit and its application, particularly given the large 
increase or decrease in the denominator that might occur from year to 
year as the result of specific one-time events, such as the Council's 
designation of a nonbank financial company for supervision by the 
Board, the rescission of such a designation, or the acquisition (or 
sale) of a bank by a large company that causes it to be newly included 
(or excluded) from the concentration limit denominator. The Council's 
recommendations further instruct the Board to publicly report, on an 
annual basis and no later than July 1 of any calendar year, a final 
calculation of the aggregate consolidated liabilities of all financial 
companies as of the end of the preceding calendar year. The Council 
believed that this would facilitate compliance with the limits of 
section 622 by establishing a single public baseline against which all 
firms could measure their compliance with the section's limits.\27\
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    \26\ Under the statute, the Board is required to issue 
regulations implementing section 622 in accordance with the 
Council's recommendations, including the definition of terms, as 
necessary. See 12 U.S.C. 1852(d).
    \27\ See Council study, p. 20.
---------------------------------------------------------------------------

    As recommended by the Council, the proposal would measure aggregate 
financial sector liabilities as the average of the financial sector 
liabilities as of December 31 of each of the preceding two calendar 
years. To ease compliance and add certainty to the calculation, the 
Board would calculate and publish, by July 1 of each year, the 
aggregate financial sector liabilities as of December 31 for the 
preceding calendar year and the average of the financial sector 
liabilities for the preceding two calendar years. This two-year average 
would be the legally binding denominator for all calculations of the 
concentration limit from July 1 of that year until June 30 of the 
subsequent year.
    The Board has estimated the financial sector liabilities as of 
December 31, 2013, using the methodology set forth above and 
information available to date. As of December 31, 2013, under the 
estimated proposed method, financial sector liabilities is 
approximately $18 trillion.\28\
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    \28\ The Board notes that limitations in existing reporting 
requirements, such as those discussed in section II.B.2 of this 
proposal, may result in underestimation of the aggregate financial 
sector liabilities calculated as of December 31, 2013. The estimate 
of aggregate financial sector liabilities was derived using 
information contained in publicly-available regulatory reports as of 
December 31, 2013 or the most current reporting date. The scope of 
regulatory reports were generally determined by category of 
financial company: Bank holding companies (FR Y-9C), small bank 
holding companies (FR Y-9SP), foreign banking organizations (FR 
2886B, FR Y-7N and FR Y-7NS, FFIEC 002, and SEC Form X-17A-5), 
savings and loan holding companies (FR 2320), other depository 
institutions (FFIEC 031 and 041), and nonbank financial companies 
and other holding companies (SEC Form 10-Q).
---------------------------------------------------------------------------

    Question 9: The Board has recently implemented revisions to its 
risk-based capital framework, including the June 2012 revisions to the 
market risk framework and the July 2013 revisions to the risk-based 
capital framework to implement the Basel III regulatory capital reforms 
from the Basel Committee on Banking Supervision and certain changes 
required by the Dodd-Frank Act.\29\ Together, these rules may 
significantly increase the risk-weighted assets (and thus the amount of 
liabilities for purposes of the concentration limit) of certain 
companies, particularly companies with large trading activities. 
Because these rules are implemented over a period of years until 
January 2018, the calculation of the aggregate financial sector 
liabilities on a two-year rolling basis will include liabilities 
calculated under the old capital rules even after the firm adopts the 
new rules. Should the Board consider a transition period for 
calculating aggregate financial sector liabilities to reduce this 
disparity? For instance, should the Board consider measuring aggregate 
financial sector liabilities as of the previous calendar year-end, 
rather than the average of the previous two year-ends, during some or 
all of the Basel III phase-in period?
---------------------------------------------------------------------------

    \29\ 78 FR 62018 (October 11, 2013), 77 FR 53060 (August 30, 
2012).
---------------------------------------------------------------------------

2. New Report To Collect Total Liabilities of a Financial Company That 
Does Not Report Consolidated Financial Information to the Board or 
Other Appropriate Federal Banking Agency
    As previously described, the concentration limit applies to a 
``financial company,'' which is defined to include an insured 
depository institution, a bank holding company, a savings and loan 
holding company, a nonbank financial company supervised by the Board, a 
company that controls an insured depository institution, and a foreign 
bank or company that is treated as a bank holding company for purposes 
of the Bank Holding Company Act.\30\
---------------------------------------------------------------------------

    \30\ A parent holding company has control over a depository 
institution if (A) the company directly or indirectly or acting 
through one or more other persons owns, controls, or has power to 
vote 25 per centum or more of any class of voting securities of the 
depository institution; (B) the company controls in any manner the 
election of a majority of the directors or trustees of the 
depository institution; or (C) the Board determines, after notice 
and opportunity for hearing, that the company directly or indirectly 
exercises a controlling influence over the management or policies of 
the depository institution.
---------------------------------------------------------------------------

    At present, many financial companies do not report consolidated 
financial information to the Board or other appropriate Federal banking 
agency. These institutions include savings and loan holding companies 
where the top-tier holding company is an insurance company that only 
prepares financial statements in accordance with SAP, holding companies 
of industrial loan companies, limited-purpose credit card banks, and 
limited-purpose trust banks, and currently, nonbank financial companies 
supervised by the Board.
    In order to implement section 622, this proposal would create a new 
report, the Financial Company (as defined) Report of Consolidated 
Liabilities (FR Y-17) on which a financial company that does not 
otherwise report consolidated financial information to the Board or 
other appropriate Federal banking agency would be required to report 
information on its liabilities for purposes of calculating the 
aggregate financial sector liabilities.
    Specifically, financial companies domiciled in the United States 
would be required to report their total consolidated liabilities under 
applicable accounting standards.\31\ With respect to

[[Page 27808]]

a financial company domiciled in a country other than the United 
States, the financial company would be required to report the sum of 
the total consolidated liabilities of each top-tier U.S. subsidiary of 
the financial company, as determined under applicable accounting 
standards. A parent holding company is permitted, but is not required, 
to reduce total liabilities by amounts corresponding to balances and 
transactions between U.S. subsidiaries of the parent holding company to 
the extent such items would not already be eliminated in consolidation.
---------------------------------------------------------------------------

    \31\ ``Applicable accounting standards'' are defined for 
purposes of the proposed rule as GAAP, or such other accounting 
standards applicable to the company that the Board determines are 
appropriate. If a company does not calculate its total consolidated 
assets or liabilities under GAAP for any regulatory purpose 
(including compliance with applicable securities laws), the company 
may submit a request to the Board that it use an accounting standard 
or method of estimation other than GAAP to calculate its liabilities 
for purposes of this subpart. The Board may, in its discretion and 
subject to Board review and adjustment, permit the company to 
provide estimated total consolidated liabilities on an annual basis 
using this accounting standard or method of estimation.
---------------------------------------------------------------------------

    Information contained in this report generally would be made 
available to the public upon request on an individual basis. However, a 
reporting holding company may request confidential treatment for the 
report if the holding company believes that disclosure of specific 
commercial or financial information in the report would likely result 
in substantial harm to its competitive position or that disclosure of 
the submitted information would result in unwarranted invasion of 
personal privacy.
    The Board intends to collect this report beginning in the first 
quarter of 2015. However, as discussed in section II.B.1 of this 
preamble, the proposal would measure aggregate financial sector 
liabilities as the average of the financial sector liabilities as of 
December 31 of each of the preceding two calendar years. In order to 
permit the Board to calculate the aggregate financial sector 
liabilities as of the end of 2013, the Board intends to request that, 
in the first report, all holding companies report their liabilities as 
of December 31, 2013 and as of December 31, 2014.
    Question 10: Should the Board measure aggregate financial sector 
liabilities for purposes of the initial period between July 1, 2015 and 
June 30, 2016 solely using a one year measure of the aggregate 
financial sector liabilities for 2014 (as of year end 2013) or a two 
year measure using year end numbers 2013 and 2014?

C. Applying the Concentration Limit

    Section 622 prohibits a financial company from consummating a 
covered acquisition if the liabilities of the resulting financial 
company upon consummation of the covered acquisition would exceed 10 
percent of aggregate financial sector liabilities. As section 622 
incorporates the concentration limit into a new section of the Bank 
Holding Company Act, the proposal would define ``control'' using the 
Bank Holding Company Act's definition of control.
1. Measuring Liabilities Upon Consummation of a Covered Acquisition
    As discussed above, the proposal implements the statutory 
definition of liabilities, measuring liabilities of a U.S. financial 
company on the basis of the liabilities of its global operations and 
liabilities of a foreign financial company on the basis of the 
liabilities of its U.S. operations. In general, liabilities of the U.S. 
operations of a foreign financial company include liabilities of each 
U.S. company owned by the foreign bank and any of its subsidiaries, 
whether the subsidiary is U.S. or foreign.\32\ Consistent with section 
622, where a covered acquisition involves a U.S. acquirer and a U.S. 
target, the proposal provides that liabilities upon consummation of the 
covered acquisition would equal the total consolidated liabilities of 
the resulting U.S. company. Where a covered acquisition involves a 
foreign acquirer and a foreign target, liabilities upon consummation of 
the covered acquisition would equal the total consolidated liabilities 
of the U.S. operations of the resulting foreign financial company.
---------------------------------------------------------------------------

    \32\ With respect to a foreign financial company that is a 
foreign bank, liabilities also include liabilities of U.S. branches 
and agencies of the foreign bank.
---------------------------------------------------------------------------

    In the case of a cross-border covered acquisition, the proposal 
would calculate the liabilities of a U.S. company to include the 
liabilities of its U.S. and foreign subsidiaries, regardless of whether 
the U.S. company is the acquirer or target. This approach is consistent 
with the calculation of liabilities of a U.S. financial company 
provided in the statute.\33\ Consequently, for a covered acquisition 
where the acquiring organization is a U.S. financial company and the 
target is foreign-based, the liabilities of the financial company upon 
consummation of the covered acquisition would equal the total 
consolidated liabilities of the resulting U.S. company, which would 
include all the consolidated liabilities of the foreign target. 
Similarly, for a covered acquisition where the acquiring organization 
is a foreign financial company and the target is U.S.-based, the 
proposed rule would calculate liabilities of the resulting financial 
company upon consummation as including all of the consolidated 
liabilities of the U.S. target.
---------------------------------------------------------------------------

    \33\ 12 U.S.C. 1852(a)(3)(A).
---------------------------------------------------------------------------

    Question 11: What alternative methods for measuring liabilities 
upon consummation of a covered acquisition should the Board consider?
2. Transactions for Which a Notice or Application Is Not Otherwise 
Required
    The section 622 concentration limit is applicable to any covered 
acquisition, regardless of whether a notice or application of the 
transaction is otherwise required to be filed with the Board or another 
regulator. To the extent that the Board receives a notice or 
application with respect to a covered acquisition, the Board would 
review the application of the concentration limit in connection with 
its review of the transaction.
    Under the proposal, in circumstances where there is not a 
requirement to file a prior notice or application with respect to a 
transaction with the Board, a financial company would be required to 
provide written notice to the Board if, as of the date of consummation 
of the transaction, the liabilities of the resulting financial company 
(estimated on the basis of the company's pro forma financial 
statements) would be above 8 percent of aggregate financial sector 
liabilities and the covered acquisition would increase the liabilities 
of the resulting financial company by more than $2 billion, when 
aggregated with all other covered acquisitions during the twelve months 
preceding the consummation of the transaction. The deadline for the 
notification would be the earlier of (i) 60 days before consummation of 
the covered acquisition or (ii) 10 days after execution of the 
transaction agreement. The notice must include a description of the 
proposed covered transaction, estimates of the pro forma liabilities 
and assets of the resulting company upon consummation of the 
transaction, and any other information that the Board determines would 
be appropriate. This simple notice will allow the Board to monitor 
compliance with the statute.
    Question 12: Should an alternative threshold at which a company is 
required to notify the Board of a proposed transaction be considered? 
If so, provide a description of the alternative threshold and an 
explanation of why it should be adopted.
3. Acquisitions by Nonfinancial Companies
    Under the proposal, covered acquisitions between a financial 
company and a company that is not a financial company under section 
622, including those in which the

[[Page 27809]]

nonfinancial company is the acquirer, and becomes a financial company 
as a result of the transaction, would generally be covered by the 
limit.
    Question 13: The proposal would treat a covered acquisition as 
subject to the concentration limit if the resulting company is a 
financial company. Are there alternatives that the Board should 
consider?

D. Exceptions to the Concentration Limit

    The statute exempts three types of acquisitions from the 
concentration limit: (i) An acquisition of a bank in default or in 
danger of default; (ii) an acquisition with respect to which the FDIC 
provides assistance under section 13(c) of the Federal Deposit 
Insurance Act; and (iii) an acquisition that would result only in a de 
minimis increase in the liabilities of the financial company.\34\
---------------------------------------------------------------------------

    \34\ See 12 U.S.C. 1852(c).
---------------------------------------------------------------------------

1. Exceptions to the Concentration Limit
a. Failing Bank Exception
    In its recommendations, the Council recommended that the 
concentration limit under section 622 be modified to expand the 
``failing bank exception'' to apply to the acquisition of any type of 
insured depository institution in default or in danger of default. The 
Council noted that section 622 does not restrict an acquisition of a 
``bank'' (as that term is defined in the Bank Holding Company Act) in 
default or in danger of default, subject to the prior written consent 
of the Board; however, this exception applies by its terms to a failing 
``bank,'' rather than all types of failing insured depository 
institutions, including savings associations, industrial loan 
companies, and limited-purpose credit card banks. According to the 
Council, ``the important policy that supports the exception for the 
acquisition of failing banks-namely, the strong public interest in 
limiting the costs to the Deposit Insurance Fund that could arise if a 
bank were to fail, which might be partly or wholly limited through 
acquisition of a failing bank by another firm-applies equally to 
insured depository institutions generally, and is not limited to 
``banks'' as that term is defined in the [Bank Holding Company Act].''
    The proposal would implement this statutory provision, as modified 
by the Council's recommendation.
b. De Minimis Transaction
    Under section 622, with prior written consent of the Board, the 
concentration limit in section 622 does not apply to an acquisition 
that would result only in a de minimis increase in the liabilities of 
the financial company. The proposal defines a de minimis increase for 
purposes of the concentration limit as an increase in the total 
consolidated liabilities of a financial company that does not exceed $2 
billion, when aggregated with all other acquisitions by the company 
under the de minimis authority during the twelve months preceding the 
date of the transaction. Under this proposal, an acquisition that 
increases a financial company's concentration limit liabilities by $2 
billion or less is unlikely on its own to raise financial stability 
concerns.\35\
---------------------------------------------------------------------------

    \35\ See, e.g., Capital One Financial Corporation, FRB Order No. 
2012-2 (Feb. 14, 2012).
---------------------------------------------------------------------------

    Under the proposal, a financial company seeking to make an 
acquisition that qualifies for an exception described above must obtain 
the prior written consent of the Board, in addition to any other 
regulatory notices or approvals otherwise required for the acquisition. 
The Board expects that a financial company that seeks to rely on the de 
minimis exception to the concentration limit cap will make a written 
request at least 60 days before it intends to consummate the 
transaction. The Board also is seeking comment on whether in connection 
with granting consent to a de minimis transaction, the Board should 
consider requests by the financial company that the Board pre-approve 
de minimis transactions below a lower threshold, such as $25 million.
2. Ordinary Business Transactions
    Neither the statute nor the proposal limits the ability of 
financial firms to grow or expand their activities other than through a 
covered acquisition or to engage in certain types of ordinary business 
transactions, such as acquiring shares in the ordinary course of 
collecting a debt previously contracted, in a fiduciary capacity, in 
connection with underwriting or market making, or merchant or 
investment banking activity, or as part of an internal corporate 
reorganization. In these instances, shares are generally held for a 
limited time period or do not involve the expansion of the firm.
a. Debt Previously Contracted
    Under the proposal, securities or other assets acquired by a 
financial company in the ordinary course of collecting a debt 
previously contracted would not be treated as an acquisition for 
purposes of the concentration limit, so long as the securities or other 
assets are acquired in good faith and divested within the time period 
permitted by the appropriate Federal banking agency (including 
extensions) or, if the financial company does not have an appropriate 
Federal banking agency, five years.
    Question 14: Should the Board shorten or expand the five-year time 
period under which a financial company must divest assets acquired in 
connection with collecting a debt previously contracted where the 
financial company does not have an appropriate Federal banking agency? 
If so, why?
b. Fiduciary Capacity
    The acquisition of securities or other assets by a financial 
company in a bona fide fiduciary capacity would not be treated as an 
acquisition for purposes of the concentration limit so long as the 
acquisition is in good faith and the securities or other assets are 
held in the ordinary course of fiduciary business and not acquired for 
the benefit of the company or its shareholders, employees, or 
subsidiaries.
c. Underwriting or Market Making
    The acquisition of securities or other assets by a financial 
company in connection with bona fide underwriting or market making 
activities would not be treated as an acquisition for purposes of the 
concentration limit because the financial company acquires the shares 
for resale and does not exert managerial control over the underlying 
companies.
d. Merchant or Investment Banking Activity
    The acquisition of securities as part of a financial company's bona 
fide merchant or investment banking activity would not be treated as an 
acquisition for purposes of the concentration limit. This is because 
merchant banking is authorized as a financial activity under which the 
financial company acquires the shares for passive investment, holds the 
shares for a limited period of time, and does not exert managerial 
control over the investment.\36\
---------------------------------------------------------------------------

    \36\ See 4(k) of the Bank Holding Company Act; 12 CFR 225.170 
through 225.177; 12 CFR 242.
---------------------------------------------------------------------------

e. Internal Corporate Reorganization
    An internal corporate reorganization conducted by a financial 
company would not be treated as an acquisition for purposes of the 
concentration limit. The proposal would define an internal corporate 
reorganization to include the merger of subsidiaries of the financial 
company, the transfer of control or ownership of a subsidiary between 
one subsidiary of the financial company and another subsidiary of the 
financial

[[Page 27810]]

company, the transfer of control or ownership of a subsidiary of the 
financial company between the financial company and one of its other 
subsidiaries, and the formation by a financial company of a newly-
incorporated or organized subsidiary. Under the proposal, the 
reorganization must represent only an internal corporate 
reorganization, and the companies involved must be lawfully controlled 
and operated by the financial company both before and following the 
reorganization.

E. Anti-Evasion

    In order to ensure that the concentration limit is effectively 
applied across all financial companies, the proposal contains an anti-
evasion provision that would prohibit a financial company from 
organizing or operating its business or structuring any acquisition of, 
or merger or consolidation with, another company in such a manner that 
would result in evasion of application of the concentration limit. For 
instance, a U.S. financial company would not be subject to different 
treatment under the concentration limit if it changed its charter of 
incorporation to become a foreign financial company in order to evade 
application of the concentration limit.
    Other provisions of the Dodd-Frank Act require the Board, in 
evaluating applications or notices under section 3 or 4 of the Bank 
Holding Company Act or under section 163 of the Dodd-Frank Act, to 
consider the risks to financial stability posed by a merger or 
acquisition by a financial company.\37\ These provisions may result in 
more stringent limitations than the concentration limit for a 
particular transaction or proposal, depending on the Board's analysis 
of the effects of the proposal on financial stability. Furthermore, 
other restrictions on acquisitions, such as the competitive 
restrictions contained in the Bank Holding Company Act or Federal 
antitrust laws, may also limit certain transactions by financial 
companies.\38\ The concentration limit does not constrain internal 
growth by a financial company, so long as that growth does not involve 
the consummation of a covered acquisition such that the resulting 
company would exceed the limit.
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    \37\ See sections 163, 173, and 604(d), (e) and (f) of the Dodd-
Frank Act; 12 U.S.C. 1842(c), 1843(j)(2)(A), 1828(c)(5), 5363, and 
5373.
    \38\ See, e.g., 12 U.S.C. 1842(d) and 1843(j); 12 CFR 
225.14(c)(5) and (6).
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III. Administrative Law Matters

A. Solicitation of Comments on the Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The Board has sought to present the proposed rule in a 
simple and straightforward manner, and invites comment on the use of 
plain language.
    For example:
     Have we organized the material to suit your needs? If not, 
how could the rule be more clearly stated?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could we do to make the regulation easier to 
understand?

B. Paperwork Reduction Act Analysis

Request for Comment on Proposed Information Collection
    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (44 U.S.C. Sec.  3501-3521) (PRA), the Board may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The Board will obtain an OMB control 
number. The Board reviewed the proposed rule under the authority 
delegated to the Board by OMB.
    The proposed rule contains requirements subject to the PRA. The 
reporting requirements are found in sections 251.6(a) and (b). To 
implement the reporting requirement set forth in 251.6(a), the Board 
proposes to create a new reporting form, the Financial Company Report 
of Consolidated Liabilities (FR Y-17). This information collection 
requirement would implement section 622 of the Dodd-Frank Act.
    Comments are invited on:
    (a) Whether the proposed collections of information are necessary 
for the proper performance of the Board's functions, including whether 
the information has practical utility;
    (b) The accuracy of the estimates of the burden of the proposed 
information collections, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on the 
collection of information should be sent to Robert deV. Frierson, 
Secretary, Board of Governors of the Federal Reserve System, 20th 
Street and Constitution Avenue NW., Washington, DC 20551. A copy of the 
comments may also be submitted to the OMB desk officer by mail to the 
Office of Information and Regulatory Affairs, U.S. Office of Management 
and Budget, New Executive Office Building, Room 10235, 725 17th Street 
NW., Washington, DC 20503 or by facsimile to 202-395-6974.
Proposed Information Collection
    Title of Information Collection: Financial Company Report of 
Consolidated Liabilities (FR Y-17); Reporting Requirements Associated 
with Regulation XX (Concentration Limits on Large Financial Companies) 
(Reg XX).
    Frequency of Response: FR Y-17: Annual.
    Reporting Requirements Associated with section 251.6(b) of 
Regulation XX: On occasion.
    Affected Public: Businesses or other for-profit.
    Respondents:
    Financial Company Report of Consolidated Liabilities (FR Y-17): 
U.S. and foreign financial companies that do not otherwise report 
consolidated financial information to the Board or appropriate Federal 
banking agency.
    Reporting Requirements Associated with section 251.6(b) of 
Regulation XX: Insured depository institutions, bank holding companies, 
foreign banking organizations, savings and loan holding company, 
companies that control insured depository institutions, and nonbank 
financial companies supervised by the Board.
    Abstract: Section 622 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, which adds a new

[[Page 27811]]

section 14 to the Bank Holding Company Act of 1956, as amended, 
establishes a financial sector concentration limit that generally 
prohibits a financial company from merging or consolidating with, or 
acquiring, another company if the resulting company's liabilities upon 
consummation would exceed 10 percent of the aggregate liabilities of 
all financial companies as calculated under that section. In addition, 
the proposal would require certain financial companies to report 
information necessary to calculate the financial sector concentration 
limit.
    Section 251.6(a) would require financial companies that do not 
report consolidated financial information to the Board or other 
appropriate Federal banking agency to report information on their total 
liabilities. At present, many financial companies do not report 
consolidated financial information to the Board or other appropriate 
Federal banking agency. These institutions include savings and loan 
holding companies where the top-tier holding company is an insurance 
company that only prepares financial statements in accordance with SAP, 
holding companies of industrial loan companies, limited-purpose credit 
card bans, and limited-purpose trust banks. Because this information is 
necessary to implement section 622, this proposal would create a new 
report, the Financial Company (as defined) Report of Consolidated 
Liabilities (FR Y-17) on which a financial company that does not 
otherwise report consolidated financial information to the Board or 
other appropriate Federal banking agency would be required to report 
information on their total liabilities.
    Because the Board is required to report a final calculation based 
on data collected as of the end of each calendar year, this proposed 
new report would be completed annually beginning with the report as of 
December 31, 2013 and as of December 31, 2014. The Board intends to 
collect the first two reports by March 31, 2015.
    Specifically, with respect to a financial company domiciled in the 
United States, the institution would be required to report total 
consolidated liabilities of the financial company under applicable 
accounting standards.\39\ With respect to a financial company domiciled 
in a country other than the United States, the financial company would 
be required to report the total consolidated liabilities of the 
combined U.S. operations of the financial company as of December 31. 
``Total consolidated liabilities of the combined U.S. operations of the 
financial company'' would mean the sum of the total consolidated 
liabilities of each top-tier U.S. subsidiary of financial company, as 
determined under GAAP. A parent holding company is permitted, but is 
not required, to reduce ``total consolidated liabilities of the 
combined U.S. operations of the parent holding company'' by amounts 
corresponding to balances and transactions between U.S. subsidiaries of 
the parent holding company to the extent such items would not already 
be eliminated in consolidation.
---------------------------------------------------------------------------

    \39\ ``Applicable accounting standards'' are defined for 
purposes of the proposed rule as GAAP, or such other accounting 
standards applicable to the company that the Board determines are 
appropriate. If a company does not calculate its total consolidated 
assets or liabilities under GAAP for any regulatory purpose 
(including compliance with applicable securities laws), the company 
may submit a request to the Board that it use an accounting standard 
or method of estimation other than GAAP to calculate its liabilities 
for purposes of this subpart. The Board may, in its discretion and 
subject to Board review and adjustment, permit the company to 
provide estimated total consolidated liabilities on an annual basis 
using this accounting standard or method of estimation.
---------------------------------------------------------------------------

    Information contained in this report generally would be made 
available to the public upon request on an individual basis. However, a 
reporting holding company may request confidential treatment for the 
report if the holding company is of the opinion that disclosure of 
specific commercial or financial information in the report would likely 
result in substantial harm to its competitive position, or that 
disclosure of the submitted information would result in unwarranted 
invasion of personal privacy.
    Section 251.6(b) would require a financial company to provide 
written notification to the Board if the liabilities of the resulting 
financial company (estimated on the basis of the company's pro forma 
financial statements) would be above 8 percent of financial sector 
liabilities as of the date of the transaction and the covered 
acquisition would increase the liabilities of the financial company by 
more than $2 billion, when aggregated with all other covered 
acquisitions during the twelve months preceding the date of the 
acquisition. The deadline for the notification would be the earlier of 
(1) 60 days before consummation of the covered acquisition and (2) 10 
days after execution of the transaction agreement. The written 
notification must include a description of the proposed covered 
acquisition, estimates of the pro forma assets and liabilities of the 
resulting company upon consummation of the transaction, calculated 
pursuant to Sec.  251.6, and any other information that the Board 
determines would be appropriate.
    Estimated Burden per Response: 30 minutes (FR Y-17); 10 hours (Reg 
XX).
    Number of Respondents: 80 (FR Y-17); 3 (Reg XX).
    Total Estimated Annual Burden: 40 hours (FR Y-17); 30 hours (Reg 
XX).

C. Regulatory Flexibility Act Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
\40\ (RFA), the Board is publishing an initial regulatory flexibility 
analysis of the proposed rule. The RFA requires an agency either to 
provide an initial regulatory flexibility analysis with a proposed rule 
for which a general notice of proposed rulemaking is required or to 
certify that the proposed rule will not have a significant economic 
impact on a substantial number of small entities. Based on its analysis 
and for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing an 
initial regulatory flexibility analysis. A final regulatory flexibility 
analysis will be conducted after comments received during the public 
comment period have been considered.
---------------------------------------------------------------------------

    \40\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    The Board is proposing to add Regulation XX (12 CFR 251 et seq.) to 
implement section 622 of the Dodd-Frank Act, reflecting the 
recommendations of the Council.\41\ Section 622 establishes a financial 
sector concentration limit that generally prohibits a financial company 
from merging or consolidating with, or acquiring, another company if 
the resulting company's liabilities upon consummation would exceed 10 
percent of the aggregate liabilities of all financial companies as 
calculated under that section.
---------------------------------------------------------------------------

    \41\ See 12 U.S.C. 5365 and 5366.
---------------------------------------------------------------------------

    Under regulations issued by the Small Business Administration 
(SBA), a ``small entity'' includes those firms within the ``Finance and 
Insurance'' sector with asset sizes that vary from $35.5 million or 
less in assets to $500 million or less in assets.\42\ The Finance and 
Insurance sector constitutes a reasonable universe of firms for these 
purposes because such firms generally engage in actives that are 
financial in nature. Consequently, bank holding companies or nonbank 
financial companies with assets sizes of $500

[[Page 27812]]

million or less are small entities for purposes of the RFA.
---------------------------------------------------------------------------

    \42\ 13 CFR 121.201.
---------------------------------------------------------------------------

    As discussed in the Supplementary Information, the proposed rule 
prohibits a financial company from merging or consolidating with, or 
acquiring, another company if the resulting company's liabilities upon 
consummation would exceed 10 percent of the aggregate liabilities of 
all financial companies as calculated under that section, unless the 
transaction would qualify for an exception to the prohibition. For 
instance, transactions that involve only a de minimis increase in the 
liabilities of a financial company would not be subject to the 
concentration limit. A de minimis increase would be defined as an 
increase of $2 billion, when aggregated with all other acquisitions by 
the company under the de minimis authority during the twelve months 
preceding the date of the acquisition.
    A company with $500 million or less in assets would not, in 
practice, be affected by the proposal, which limits covered 
acquisitions only by firms whose liabilities will exceed ten percent of 
the aggregate financial sector liabilities. As noted above, as of 
December 31, 2013, under the estimated proposed method, financial 
sector liabilities is approximately $18 trillion. Furthermore, the 
reporting requirement proposed for financial companies that do not 
otherwise report consolidated financial information to the Board or 
other appropriate Federal banking agency is anticipated to result in an 
aggregate annual burden of only 25 hours.
    As noted above, because the proposed rule is not likely to apply to 
any company with assets of $500 million or less, if adopted in final 
form, it is not expected to apply to any small entity for purposes of 
the RFA. The Board does not believe that the proposed rule duplicates, 
overlaps, or conflicts with any other Federal rules. In light of the 
foregoing, the Board does not believe that the proposed rule, if 
adopted in final form, would have a significant economic impact on a 
substantial number of small entities supervised. Nonetheless, the Board 
seeks comment on whether the proposed rule would impose undue burdens 
on, or have unintended consequences for, small organizations, and 
whether there are ways such potential burdens or consequences could be 
minimized in a manner consistent with section 622 of the Dodd-Frank 
Act.

List of Subjects in 12 CFR Part 251

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

Authority and Issuance

    For the reasons stated in the Supplementary Information, the Board 
of Governors of the Federal Reserve System proposes to add part 251 as 
follows:

PART 251--CONCENTRATION LIMIT (REGULATION XX)

Sec.
251.1 Authority, purpose, and other authorities.
251.2 Definitions.
251.3 Concentration limit.
251.4 Exceptions to the concentration limit.
251.5 No evasion.
251.6 Reporting requirements.

    Authority:  12 U.S.C. 1835, 1844(b), 1852.


Sec.  251.1  Authority, purpose, and other authorities.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System under section 622 of Title VI of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 
Stat. 1376, 12 U.S.C. 1852); sections 5 and 14 of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1844 and 1852); section 8 of 
the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818); the 
International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.); 
and the recommendations of the Financial Stability Oversight Council 
(76 Federal Register 6756).
    (b) Purpose. This part implements section 14 of the Bank Holding 
Company Act, which generally prohibits a financial company from merging 
or consolidating with, or acquiring, another company if the resulting 
company's consolidated liabilities would exceed 10 percent of the 
aggregate consolidated liabilities of all financial companies.
    (c) Other authorities. Nothing in this part limits the authority of 
the Board under any other provision of law or regulation to prohibit or 
limit a financial company from merging or consolidating with, or 
otherwise acquiring, another company.


Sec.  251.2  Definitions.

    Unless otherwise specified, for the purposes of this part:
    (a) Applicable accounting standards means, with respect to a 
company, U.S. generally accepted accounting principles (GAAP), or such 
other accounting standard or method of estimation that the Board 
determines is appropriate pursuant to Sec.  251.3(e).
    (b) Applicable risk-based capital rules means consolidated risk-
based capital rules established by an appropriate Federal banking 
agency that are applicable to a financial company.
    (c) Appropriate Federal banking agency has the same meaning as in 
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).
    (d) Control has the same meaning as in Sec.  225.2(e) of the 
Board's Regulation Y (12 CFR 225.2(e)).
    (e) Council means the Financial Stability Oversight Council 
established by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
    (f) Covered acquisition means a transaction in which a company 
merges or consolidates with, acquires all or substantially all of the 
assets of, or otherwise acquires control of another company, and the 
resulting company is a financial company. A covered acquisition does 
not include:
    (1) An acquisition of securities or other assets, by foreclosure or 
otherwise, by a financial company in the ordinary course of collecting 
a debt previously contracted in good faith if the acquired securities 
or assets are divested within the time period permitted by the 
appropriate Federal banking agency (including extensions) or, if the 
financial company does not have an appropriate Federal banking agency, 
five years;
    (2) An acquisition of securities or other assets in good faith in a 
fiduciary capacity if the securities or assets are held in the ordinary 
course of business and not acquired for the benefit of the company or 
its shareholders, employees, or subsidiaries;
    (3) An acquisition of ownership or control of securities or other 
assets by a financial company in connection with a bona fide merchant 
or investment banking activity, provided that the acquisition and 
control of such securities or assets complies with the conditions and 
requirements of section 4(k) of the Bank Holding Company Act (12 U.S.C. 
1843(k)) and the Board's Regulation Y thereunder (12 CFR Part 225);
    (4) An acquisition of ownership or control of securities or assets 
by a financial company in connection with bona fide underwriting or 
market-making activities; and
    (5) An acquisition of ownership or control of securities or assets 
of a financial company that is solely in connection with a corporate 
reorganization and the companies involved are lawfully controlled and 
operated by the financial company both before and following the 
reorganization.
    (g) Financial company includes:

[[Page 27813]]

    (1) An insured depository institution;
    (2) A bank holding company;
    (3) A savings and loan holding company;
    (4) A company that controls an insured depository institution;
    (5) A nonbank financial company supervised by the Board; and
    (6) A foreign bank or company that is treated as a bank holding 
company for purposes of the Bank Holding Company Act.
    (h) Foreign financial company means a financial company that is 
incorporated or organized in a country other than the United States.
    (i) Insured depository institution has the same meaning as in 
section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(c)(2)).
    (j) Nonbank financial company supervised by the Board means any 
nonbank financial company that the Council has determined under section 
113 of the Dodd-Frank Act (12 U.S.C. 5323) shall be supervised by the 
Board and for which such determination is still in effect.
    (k) State means any state, commonwealth, territory, or possession 
of the United States, the District of Columbia, the Commonwealth of 
Puerto Rico, the Commonwealth of the Northern Mariana Islands, American 
Samoa, Guam, or the United States Virgin Islands.
    (l) U.S. agency has the same meaning as the term ``agency'' in 
Sec.  211.21(b) of the Board's Regulation K (12 CFR 211.21(b)).
    (m) Total regulatory capital has the same meaning as the term 
``total capital'' as defined under the applicable risk-based capital 
rules.
    (n) U.S. branch has the same meaning as the term ``branch'' in 
Sec.  211.21(e) of the Board's Regulation K (12 CFR 211.21(e)).
    (o) U.S. company means a company that is incorporated in or 
organized under the laws of the United States or any State.
    (p) U.S. financial company means a financial company that is 
incorporated in or organized under the laws of the United States or any 
State.
    (q) U.S. subsidiary means any subsidiary, as defined in Sec.  
225.2(o) of Regulation Y (12 CFR 225.2(o)), that is organized in the 
United States or in any State.


Sec.  251.3  Concentration limit.

    (a) In general. (1) Except as otherwise provided in Sec.  251.4, a 
financial company may not consummate a covered acquisition if the 
liabilities of the resulting financial company upon consummation of the 
transaction would exceed 10 percent of the financial sector 
liabilities.
    (2) Financial sector liabilities. (i) Beginning on July 1 of a 
given year, financial sector liabilities are equal to the average of 
the year-end financial sector liabilities figure for the preceding two 
calendar years. The measure of financial sector liabilities will be in 
effect until June 30 of the following calendar year.
    (ii) The year-end financial sector liabilities figure equals the 
sum of the total consolidated liabilities of all top-tier U.S. 
financial companies (calculated under paragraph (b) of this section) 
and the U.S. liabilities of all top-tier foreign financial companies 
(calculated under paragraph (c) of this section) as of December 31 of 
that year.
    (iii) On an annual basis and no later than July 1 of any calendar 
year, the Board will calculate and publish the financial sector 
liabilities for the preceding calendar year and the average of the 
financial sector liabilities for the preceding two calendar years.
    (b) Calculating total consolidated liabilities. For purposes of 
paragraph (a)(2)(i) of this section:
    (1) For a covered acquisition in which a U.S. company would acquire 
a U.S. company or a foreign company, liabilities of the resulting 
financial company equal the consolidated liabilities of the resulting 
U.S. financial company, calculated on a pro forma basis in accordance 
with paragraph (c) of this section.
    (2) For a covered acquisition in which a foreign company would 
acquire another foreign company, liabilities of the resulting financial 
company equal the U.S. liabilities of the resulting financial company, 
calculated on a pro forma basis in accordance with paragraph (d) of 
this section.
    (3) For a covered acquisition in which a foreign company would 
acquire a U.S. company, liabilities of the resulting financial company 
equal the sum of:
    (i) The U.S. liabilities of the foreign company immediately 
preceding the transaction (calculated in accordance with paragraph (d) 
of this section); and
    (ii) The consolidated liabilities of the U.S. company immediately 
preceding the transaction (calculated in accordance with paragraph (c) 
of this section), reduced by the amount corresponding to any balances 
and transactions that would be eliminated in consolidation upon 
consummation of the transaction.
    (c) Consolidated liabilities. (1) U.S. company subject to 
applicable risk-based capital rules. For a U.S. company subject to 
applicable-risk based capital rules, consolidated liabilities are equal 
to:
    (i) Total risk-weighted assets of the company, as determined under 
the applicable risk-based capital rules; plus
    (ii) The amount of assets that are deducted from the company's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the company's 
total risk-based capital ratio minus one; minus
    (iii) Total regulatory capital of the company on a consolidated 
basis.
    (2) U.S. company not subject to applicable risk-based capital 
rules. For a U.S. company that is not subject to applicable risk-based 
capital rules, consolidated liabilities are equal to the total 
liabilities of such company on a consolidated basis, as determined 
under applicable accounting standards.
    (d) U.S. liabilities of a foreign company. (1) U.S. liabilities of 
a foreign company are equal to the sum of:
    (i) The total consolidated assets of each U.S. branch or U.S. 
agency of the foreign financial company, calculated in accordance with 
applicable accounting standards;
    (ii) The total consolidated liabilities of a top-tier U.S. 
subsidiary that is subject to applicable risk-based capital rules (or 
reports information to the Board regarding its capital under risk-based 
capital rules applicable to bank holding companies), calculated as:
    (A) Total risk-weighted assets of the company, calculated as the 
sum of the total risk-weighted assets of such company on a consolidated 
basis, as determined under the applicable risk-based capital rules; 
plus
    (B) The amount of assets that are deducted from the company's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the company's 
total risk-based capital ratio minus one; minus
    (C) Total regulatory capital of the company on a consolidated 
basis, as determined under the applicable risk-based capital rules.
    (iii) The total consolidated assets of a top-tier U.S. subsidiary 
that is not subject to applicable risk-based capital rules and does not 
report information regarding its capital under risk-based capital rules 
applicable to bank holding companies.
    (2) Intercompany balances and transactions. (i) Foreign banking 
organization. A foreign banking organization must reduce the amount of 
consolidated liabilities of its U.S. operations calculated pursuant to 
this paragraph by amounts corresponding to intercompany balances and

[[Page 27814]]

intercompany transactions between the foreign banking organization's 
U.S. domiciled affiliates, branches or agencies to the extent such 
items are not already eliminated in consolidation, and increase 
consolidated liabilities by net intercompany balances and intercompany 
transactions between a non-U.S. domiciled affiliate and a U.S. 
domiciled affiliate, branch, or agency of the foreign banking 
organization, to the extent such items are not already reflected.
    (ii) Foreign financial company. A foreign company that is not a 
foreign banking organization may reduce the amount of consolidated 
liabilities of its U.S. operations calculated pursuant to this 
paragraph by amounts corresponding to intercompany balances and 
intercompany transactions between the foreign banking organization's 
U.S. domiciled affiliates, branches or agencies to the extent such 
items are not already eliminated in consolidation, and increase 
consolidated liabilities by net intercompany balances and intercompany 
transactions between a non-U.S. domiciled affiliate and a U.S. 
domiciled affiliate, branch, or agency of the foreign banking 
organization, to the extent such items are not already reflected.
    (e) Applicable accounting standard. If a company does not calculate 
its total consolidated assets or liabilities under GAAP for any 
regulatory purpose (including compliance with applicable securities 
laws), the company may submit a request to the Board that it use an 
accounting standard or method of estimation other than GAAP to 
calculate its liabilities for purposes of this part. The Board may, in 
its discretion and subject to Board review and adjustment, permit the 
company to provide estimated total consolidated liabilities on an 
annual basis using this accounting standard or method of estimation.


Sec.  251.4  Exceptions to the concentration limit.

    (a) With the prior written consent of the Board, the concentration 
limit under Sec.  251.3 shall not apply to:
    (1) An acquisition of an insured depository institution in default 
or in danger of default, as determined by the appropriate Federal 
banking agency of the insured depository institution, in consultation 
with the Board;
    (2) An acquisition with respect to which assistance is provided by 
the Federal Deposit Insurance Corporation under section 13(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1823(c)); or
    (3) An acquisition that would result in an increase in the 
liabilities of the financial company that does not exceed $2 billion, 
when aggregated with all other acquisitions by the financial company 
made pursuant to this paragraph (a)(3) during the twelve months 
preceding the date of the acquisition.
    (b) [Reserved]


Sec.  251.5  No evasion.

    No financial company may organize or operate its business or 
structure any acquisition of or merger or consolidation with another 
company in such a manner that results in evasion of the concentration 
limit established by section 14 of the Bank Holding Company Act or this 
part.


Sec.  251.6  Reporting requirements.

    (a) Reporting of liabilities by financial companies that do not 
file regulatory reports. (1) General. By March 31 of each year:
    (i) A U.S. financial company (other than a U.S. financial company 
that is required to file the Bank Consolidated Reports of Condition and 
Income (Call Report), the Consolidated Financial Statements for Holding 
Companies (FR Y-9C), the Parent Company Only Financial Statements for 
Small Holding Companies (FR Y-9SP), or the Parent Company Only 
Financial Statements for Large Holding Companies (FR Y-9LP), or is 
required to report consolidated total liabilities on the Quarterly 
Savings and Loan Holding Company Report (FR 2320)) must report to the 
Board its consolidated liabilities as of the previous calendar year-end 
calculated pursuant to Sec.  251.3(c); and
    (ii) A foreign financial company (other than a foreign financial 
company that is required to file a FR Y-7) must report to the Board its 
U.S. liabilities as of the previous calendar year-end calculated 
pursuant to Sec.  251.3(d).
    (2) Initial reporting period. For purposes of the report due March 
31, 2015, a U.S. financial company and a foreign financial company 
subject to paragraph (a)(1) of this section must report to the Board 
its consolidated or U.S. liabilities, respectively, as of December 31, 
2013 and December 31, 2014.
    (b) Prior notification of covered acquisitions by financial 
companies that are not otherwise required to obtain prior approval or 
prior notice. (1) A financial company must provide written notification 
to the Board no later than the earlier of 60 days before consummating a 
covered acquisition with a company and 10 days after execution of the 
agreement specifying the terms of the covered acquisition if:
    (i) The consolidated liabilities of the resulting financial company 
would exceed 8 percent of the financial sector liabilities;
    (ii) The acquisition would increase the liabilities of the 
financial company by more than $2 billion, when aggregated with all 
other covered acquisitions by the financial company during the twelve 
months preceding the date of the acquisition; and
    (iii) The financial company is not otherwise required to obtain 
prior approval of or provide prior notice to the Board.
    (2) The written notification must include a description of the 
proposed covered acquisition, estimates of the pro forma assets and 
liabilities of the resulting company upon consummation of the 
transaction, calculated pursuant to Sec.  251.3, and any other 
information that the Board determines would be appropriate.

    By order of the Board of Governors of the Federal Reserve 
System, May 8, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-10956 Filed 5-14-14; 8:45 am]
BILLING CODE 6210-01-P