[Federal Register Volume 79, Number 220 (Friday, November 14, 2014)]
[Rules and Regulations]
[Pages 68095-68107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26747]



[[Page 68095]]

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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: Final rule.

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SUMMARY: The Board is adopting a final rule (Regulation XX) to 
implement section 622 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (amending the Bank Holding Company Act to add a new 
section 14). 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. In addition, the 
final rule establishes reporting requirements for financial companies 
that do not otherwise report consolidated financial information to the 
Board or other appropriate Federal banking agency to implement section 
14 of the Bank Holding Company Act.

DATES: Effective January 1, 2015.

FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Associate General 
Counsel, (202) 452-2272, Christine Graham, Counsel, (202) 452-3005, or 
Joseph J. Carapiet, Senior Attorney, (202) 973-6957, Legal Division; 
Felton C. 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. Overview of Comments
III. Financial Sector Concentration Limit
    A. Calculating a Financial Company's Liabilities
    1. U.S. Financial Companies
    2. Foreign Financial Companies
    B. Measuring Aggregate Financial Sector Liabilities
    1. Methodology and Data
    C. Applying the Concentration Limit
    1. Measuring Liabilities Upon Consummation of a Covered 
Acquisition
    2. Transactions for Which a Notice or Application Is Not 
Otherwise Required
    3. Acquisitions by Nonfinancial Companies
    D. Exceptions to the Concentration Limit
    1. Exceptions to the Concentration Limit
    a. Failing Insured Depository Institution and FDIC-Assisted 
Transactions
    b. De Minimis Transaction
    c. Prior Written Consent of the Board
    E. Other Provisions of Law
IV. Administrative Law Matters
    A. Solicitation of Comments on the Use of Plain Language
    B. Regulatory Flexibility Act
    C. Paperwork Reduction Act

I. Background

    On May 8, 2014, the Board invited comment on a proposed rule to 
implement section 622 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') (amending the Bank Holding Company 
Act to add a new section 14).\1\ Section 622 establishes a financial 
sector concentration limit that prevents an 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; or a nonbank financial 
company designated by the Council for supervision by the Board 
(``financial company'') from merging and 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.\2\
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    \1\ 79 FR 27801 (May 15, 2014).
    \2\ 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.
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    Section 622 provides that the concentration limit is ``subject to'' 
any recommendations made by the Financial Stability Oversight Council 
(``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.'' \3\
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    \3\ 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).
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    On January 18, 2011, the Council made three recommendations,\4\ 
including that the Board's regulations should:
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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 (Council study). See also 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 final rule, the Council had not revised any recommendation 
made regarding the concentration limit and, as such, the final rule 
reflects the recommendations set forth in the Council's last 
publication in the Federal Register.
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     Measure liabilities of financial companies not subject to 
consolidated risk-based capital rules by using U.S. generally accepted 
accounting principles (GAAP) or other applicable accounting standards,
     use a two-year average in calculating aggregate financial 
sector liabilities, and provide that the Board publish annually by July 
1 the current aggregate financial sector liabilities, and
     extend the ``failing bank exception'' to the acquisition 
of any type of insured depository institution in default or in danger 
of default, rather than only to the acquisition of banks in default or 
danger of default.
    Section 622 of the Dodd-Frank Act directs the Council to complete a 
study of the extent to which the statutory concentration limit would 
affect financial stability, moral hazard in 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.\5\ 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.\6\ It concluded that the concentration limit 
was likely to have little or no effect on moral hazard.\7\ With respect 
to the impact of the concentration limit on competitiveness, the 
Council expected the effect to be

[[Page 68096]]

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.\8\ The Council found that the concentration limit is 
unlikely to have a significant effect on the cost and availability of 
credit and other financial services.\9\
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    \5\ See 12 U.S.C. 1852(e)(1).
    \6\ Council study, p. 4.
    \7\ Id., p. 10.
    \8\ Id., p. 11. 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. Id., p. 12.
    \9\ Id., p. 13.
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    Section 622 authorizes the Board to define terms, as necessary, and 
to issue interpretations or guidance regarding application of the 
concentration limit to an individual financial company or to financial 
companies in general.\10\
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    \10\ 12 U.S.C. 1852(d).
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II. Overview of Comments

    The Board received 10 comments on the proposed rule from financial 
trade associations, law firms, policy institutions, and individuals. 
While commenters generally expressed support for the proposed rule, 
some commenters recommended revisions to provisions of the proposed 
rule. For instance, one commenter suggested that the Board measure 
liabilities for purposes of the initial period between July 1, 2015, 
and June 30, 2016, using data as of December 31, 2014. One commenter 
requested that the Board publish more specific details of the 
methodology used for calculating financial sector liabilities. 
Commenters provided views on whether certain transactions should be 
prohibited once a financial company's liabilities exceeded the 
concentration limit and the appropriate level for a de minimis 
exception. In addition, commenters suggested that the Board not 
finalize either the proposed prior notice requirement applicable to 
financial companies with liabilities that are close to the limit or the 
proposed reporting requirement applicable to financial companies that 
do not otherwise report consolidated liabilities to an applicable 
Federal banking agency.
    As discussed further in the preamble, the Board modified the final 
rule as follows in response to these comments:
     Provided that financial sector liabilities will be 
calculated as of December 31, 2014, for purposes of the period 
beginning July 1, 2015 and ending June 30, 2016, and the two-year 
average will be adopted for each year thereafter;
     Removed the prior notice requirement for acquisitions by 
financial companies with total consolidated liabilities equal to or 
greater than 8 percent of aggregate financial sector liabilities;
     Provided prior consent for a covered acquisition that 
would result in an increase in the liabilities of the financial company 
that does not exceed $100 million, when aggregated with all other 
covered acquisitions by the financial company during the twelve months 
preceding the consummation of the transaction and set forth a process 
and standard of review for de minimis transactions; and
     Removed the exception for merchant banking investments and 
added an exception for securitization transactions to the definition of 
``covered acquisition.''
     Provided more specific details of the methodology used for 
calculating financial sector liabilities.
    These changes, as well as the Board's other responses to the 
comments received, are discussed in greater detail below.

III. Financial Sector Concentration Limit

    Under section 622 of the Dodd-Frank Act, 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. Consistent 
with section 622, the proposed rule defined a ``financial company'' as 
a company that is an 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, and a nonbank financial company designated by 
the Council for supervision by the Board. The proposed rule defined an 
insured depository institution as that term is defined in section 
3(c)(2) of the Federal Deposit Insurance Act. 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.
    Commenters recommended that the Board modify the proposed 
definition of ``financial company'' to exclude insured depository 
institutions that are limited purpose savings associations and the 
holding companies thereof. Another commenter suggested that companies 
that control insured depository institutions but that are not subject 
to risk-based capital requirements and that do not engage in bank-like 
activities should not be included in the definition of a ``financial 
company'' for purposes of section 622. Section 622 of the Dodd-Frank 
Act defines a ``financial company'' to include an ``insured depository 
institution'' and ``a company that controls an insured depository 
institution.'' Because section 622 amends the Bank Holding Company Act, 
the terms ``insured depository institution'' and ``control'' are 
defined in section 2 of the Bank Holding Company Act.\11\ To the extent 
a company is or controls an insured depository institution, it is 
subject to the concentration limit by statute. Accordingly, the final 
rule preserves the definition of ``insured depository institution,'' 
consistent with section 622.
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    \11\ Specifically, section 2(n) of the Bank Holding Company Act 
defines an ``insured depository institution'' with reference to 
section 3 of the Federal Deposit Insurance Act which includes ``any 
savings associations the deposits of which are insured'' by the 
FDIC. 12 U.S.C. 1841(n). Section 2(a)(2) of the Bank Holding Company 
Act provides that a company would ``control'' an insured depository 
institution if the company (i) directly or indirectly, or acting 
through one or more other persons, owned, controlled, or had power 
to vote 25 percent or more of any class of voting securities of the 
company; (ii) controlled in any manner the election of a majority of 
the directors or trustees of the company; or (iii) directly or 
indirectly exercised a controlling influence over the management or 
policies of the company. 12 U.S.C. 1841(a)(2).
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A. Calculating a Financial Company's Liabilities

1. U.S. Financial Companies
    Section 622 measures ``liabilities'' of a financial company as 
total risk-weighted assets determined under the risk-based capital 
rules applicable to bank holding companies minus regulatory capital as 
calculated under the same rules.\12\ Currently, bank holding companies 
and insured depository institutions are the only classes of financial 
companies subject to these risk-based capital rules. For financial 
companies not subject to consolidated risk-based capital rules (such as 
nonbank companies that control savings associations and industrial loan 
companies), the Council

[[Page 68097]]

recommended that the Board measure liabilities using GAAP or other 
applicable accounting standards.\13\
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    \12\ 12 U.S.C. 1852(a)(3).
    \13\ Council study, p. 6.
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    Pursuant to the statutory direction to adopt the Council's 
recommendation, the proposed rule would have required 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. ``Applicable accounting standards'' would have been defined 
as GAAP, or such other accounting standard or method of estimation that 
the Board determines is appropriate.\14\
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    \14\ 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 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 other than GAAP.
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    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 are not subject to 
consolidated risk-based capital rules, and thus will calculate their 
liabilities in accordance with applicable accounting standards. 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 in 2015 and will be able to 
calculate their liabilities for purposes of section 622 using the rules 
applicable to bank holding companies, described below.\15\ The Board is 
in the process of applying risk-based capital rules to nonbank 
financial companies that are currently supervised by the Board.
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    \15\ The Board is developing capital rules for savings and loan 
holding companies that are insurance companies, have subsidiaries 
engaged in insurance underwriting, or are substantially engaged in 
commercial activities.
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    Commenters were generally supportive of the proposed rule's 
calculation methodology. One commenter noted that certain mutual and 
fraternal insurance companies do not prepare consolidated GAAP 
financial statements for any regulatory purpose and, instead, prepare 
financial statements in accordance with statutory accounting principles 
(``SAP''), as required by state insurance law. This commenter requested 
that the Board clarify that SAP would automatically meet the definition 
of ``applicable accounting standards,'' and that SAP-based calculations 
of consolidated liabilities would be deemed sufficient for purposes of 
section 622. Under the financial rule, a U.S. financial company that 
files financial statements only in accordance with SAP and does not 
report consolidated financial statements under GAAP would be permitted 
to file an estimate of its consolidated liabilities. However, this 
estimation is subject to the Board's review and adjustment.
    One commenter suggested that certain liabilities such as commercial 
paper of commercial and industrial companies, broker-dealers' customer 
free credit balances, managed fund assets, and funds borrowed to 
manufacture automobiles should be excluded from the calculation of 
liabilities because in the commenter's view, these liabilities do not 
affect U.S. financial stability. Excluding these types of liabilities 
from the calculation would run counter to the Council's recommendation 
to use liabilities as reported under GAAP or applicable accounting 
standards. The Council, in making this recommendation, noted that for 
the purpose of transparency, the liabilities calculation should use 
financial information that is already publicly disclosed and that using 
such information as reported would avoid the need to make a series of 
assumptions that could undermine the integrity and transparency of the 
calculation.\16\ The commenter's suggestion of excluding certain types 
of liabilities would require adjustments to the publicly disclosed 
financial figures and involve assumptions that could undermine the 
transparency of the calculation. Accordingly, the final rule adopts the 
proposed methodology without change.
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    \16\ Council study, p. 20.
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    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 final rule 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.
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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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U.S. Financial Companies Subject to Consolidated Risk-Based Capital 
Rules
    The proposed rule would have calculated liabilities of a U.S. 
financial company subject to consolidated risk-based capital rules--
currently, bank holding companies and insured depository institutions--
as the difference between its risk-weighted assets (as adjusted upward 
to reflect amounts that are deducted from regulatory capital elements 
pursuant to the agencies' risk-based capital rules) and its total 
regulatory capital, as calculated under the applicable risk-based 
capital rules.\18\ As discussed in the preamble to the proposed rule, a 
bank holding company or insured depository institution will calculate 
risk-weighted assets for purposes of the concentration limit using the 
same methodology it uses to calculate risk-weighted assets under the 
relevant risk-based capital rules.\19\
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    \18\ The final rule 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).
    \19\ The agencies' risk-based capital rules require an advanced 
approaches banking organization (generally, a banking organization 
with $250 billion or more in total consolidated assets or $10 
billion or more in total on-balance sheet foreign exposure or a 
subsidiary of such a banking organization) that has successfully 
completed its parallel run to calculate each of its risk-based 
capital ratios using the standardized approach and the advanced 
approaches, and directs the banking organization to use the lower of 
each ratio as its governing ratio. See 12 CFR 3.10 (OCC); 12 CFR 
217.10 (Board); and 12 CFR 324.10 (FDIC).
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    Section 622 provides that risk-weighted assets of a financial 
company be ``adjusted to reflect exposures that are deducted from 
regulatory capital.'' \20\ To reflect this adjustment, the proposed 
rule would define liabilities of a U.S. financial company subject to 
consolidated risk-based capital rules as: (i) The financial company's 
risk-weighted assets, plus (ii) the amount of assets deducted from the 
financial company's regulatory capital multiplied by an institution-
specific risk-weight, minus (iii) the financial company's total 
regulatory capital. The proposed institution-specific risk-weight 
applied to deducted exposures was equal to the inverse of the 
institution's total capital ratio minus one.\21\ This approach

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effectively adds back a risk-weighted amount for assets that have been 
deducted from capital (which are generally considered risky) without 
penalizing a firm for having a high amount of capital. Commenters were 
generally supportive of the proposed methodology, and the final rule 
adopts this methodology as proposed.
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    \20\ See 12 U.S.C. 1852(a)(3)(A)(i) and (B)(i). Under the 
Federal banking agencies' risk-based 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).
    \21\ One is subtracted 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 were 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.
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2. Foreign Financial Companies
    Section 622 provides that the liabilities of a ``foreign financial 
company'' equal the risk-weighted assets and regulatory capital 
attributable to the company's ``U.S. operations.'' A ``foreign 
financial company'' includes a foreign banking organization that is a 
bank holding company (i.e., owns a U.S. bank) or is treated as a bank 
holding company (i.e., operates a U.S. branch or agency), a foreign 
savings and loan holding company, a foreign company that controls a 
U.S. insured depository institutions but is not treated as a bank 
holding company (such as a company that controls an industrial loan 
company or limited-purpose credit card bank), and a foreign nonbank 
financial company designated by the Council for supervision by the 
Board. The final rule would define ``U.S. operations'' of a foreign 
financial company as the consolidated liabilities of all U.S. branches, 
agencies, and subsidiaries (including depository institutions and non-
depository institutions) domiciled in the United States (including any 
lower-tier subsidiary of the U.S. subsidiary, whether domestic or 
foreign).
    Because the U.S. operations of foreign financial companies may 
include both entities that are subject to risk-weighted asset 
calculation requirements and entities that are not, the final rule (as 
did the proposed rule) computes U.S. liabilities using the risk-
weighted asset methodology for subsidiaries subject to risk-based 
capital rules, and applicable accounting standards for all branches, 
agencies, and nonbank subsidiaries. For foreign banking organizations, 
the final rule computes liabilities for U.S. branches, agencies, and 
nonbank subsidiaries using ``assets'' under GAAP or applicable 
accounting standards because these operations are not required to hold 
regulatory capital separate from their parent.
    The final rule also requires a foreign banking organization to 
adjust U.S. liabilities to reflect transactions with affiliates. 
Specifically, the measure of liabilities must 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) because these balances represent exposures of the U.S. 
branch, agency, or U.S. subsidiary to the non-U.S. affiliates. The 
amount of GAAP assets excludes 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 of U.S. 
operations.\22\
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    \22\ 79 FR 17240 (March 27, 2014).
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    Under the enhanced prudential standards rule adopted by the Board 
in February 2014, 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 must organize their U.S. subsidiaries 
under a single top-tier U.S. intermediate holding company by July 1, 
2016. A U.S. intermediate holding company will be subject to the same 
risk-based capital requirements applicable to U.S. bank holding 
companies, and will calculate its liabilities for purposes of the final 
rule using the risk-weighted assets approach.
    The U.S. assets of a foreign financial company that is not a 
foreign banking organization are calculated in a similar manner to the 
method described for foreign banking organizations, but the liabilities 
of a U.S. subsidiary not subject to risk-based capital rules are 
calculated based on the U.S. subsidiary's liabilities under applicable 
accounting standards, rather than its assets. In addition, the foreign 
financial company is permitted, but not required, to adjust the measure 
of liabilities for transactions with affiliates.
    As noted above, section 622 requires the Board to establish the 
methodology for calculating the liabilities of a financial company that 
is 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 final rule 
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.

B. Measuring Aggregate Financial Sector Liabilities

1. Methodology and Data
    Section 622 measures the total liabilities of each covered 
financial company against the aggregate liabilities of all financial 
companies in applying the 10 percent concentration limit. The aggregate 
consolidated liabilities of all financial companies are equal to the 
sum of individual financial company liabilities as calculated for each 
financial company using the applicable methodology, as described above.
    Consistent with the Council's recommendation, the proposed rule 
would have measured aggregate financial sector liabilities for a given 
year as the average of the financial sector liabilities as of December 
31 of each of the preceding two calendar years. In order to calculate 
the two year period for the initial period between July 1, 2015, and 
June 30, 2016, the proposed rule would have required certain companies 
(e.g., foreign banking organizations) who are not currently subject to 
the reporting requirements of a Federal banking agency to calculate and 
report their liabilities as of December 21, 2013. One commenter 
suggested that the Board measure liabilities for purposes of the 
initial period between July 1, 2015, and June 30, 2016, using only data 
for one year (which would be liabilities as of December 31, 2014) and 
not require all financial companies to report their liabilities as of 
December 31, 2013. Foreign banking organizations were not otherwise 
required to report their U.S. assets as of December 31, 2013, and may 
not have data available to report their U.S. liabilities as of this 
date.
    To relieve burden on financial companies that do not currently 
report to a Federal banking agency, the final rule incorporates the 
commenters' recommendation to use a one-year initial period. As such, 
pursuant to the final rule, the Board will calculated the denominator 
using the aggregate financial sector liabilities as of December 31, 
2014 for the initial period between July 1, 2015, and June 30, 2016. 
For all subsequent periods, the Board will use the two-year average 
recommended by the Council. As discussed in further detail below, the 
final rule includes a new reporting requirement for financial companies 
that have not reported consolidated financial information to the Board 
or other appropriate Federal banking agency.
    One commenter suggested that the Board reserve authority to adjust 
the calculation methodology in the event

[[Page 68099]]

that future regulatory changes have destabilizing or distortive 
effects. The Board will consider adjusting the calculation methodology, 
if necessary because of future regulatory changes, within the limits of 
the law.
    The preamble to the proposed rule noted that, to the maximum extent 
possible, the Board will calculate aggregate financial sector 
liabilities using information already reported by financial companies. 
For instance, bank holding companies report their risk-weighted assets, 
regulatory deductions, and total capital on the Consolidated Financial 
Statements for Holding Companies (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 will 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). For foreign banking organizations, the Board will use 
information reported on the Capital and Asset Report for Foreign 
Banking Organizations (FR Y-7Q) to the extent possible. In 2013, the 
Board amended the 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 
began reporting this item as of March 31, 2014.\23\
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    \23\ Some respondents will not report the new item on the FR Y-
7Q until December 2014.
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    In order to collect data necessary to implement the concentration 
limit, the proposed rule would have established a new reporting 
requirement for financial companies that have not historically reported 
consolidated financial information to the Board or other appropriate 
Federal banking agency.\24\ The new reporting requirement, the 
Financial Company Report of Consolidated Liabilities, would have 
required financial companies domiciled in the United States to report 
their total consolidated liabilities under applicable accounting 
standards and would require financial companies domiciled in a country 
other than the United States 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.\25\ The report is referred to as the FR XX-1 report because 
it is being adopted pursuant to Regulation XX.\26\
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    \24\ 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.
    \25\ A parent holding company would have been permitted, but 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.
    \26\ The proposal referred to this report as the FR Y-17 report.
---------------------------------------------------------------------------

    One commenter argued that requiring financial companies that are 
not state member banks, bank holding companies, or subsidiaries of bank 
holding companies to submit FR XX-1 exceeds the Board's authority. This 
commenter also argued that requiring financial companies to submit the 
FR XX-1 imposes a disproportionate burden on financial companies that 
do not report liabilities to the Board, the estimated burden of 1 hour 
per respondent was too low, and that the reporting form should have 
been published in the Federal Register.
    Section 622 provides that ``the Board shall issue regulations 
implementing this section in accordance with the recommendations of the 
Council.'' \27\ The proposed information collection is necessary for 
the Board to calculate aggregate liabilities and is consistent with the 
Board's statutory authority. With regard to the commenter's assertion 
that the reporting form is unduly burdensome, the proposed reporting 
form collects a single line item and collects the minimum information 
necessary to calculate an institution's liabilities. However, after 
taking into account the comment, the Board has adjusted the burden to 
be 5 hours per respondent for the first year, and 2 hours per 
respondent thereafter. The higher initial burden is intended to reflect 
time needed to educate staff, develop an approval process for the 
submitted report, and, for firms that seek to rely on accounting 
standards other than GAAP, develop a method of estimation. After this 
process is established, the aggregate burden to complete this form is 
expected to be 2 hours per respondent per year. Finally, the preamble 
to the proposed rule described the FR XX-1 in detail, and the form was 
available on the Board's Web site for comment. The Board is adopting 
the FR XX-1 as proposed. The Board will begin collecting the FR XX-1 as 
of December 31, 2014, and the submission date is 90 calendar days after 
the December 31 as-of-date.
---------------------------------------------------------------------------

    \27\ See 12 U.S.C. 1852(a)(3)(C).
---------------------------------------------------------------------------

    As discussed in the preamble to the proposed rule, information 
contained in a FR XX-1 filing generally will be made available to the 
public upon request. The Board proposed allowing a reporting holding 
company to request confidential treatment for the report if the holding 
company believed 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. 
One commenter requested either that all reported information be treated 
as confidential information or that financial companies be permitted to 
make a one-time election for confidential treatment.
    The Freedom of Information Act, 5 U.S.C. Sec.  552, (FOIA) requires 
the Board to release information to the public unless a specific 
exemption applies.\28\ Reporting companies may request confidentiality 
but such requests must contain detailed justifications corresponding to 
the claimed FOIA exemption. In such cases, the burden is on the 
reporting company to demonstrate that the information falls within one 
of the exemptions under the FOIA. Requests for confidentiality must be 
evaluated on a case-by-case basis. If a reporting company requests 
confidential treatment, the Board will review the request to determine 
if the company has met the burden of demonstrating a particular FOIA 
exemption applies.
---------------------------------------------------------------------------

    \28\ 5 U.S.C. Sec.  552.
---------------------------------------------------------------------------

    One commenter requested that the Board provide additional detail on 
the methodology it uses to calculate aggregate financial sector 
liabilities for U.S. bank holding companies and foreign banking 
organizations. For U.S. bank holding companies, insured depository 
institutions, and savings and loan holding companies, the Board intends 
to rely on total risk-weighted assets, as reported on schedule HC-R, 
Regulatory Capital, of the FR Y-9C, and adjust that amount for amounts 
deducted from regulatory capital, as reported on schedule HC-R, 
multiplied by the institution-specific risk weight. In calculating the 
amounts deducted from regulatory capital, the Board will sum the total 
adjustments and deductions for the categories of regulatory capital 
(e.g., common equity tier 1 capital and additional tier 1 capital). For 
foreign banking organizations, the Board generally intends to use the 
item on the FR Y-7Q

[[Page 68100]]

entitled ``Total combined assets of U.S. operations, net of 
intercompany balances and transactions between U.S. domiciled 
affiliates, branches, and agencies'' and, to the extent that a foreign 
banking organization has a U.S. bank holding company subsidiary, 
subtract assets attributable to the U.S. bank holding company and 
replace that amount with liabilities attributable to the U.S. bank 
holding company (calculated in accordance with the risk-weighted asset 
methodology, using data from the FR Y-9C). To the extent that the Board 
uses different regulatory reporting sources to calculate liabilities, 
it generally expects to describe the sources in connection with 
publication of the financial sector liabilities figure.
    One commenter asked that the Board set forth a specific schedule 
for a review and ex post evaluation of the final rule. The Board 
generally reviews its rules every five years in order to update 
requirements, reduce unnecessary burden, and streamline regulatory 
requirements based on the Board's experience in implementing a rule. As 
such, the Board does not believe that a separate schedule for a review 
and ex post evaluation of the final rule is necessary.

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.
1. Measuring Liabilities Upon Consummation of a Covered Acquisition
    The proposed rule set forth a method for calculating liabilities 
upon consummation of an acquisition subject to the concentration limit 
(``covered acquisition''). As set forth in the proposed rule, where a 
covered acquisition would involve a foreign acquirer and a foreign 
target, the final rule would provide that liabilities immediately upon 
consummation of the covered acquisition would equal the total 
consolidated liabilities of the U.S. operations of the resulting 
foreign financial company, but would not include liabilities of the 
foreign operations of either the acquiring foreign bank or the target 
foreign firm, except to the extent these foreign assets are controlled 
by a U.S. subsidiary or branch of either foreign entity. Also in the 
case of a cross-border covered acquisition involving a U.S. company, 
the proposal rule would have included the liabilities of both the U.S. 
and foreign subsidiaries of the U.S. company, regardless of whether the 
U.S. company is the acquirer or target. The final rule adopts the 
proposed methodology without change.
2. Transactions for Which a Notice or Application Is Not Otherwise 
Required
    Under the proposed rule, prior to consummating a covered 
acquisition, a financial company that was not otherwise required to 
file a prior notice or application with the Board would have been 
required to provide written notice to the Board if the company's 
liabilities immediately after consummation of the transaction would be 
above 8 percent of the 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. This provision was proposed to provide 
notification to the Board regarding covered financial firms that were 
nearing the concentration limit.
    Commenters suggested that the Board not adopt this requirement 
because financial companies are well-placed to monitor their own 
compliance with the limit and will have incentives to consult with the 
Board should a transaction put the company at risk of exceeding the 
limit, given that the statute prohibits transactions that exceed the 
limit. One commenter argued that the imposition of a prior notice 
requirement would add burden and create administrative difficulties for 
financial companies without a corresponding benefit.
    In light of commenters' views, the final rule does not include a 
prior notice requirement. If a company consummates a covered 
acquisition in violation of the limit, the company may be required to 
divest any company or assets acquired in violation of the limit. In 
order to ensure compliance with the concentration limit, a financial 
company should have policies and procedures in place to monitor its 
compliance with section 622. In addition, the Board will consider 
compliance with the concentration limit in reviewing proposed 
acquisitions or mergers under other laws such as the Bank Holding 
Company Act. If the Board receives a notice or application related to a 
covered acquisition, the Board will consider whether the transaction is 
permissible under section 622.
3. Acquisitions by Nonfinancial Companies
    Under the proposed rule, a covered acquisition between a financial 
company and a company that is not a financial company under section 
622, including those in which the nonfinancial company is the acquirer, 
and becomes a financial company as a result of the transaction, would 
be covered by the limit. The final rule adopts this approach 
substantively as proposed.

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.\29\ Under 
the statute, each of these types of transactions requires prior written 
consent of the Board.\30\
---------------------------------------------------------------------------

    \29\ See 12 U.S.C. 1852(c).
    \30\ Id.
---------------------------------------------------------------------------

1. Exceptions to the Concentration Limit
a. Failing Insured Depository Institution and FDIC-Assisted 
Transactions
    The proposed rule provided that, with prior written consent of the 
Board, the concentration limit would not apply to the 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. The proposed 
rule was consistent with the Council's recommendations 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.\31\ 
This would include savings associations and industrial loan

[[Page 68101]]

companies, for example. Similarly, the proposed rule would have 
provided that, with prior written consent of the Board, the 
concentration limit would not apply to a covered 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)). The final rule adopts these proposed 
exceptions without change.
---------------------------------------------------------------------------

    \31\ 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].''
---------------------------------------------------------------------------

b. De Minimis Transaction
    The proposed rule would have defined 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. One commenter recommended that the Board raise 
the amount from $2 billion to $5 billion and another urged the Board to 
undertake further empirical analysis to determine the appropriate 
limit.
    The final rule maintains the $2 billion threshold. As the Council 
noted, section 622 is intended, along with a number of other provisions 
in the Dodd-Frank Act, to promote financial stability.\32\ Section 604 
of the Dodd-Frank Act is another provision that, like section 622, is 
designed to promote financial stability. It amended sections 3 and 4 of 
the Bank Holding Company Act to require the Board to evaluate the risks 
to the stability of the U.S. banking or financial system in reviewing 
proposed acquisitions of banks and nonbanks by bank holding 
companies.\33\ In approving the acquisition by Capital One Financial 
Corporation of ING Bank, fsb, the Board offered three examples of 
transactions it may presume, absent other evidence, not to present 
financial stability concerns: (1) An acquisition of less than $2 
billion of assets, (2) a transaction resulting in a firm with less than 
$25 billion in total assets, or (3) a corporate reorganization. 
Similarly, in the Board's view, a $2 billion threshold is appropriate 
as a de minimis threshold in this rule because it would only permit 
those covered acquisitions that would not likely, on their own, 
increase risk to financial stability posed by concentration in the 
financial sector.\34\
---------------------------------------------------------------------------

    \32\ Council study, p. 3.
    \33\ 604(d) and (e) of the Dodd-Frank Act; 12 U.S.C. 1842(c)(7) 
and 1843(j)(2)(A).
    \34\ See, Capital One Financial Corporation, FRB Order No. 2012-
2 (Feb. 14, 2012).
---------------------------------------------------------------------------

c. Prior Written Consent of the Board
    Under the proposed rule, a financial company that sought to 
consummate a covered 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 covered acquisition. One commenter recommended that 
the final rule set forth an explicit standard under which the Board 
would review a proposed transaction--specifically, whether the 
consummation of the proposed acquisition would create a level of 
concentration in the financial sector that would pose a threat to 
financial stability. In addition, the commenter requested that the 
Board specify the process under which it will review a de minimis 
acquisition.
    In response to comments, the final rule provides additional detail 
on the process and standard under which the Board will review a de 
minimis acquisition. Under the final rule, a financial company that 
seeks to make de minimis covered acquisition must file a request with 
the Board prior to consummation of the proposed transaction that 
describes the covered acquisition, the projected increase in the 
company's liabilities resulting from the acquisition, the aggregate 
increase in the company's liabilities from acquisitions during the 
twelve months preceding the projected date of the acquisition, and any 
additional information requested by the Board. The Board will act on 
such a request within 90 calendar days after receipt of the complete 
request, unless that time period is extended by the Board. To the 
extent that a proposed transaction requires approval by, or prior 
notice to, the Board under another statutory provision (for example, 
under the Bank Holding Company Act) the Board intends to act on the 
request for prior written consent under section 622 concurrently with 
its action on the request for approval or notice under the other 
statute.
    In reviewing a proposed de minimis transaction, the Board will 
consider whether the consummation of the covered acquisition could pose 
a threat to financial stability. As noted by the Council in its study 
on the concentration limit, this concentration limit is intended, along 
with a number of other provisions in the Dodd-Frank Act, to promote 
financial stability and address the perception that large financial 
institutions are ``too big to fail.'' \35\ The final rule's standard 
for reviewing exceptions to the concentration limit is intended to 
further this statutory intent. Proposed de minimis transactions may 
also require a separate consideration under another statute and may be 
subject to a denial or objection pursuant to the standards under that 
statute.
---------------------------------------------------------------------------

    \35\ Council study, p. 3.
---------------------------------------------------------------------------

    Commenters requested that the Board provide its general consent for 
transactions for which the consideration paid is $100 million or less, 
and for which the associated increase in liabilities is within the $2 
billion de minimis cap, with only an after-the-fact notice. 
Transactions that, in aggregate, result in an increase in the total 
consolidated liabilities of a financial company of $100 million or less 
are unlikely to affect materially the concentration of the financial 
sector. As part of the final rule, the Board is providing general 
consent for transactions that result in an increase in the total 
consolidated liabilities of a financial company of less than $100 
million, when aggregated with all other acquisitions by the company 
under this general consent authority during the twelve months preceding 
the date of the transaction. A company must provide a notice to the 
Board no later than 10 days after consummating the covered acquisition 
that describes the covered acquisition, the increase in the company's 
liabilities resulting from the acquisition, and the aggregate increase 
in the company's liabilities from acquisitions during the twelve months 
preceding the date of the acquisition.
2. Organic Growth
    Section 622 and the implementing final rule limit growth by the 
largest, most interconnected financial companies through acquisitions 
or mergers. The proposed rule would have identified certain activities 
that would not be treated as a covered acquisition, including acquiring 
shares in the ordinary course of collecting a debt previously 
contracted (DPC), in a fiduciary capacity, in connection with 
underwriting or market making, or merchant or investment banking or 
insurance company investment activity. The proposed rule would have 
also clarified that internal corporate reorganizations were not 
``covered acquisitions'' for purposes of section 622.
    One commenter requested that the Board reconsider the proposed 
exceptions for merchant banking investments and the acquisition of DPC 
assets. The commenter noted that Congress enumerated specific 
exceptions from the statutory concentration limit, and chose not to 
provide an exception for merchant

[[Page 68102]]

banking investments or acquisition of DPC assets. In this commenter's 
view, Congress intended to enact a comprehensive limitation on growth 
through acquisition, and the proposed exceptions for merchant banking 
investments and acquisition of DPC assets would create a loophole that 
could undermine the intent of the statute. The commenter expressed the 
view that merchant banking investments and ownership of DPC assets 
could lead to effective ownership and control of another company.
    In the alternative, the commenter recommended that the Board 
replace the exceptions for the acquisition of DPC assets and merchant 
banking investments with an actual specified time period or definition 
of control, which would exempt a brief ownership stake from triggering 
section 622's limitations on acquisitions.\36\
---------------------------------------------------------------------------

    \36\ Specifically, the commenter requested that ``control'' be 
defined as either majority ownership or substantial influence over 
the business decisions of the company. In the alternative, the 
commenter suggests that the Board exempt merchant banking 
investments and acquisition of DPC assets only if held for less than 
one year.
---------------------------------------------------------------------------

    In light of this comment, the Board has considered the language and 
legislative intent of section 622, as well as the Council's study on 
the effects of the concentration limit. Based on these considerations, 
the Board is retaining the exception for acquisition of DPC assets, but 
eliminating the exception for merchant banking investments. The 
Council's study described the concentration limit as intended to 
promote financial stability and address the perception that large 
financial institutions are ``too big to fail.'' \37\ In its study, the 
Council expressed the view that the concentration limit will reduce the 
risks to U.S. financial stability created by increased concentration 
arising from mergers, consolidations or acquisitions involving the 
largest U.S. financial companies.\38\ It also expressed the view that 
the concentration limit does not prevent firms from growing larger 
through internal, organic growth.\39\
---------------------------------------------------------------------------

    \37\ Council study, p. 10.
    \38\ Council study, p. 10.
    \39\ Council study, p. 5.
---------------------------------------------------------------------------

    In the Board's view, the acquisition of an interest in a company 
during the regular course of securing or collecting a debt previously 
contracted is integral to the business of lending, and should not be 
constrained by the concentration limit. An acquisition of shares of a 
company through a DPC acquisition results from a borrower defaulting on 
a loan, rather than an intentional investment by a financial company. 
These acquisitions protect the lender from loss, and typically require 
a divestiture of the interests within five years.
    In contrast to a DPC acquisition, engaging in a merchant banking 
investment that results in control of a company is an intentional 
investment decision by a financial company. A merchant banking 
investment is solely for the purpose of acquiring an interest in a 
nonfinancial company. As such, the Board has determined that merchant 
banking investments that result in control of a company should not be 
exempt. Merchant banking investments are fundamentally different from 
the situation where a company must foreclose on shares of a company 
held as collateral in order to recover the funds it has lent. 
Therefore, to the extent that a merchant banking investment gives rise 
to control under the Bank Holding Company Act, it will be treated as a 
``covered acquisition'' for purposes of section 622. A financial 
company whose liabilities exceeded the concentration limit could still 
make merchant banking investments, provided that it did not acquire 
control of the portfolio company.
    Other commenters suggested several additional types of transactions 
that should be exempt from the definition of covered acquisition 
because they are ordinary business transactions. Among these 
suggestions were the acquisition of a loan portfolio structured as an 
acquisition of a special purpose vehicle instead of the purchase of 
underlying loans, community development investments, investments in 
small business investment companies, leases structured as an investment 
in a company, the acquisition of securities in connection with 
customer-driven hedging positions, securities repurchase financing 
transactions, securities borrowing and lending transactions, and 
investments by funds of which a financial company subsidiary serves as 
a general partner.
    In response to commenters' observation that the acquisition of 
certain assets, such as a loan portfolio, may be structured as a legal 
matter as an acquisition of a special purpose vehicle, the final rule 
would include a new exception for securitization transactions. 
Specifically, a ``covered acquisition'' would exclude an acquisition of 
ownership or control of a company that is, or will be, an issuer of 
asset-backed securities (as defined in section 3(a) of the Securities 
and Exchange Act of 1934) so long as the financial company that retains 
an ownership interest in the company complies with the credit risk 
retention requirements in the regulations issued pursuant to section 
15G of the Securities and Exchange Act of 1934. The credit risk 
retention requirements are found in section 941 of the Dodd-Frank Act, 
and the exception would permit a financial company to continue 
sponsoring securitizations after the financial company's liabilities 
exceed the concentration limit, consistent with the requirements of the 
Dodd-Frank Act.\40\
---------------------------------------------------------------------------

    \40\ Section 941 of the Dodd-Frank Act, 15 U.S.C. 78o-11.
---------------------------------------------------------------------------

    With respect to the commenter's suggestion that the Board exempt 
small business and community development investments, leases structured 
as investments, acquisition of securities in connection with customer-
driven hedging positions, investments by funds of which a financial 
company subsidiary serves as a general partner, securities repurchase 
financing transactions, and securities borrowing and lending 
transactions, these investments would not be prohibited under the final 
rule so long as they do not give rise to control over the investee 
company.
    Commenters requested clarification of the proposed exception for 
fiduciary acquisitions, requesting that there be a complete, 
unconditional exclusion of assets acquired by a financial company 
acting in a fiduciary capacity. The final rule clarifies that the 
fiduciary exception in section 622 would permit a financial company to 
continue to engage in bona fide fiduciary activities in accordance with 
applicable fiduciary law. As discussed below, the final rule contains 
an anti-evasion provision applicable to all transactions that prohibits 
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.

E. Other Provisions of Law

    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.\41\ 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.

[[Page 68103]]

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.\42\
---------------------------------------------------------------------------

    \41\ 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.
    \42\ See, e.g., 12 U.S.C. 1842(d) and 1843(j); 12 CFR 
225.14(c)(5) and (6).
---------------------------------------------------------------------------

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 received no comments on these matters and 
believes that the final rule is written plainly and clearly.

B. Paperwork Reduction Act Analysis

    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 for this information collection. The Board reviewed the final 
rule under the authority delegated to the Board by OMB.
    The final rule contains requirements subject to the PRA. The 
reporting requirements are found in sections 251.4(b), 251.4(c), and 
251.6. To implement the reporting requirements set forth in 251.6, the 
Board proposes to create a new reporting form, the Financial Company 
Report of Consolidated Liabilities (FR XX-1). This information 
collection requirement would implement section 622 of the Dodd-Frank 
Act.
    Of the comments received on the proposed rule, four specifically 
referenced the PRA. In response to these comments, the Board modified 
the final rule as follows (1) provided that financial sector 
liabilities will be calculated as of December 31, 2014, for purposes of 
the period beginning July 1, 2015 and ending June 30, 2016, and the 
two-year average will be adopted for each year thereafter; (2) removed 
the prior notice requirement for acquisitions by financial companies 
with total consolidated liabilities equal to or greater than 8 percent 
of aggregate financial sector liabilities; (3) provided prior consent 
for a covered acquisition that would result in an increase in the 
liabilities of the financial company that does not exceed $100 million, 
when aggregated with all other covered acquisitions by the financial 
company during the twelve months preceding the consummation of the 
transaction and set forth a process and standard of review for de 
minimis transactions. These changes, as well as the Board's other 
responses to the comments received, are discussed in greater detail 
above.
Proposed Information Collection
    Title of Information Collection: Reporting Requirements Associated 
with Regulation XX (Concentration Limit) (Reg XX); Financial Company 
Report of Consolidated Liabilities (FR XX-1).
    Frequency of Response: Reg XX: Annual, event generated; FR XX-1: 
Annual.
    Affected Public: Businesses or other for-profit.
    Respondents: Reg 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; FR XX-1: U.S. and 
foreign financial companies that do not otherwise report consolidated 
financial information to the Board or other appropriate Federal banking 
agency.
    Abstract: Section 622 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, which adds a new 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 rule requires certain 
financial companies to report information necessary to calculate the 
financial sector concentration limit.
    Section 251.4(b) requires a financial company with liabilities in 
excess of the concentration limit cap to request that the Board provide 
prior written consent before consummates a transaction that is exempt 
from the concentration limit. The request for prior written consent 
must contain a description of the covered acquisition, the projected 
increase in the company's liabilities resulting from the acquisition, 
the projected aggregate increase in the company's liabilities from 
acquisitions during the twelve months preceding the projected date of 
the acquisition (if the request is made pursuant to paragraph (a)(3) of 
this section); and any additional information requested by the Board.
    Section 251.4(c) requires a financial company with liabilities in 
excess of the concentration limit cap may provide after-the-fact notice 
to the Board if a covered acquisition would result in an increase in 
the liabilities of the financial company of less than $100 million, 
when aggregated with all other covered acquisitions by the financial 
company made pursuant to section 251.4(c) during the twelve months 
preceding the date of the acquisition. A financial company that relies 
on this provision must provide a notice to the Board within 10 days 
after consummating the covered acquisition that describes the covered 
acquisition, the increase in the company's liabilities resulting from 
the acquisition, and the aggregate increase in the company's 
liabilities from covered acquisitions during the twelve months 
preceding the date of the acquisition.
    Section 251.6 requires 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 rule creates a new report, the 
Financial Company Report of Consolidated Liabilities (FR XX-1) 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, 2014. The Board will collect the first report by March 31, 
2015.
    Specifically, with respect to a financial company domiciled in the 
United States, the institution is required to report total consolidated 
liabilities of the financial company under applicable

[[Page 68104]]

accounting standards.\43\ With respect to a financial company domiciled 
in a country other than the United States, the financial company is 
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.
---------------------------------------------------------------------------

    \43\ ``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.
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    Information contained in this report generally will be made 
available to the public upon request. 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.
    Estimated Burden per Response: Reg XX: Section 251.4(b), 10 hours; 
Section 251.4(c), 10 hours; FR XX-1: 2 hours; one-time implementation: 
5 hours.
    Number of Respondents: Reg XX: Section 251.4(b), 1; Section 
251.4(c), 1; FR XX-1: 40.
    Total Estimated Annual Burden: Reg XX: 20 hours; FR XX-1: 80 hours; 
one-time implementation: 200.

C. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), 
generally requires that an agency prepare and make available for public 
comment an initial regulatory flexibility analysis in connection with a 
notice of proposed rulemaking.\44\ The regulatory flexibility analysis 
otherwise required under section 604 of the RFA is not required if an 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities and publishes its 
certification and a short, explanatory statement in the Federal 
Register along with its rule.
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    \44\ See 5 U.S.C. 603(a).
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    The agencies solicited public comment on the rule in a notice of 
proposed rulemaking. The agencies did not receive any comments 
regarding burden to small banking organizations.
    The Board adding Regulation XX (12 CFR 251 et seq.) to implement 
section 14 of the Bank Holding Company Act (added by section 622 of the 
Dodd-Frank Act), reflecting the recommendations of the Council.\45\ 
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.
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    \45\ 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 $550 million or less in assets.\46\ 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 $550 million or less are small 
entities for purposes of the RFA.
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    \46\ 13 CFR 121.201.
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    As discussed in the Supplementary Information, the final 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 $550 million or less in assets will not, in 
practice, be affected by the final rule, which limits covered 
acquisitions only by firms whose liabilities will exceed ten percent of 
the aggregate financial sector liabilities. As noted in the preamble to 
the proposed rule, as of December 31, 2013, under the estimated 
proposed method, financial sector liabilities is approximately $18 
trillion. Furthermore, the reporting requirement 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 rule is not likely to apply to any 
company with assets of $550 million or less, it is not expected to 
apply to any small entity for purposes of the RFA. The Board does not 
believe that the rule duplicates, overlaps, or conflicts with any other 
Federal rules. In light of the foregoing, the Board does not believe 
that the rule would have a significant economic impact on a substantial 
number of small entities supervised.

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 is adding part 251 to read 
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. 1818, 1844(b), 1852, 3101 et seq.


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 sections 5 and 14 of the Bank Holding 
Company Act of 1956, as amended (12 U.S.C. 1844 and

[[Page 68105]]

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) (February 8, 
2011).
    (b) Purpose. This subpart implements section 14 of the Bank Holding 
Company Act, which generally prohibits a financial company from merging 
or consolidating with, acquiring all or substantially all of the assets 
of, or otherwise acquiring control of, 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, acquiring 
all or substantially all of the assets of, or otherwise acquiring 
control of, 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 
directly or indirectly merges or consolidates with, acquires all or 
substantially all of the assets of, or otherwise acquires control of 
another company. A covered acquisition does not include an acquisition 
of ownership or control of a company:
    (1) 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) In a fiduciary capacity in good faith under applicable 
fiduciary law if the acquired 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) In connection with bona fide underwriting or market-making 
activities;
    (4) 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; and
    (5) That is, or will be, an issuer of asset back securities (as 
defined in Section 3(a) of the Securities and Exchange Act of 1934) so 
long as the financial company that retains an ownership interest in the 
company complies with the credit risk retention requirements in the 
regulations issued pursuant to section 15G of the Securities and 
Exchange Act of 1934.
    (g) Financial company includes:
    (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) Total risk-based capital ratio means the ``total capital 
ratio'' as calculated under the applicable risk-based capital rules.
    (o) Total risk-weighted assets means the measure of consolidated 
risk-weighted assets that a financial company uses to calculate its 
risk-based capital ratios under the applicable risk-based capital 
rules.
    (p) 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)).
    (q) U.S. company means a company that is incorporated in or 
organized under the laws of the United States or any State.
    (r) U.S. financial company means a financial company that is a U.S. 
company.
    (s) U.S. subsidiary means any subsidiary, as defined in Sec.  
225.2(o) of Regulation Y (12 CFR 225.2(o)), that is a U.S. company.


Sec.  251.3  Concentration limit.

    (a) In general. (1) Except as otherwise provided in Sec.  251.4, a 
company may not consummate a covered acquisition if upon consummation 
of the transaction, the liabilities of the resulting company would 
exceed 10 percent of the financial sector liabilities, and the company 
is or would become a financial company.
    (2) Financial sector liabilities. (i) Subject to paragraph 
(a)(2)(ii) of this section, as of 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) For the period beginning July 1, 2015, and ending June 30, 
2016, financial sector liabilities are equal to the year-end financial 
sector liabilities figure as of December 31, 2014.
    (iii) The year-end financial sector liabilities figure equals the 
sum of the total consolidated liabilities of all top-tier U.S. 
financial companies (as calculated under paragraph (b) of this section) 
and the U.S. liabilities of all top-tier foreign financial companies 
(as calculated under paragraph (c) of this section) as of December 31 
of that year.
    (iv) 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

[[Page 68106]]

of the financial sector liabilities for the preceding two calendar 
years.
    (b) Calculating total consolidated liabilities. For purposes of 
paragraph (a) of this section:
    (1) Covered acquisition by a U.S. company. For a covered 
acquisition in which a U.S. company would acquire a U.S. company or a 
foreign company, liabilities of the resulting U.S. 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) Covered acquisition by a foreign company of another foreign 
company. For a covered acquisition in which a foreign company would 
acquire another foreign company, liabilities of the resulting foreign 
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) Covered acquisition by a foreign company of a U.S. company. For 
a covered acquisition in which a foreign company would acquire a U.S. 
company, liabilities of the resulting foreign 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) Liabilities of a U.S. company--(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; 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.
    (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) Liabilities of a foreign company--(1) Foreign banking 
organization. For a foreign banking organization, U.S. liabilities are 
equal to:
    (i) The total consolidated assets of each U.S. branch or U.S. 
agency of the foreign banking organization, calculated in accordance 
with applicable accounting standards; plus
    (ii) The total consolidated liabilities of each 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 consolidated risk-weighted assets of the subsidiary; plus
    (B) The amount of assets that are deducted from the subsidiary's 
regulatory capital elements under the applicable risk-based capital 
rules, times a multiplier that is equal to the inverse of the 
subsidiary's total risk-based capital ratio minus one; minus
    (C) Total consolidated regulatory capital of the subsidiary; plus
    (iii) The total consolidated assets of each 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, calculated in 
accordance with applicable accounting standards.
    (2) Foreign financial company that is not a foreign banking 
organization. For a foreign company that is not a foreign banking 
organization, U.S. liabilities are equal to:
    (i) The total consolidated liabilities of each 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 consolidated risk-weighted assets of the subsidiary; plus
    (B) The amount of assets that are deducted from the subsidiary'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 subsidiary; plus
    (ii) The total consolidated liabilities of each top-tier U.S. 
subsidiary that is not subject to applicable risk-based capital rules, 
calculated in accordance with applicable accounting standards.
    (3) 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 (d) 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 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 reflected in the measure 
of liabilities.
    (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 (d) by amounts corresponding to intercompany balances and 
intercompany transactions between the foreign organization's U.S. 
domiciled affiliates to the extent such items are not already 
eliminated in consolidation; provided that it increases consolidated 
liabilities by net intercompany balances and intercompany transactions 
between a non-U.S. domiciled affiliate and a U.S. domiciled affiliate, 
to the extent such items are not already reflected in the measure of 
liabilities.
    (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 the company 
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) General. With the prior written consent of the Board, the 
concentration limit under Sec.  251.3 shall not apply to:
    (1) A covered acquisition of an insured depository institution that 
is 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) A covered acquisition with respect to which assistance is 
provided by the Federal Deposit Insurance Corporation under section 
13(c) of the Federal

[[Page 68107]]

Deposit Insurance Act (12 U.S.C. 1823(c)); or
    (3) A covered 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 projected date of the acquisition.
    (b) Prior written consent--(1) General. Except as provided in 
paragraph (c) of this section, a financial company must request that 
the Board provide prior written consent before the financial company 
consummates a transaction described in paragraph (a) of this section.
    (2) Contents of request. (i) A request for prior written consent 
under paragraph (a) of this section must contain:
    (A) A description of the covered acquisition;
    (B) The projected increase in the company's liabilities resulting 
from the acquisition;
    (C) If the request is made pursuant to paragraph (a)(3) of this 
section, the projected aggregate increase in the company's liabilities 
from acquisitions during the twelve months preceding the projected date 
of the acquisition; and
    (D) Any additional information requested by the Board.
    (ii) A financial company may satisfy the requirements of this 
paragraph (b) if:
    (A) The proposed transaction otherwise requires approval by, or 
prior notice to, the Board under the Change in Bank Control Act, Bank 
Holding Company Act, Home Owners' Loan Act, International Banking Act, 
or any other applicable statute, and any regulation thereunder; and
    (B) The financial company includes the information required in 
paragraph (b)(2) of this section in the notice or request for prior 
approval described in paragraph (b)(2)(ii)(A) of this section.
    (3) Procedures for providing written consent. (i) The Board will 
act on a request for prior written consent filed under this paragraph 
(b) within 90 calendar days after the receipt of a complete request, 
unless that time period is extended by the Board. To the extent that a 
proposed transaction otherwise requires approval from, or prior notice 
to, the Board under another provision of law, the Board will act on 
that request for prior written consent concurrently with its action on 
the request for approval or notice.
    (ii) In acting on a request under this paragraph (b), the Board 
will consider whether the consummation of the covered acquisition could 
pose a threat to financial stability.
    (c) General consent. The Board grants prior written consent for a 
covered acquisition that would result in an increase in the liabilities 
of the financial company that does not exceed $100 million, when 
aggregated with all other covered acquisitions by the financial company 
made pursuant to this paragraph (c) during the twelve months preceding 
the date of the acquisition. A financial company that relies on prior 
written consent pursuant to this paragraph (c) must provide a notice to 
the Board within 10 days after consummating the covered acquisition 
that describes the covered acquisition, the increase in the company's 
liabilities resulting from the acquisition, and the aggregate increase 
in the company's liabilities from covered acquisitions during the 
twelve months preceding the date of the acquisition.


Sec.  251.5  No evasion.

    A financial company may not 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.

    By March 31 of each year:
    (a) 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 
in the manner and form prescribed by the Board; and
    (b) 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 in the manner and 
form prescribed by the Board.

    By order of the Board of Governors of the Federal Reserve 
System, November 4, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-26747 Filed 11-13-14; 8:45 am]
BILLING CODE 6210-01-P