Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on…
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Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds
Interim final rule.
CFR Part: "12 CFR Part 44"
RIN Number: "RIN 1557-AD79"
Citation: "79 FR 5223"
Document Number: "RIN 3038-AE13"
"Rules and Regulations"
SUMMARY: The OCC, Board,
EFFECTIVE DATE: Effective date: The interim final rule is effective on
ADDRESSES: Interested parties are encouraged to submit written comments jointly to all of the Agencies. Commenters are encouraged to use the title "Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities with Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds" to facilitate the organization and distribution of comments among the Agencies.
Office of the Comptroller of the Currency: Because paper mail in the
* Federal eRulemaking Portal--"Regulations.gov": Go to http://www.regulations.gov. Enter "Docket ID OCC-2014-0003" in the Search Box and click "Search." Results can be filtered using the filtering tools on the left side of the screen. Click on "Comment Now" to submit public comments.
* Click on the "Help" tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period.
* Email: [email protected].
* Mail: Legislative and Regulatory Activities Division,
* Fax: (571) 465-4326.
* Hand Delivery/Courier:
Instructions: You must include "OCC" as the agency name and "Docket ID "OCC-2014-0003" in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to this proposed rulemaking by any of the following methods:
* Viewing Comments Electronically: Go to http://www.regulations.gov. Select "Document Type" of "Public Submissions," and in the "Enter Keyword or ID Box," enter Docket ID "OCC-2014-0003," and click "Search." Comments can be filtered by Agency using the filtering tools on the left side of the screen.
* Click on the "Help" tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period.
* Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC,
Docket: You may also view or request available background documents and project summaries using the methods described above.
Board of Governors of the
You may submit comments, identified by Docket No. R-1480 and RIN 7100 AE-11, by any of the following methods:
* Agency Web site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
* Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
* Email: [email protected]. Include the docket number in the subject line of the message.
* Fax: (202) 452-3819 or (202) 452-3102.
* Mail: Address to Robert deV. Frierson, Secretary,
All public comments will be made available on the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the
Federal Deposit Insurance Corporation: You may submit comments, identified by RIN number, by any of the following methods:
* Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on the Agency Web site.
* Email: [email protected]. Include the RIN number 3064-AE11 on the subject line of the message.
* Mail:
* Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th
Public Inspection: All comments received must include the agency name and RIN 3064-AE11 for this rulemaking. All comments received will be posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided. Paper copies of public comments may be ordered from the
Commodity Futures Trading Commission: You may submit comments, identified by RIN number 3038-AE13 by any of the following methods:
* Agency Web site: http://comments.cftc.gov.
* Mail: Secretary of the Commission,
* Hand Delivery: Same as mail above.
* Federal eRulemaking Portal: http://www.regulations.gov. Follow instructions for submitting comments.
All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the CFTC to consider information that is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedure established in
The CFTC reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse, or remove any or all of your submission from http://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act.
Securities and Exchange Commission: You may submit comments by the following method:
Electronic Comments
* Use the Commission's Internet comment form (http://www.sec.gov/rules/interim-final-temp.shtml); or
* Send an email to [email protected]. Please include File Number S7-01-14 on the subject line; or
* Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
* Send paper comments in triplicate to
All submissions should refer to File Number S7-01-14. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
FDIC:
CFTC:
SEC:
SUPPLEMENTARY INFORMATION:
I. Background
Section 619 of the Dodd-Frank Act added a new section 13 to the BHC Act (codified at 12 U.S.C. 1851) that generally prohibits banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. These prohibitions are subject to a number of statutory exemptions, restrictions and definitions.
Section 13 of the BHC Act expressly authorizes the Board, OCC,
FOOTNOTE 1 The Final Rule will be codified at 12 CFR part 44 (OCC), 12 CFR part 248 (FRB), 12 CFR part 351 (FDIC), 17 CFR part 75 (CFTC), and 17 CFR part 255 (SEC). The Final Rule defines a covered fund as an issuer that would be an investment company as defined in the Investment Company Act of 1940 (the "Investment Company Act") but for section 3(c)(1) or 3(c)(7) of that Act, and also includes and excludes certain entities. This definition implements the definition of "hedge fund" and "private equity fund" in section 13(h)(2) of the BHC Act. See 12 U.S.C. 1851(h)(2). END FOOTNOTE
A separate provision of the Dodd-Frank Act, section 171, generally provides that trust preferred and certain other securities issued by depository institution holding companies must be phased-out of such companies' calculation of regulatory capital for purposes of determining Tier 1 capital. However, section 171 further provides for the permanent grandfathering of debt and equity securities issued before
II. Discussion
Section 619 generally prohibits a banking entity from acquiring or retaining any ownership in, or acting as sponsor to, a hedge fund or private equity fund, which are defined under the statute to mean an issuer that would be an investment company, as defined in the Investment Company Act, but for section 3(c)(1) or 3(c)(7) of that Act, or "such similar funds" as the Agencies determine by rule. The Agencies have by separate rule implementing section 619, in relevant part, defined a hedge fund or private equity fund through the term "covered fund" to be any issuer that would be an investment company under the Investment Company Act but for section 3(c)(1) or 3(c)(7) of that Act, with certain exceptions and additions. /2/ This definition generally includes pooled investment vehicles, such as many TruPS CDOs, that use 3(c)(1) or 3(c)(7) but do not qualify for another exclusion under the Investment Company Act or the Final Rule.
FOOTNOTE 2 See Final Rule SEC __.10(b)(1)(i). END FOOTNOTE
Section 171 of the Dodd-Frank Act requires, among other things, that the appropriate Federal banking agencies establish minimum leverage and risk-based capital requirements for insured depository institutions and depository institution holding companies that are not less than the generally applicable capital requirements that were in effect for insured depository institutions as of the date of enactment of the Dodd-Frank Act. /3/ The focus of this section on ensuring that depository institutions and their holding companies maintain strong minimum capital levels is one of the key prudential provisions included in the Dodd-Frank Act. Importantly in the current context and as noted above, section 171 specifically permits any community banking organization to continue to rely for regulatory capital purposes on any debt or equity instruments issued before
FOOTNOTE 3 See 12 U.S.C. 5371. END FOOTNOTE
FOOTNOTE 4 Se e 12 U.S.C. 5371(b)(4)(C). END FOOTNOTE
A number of community banking organizations have recently expressed concern that the Final Rule conflicts with the Congressional determination under section 171(b)(4)(C) of the Dodd-Frank Act to grandfather TruPS issued as of
FOOTNOTE 5 The banking agencies recently provided guidance on the application of the Final Rule to TruPS CDOs. See FAQ Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under the Final Volcker Rule, available at http://www.fdic.gov/news/news/press/2013/pr13123a.pdf. See also Statement regarding Treatment of Certain Collateralized Debt Obligations Backed by Trust Preferred Securities under the Rules implementing Section 619 of the Dodd-Frank Act, available at http://www.fdic.gov/news/news/financial/2013/fil13062.html (the "Statement"). END FOOTNOTE
The Agencies have determined to act together to adopt an interim final rule. This new interim final rule permits a banking entity to retain an interest in, or to act as sponsor (including as trustee) of, an issuer that is backed by TruPS so long as (i) the issuer was established before
The Agencies believe that the approach adopted in the interim final rule appropriately reconciles the policies of section 619 of the Dodd-Frank Act with its companion provision in section 171 of the Dodd-Frank Act and have attempted to encompass the class of instruments
FOOTNOTE 6 To minimize the burden of applying the interim final rule, the Board, the
III. Request for Comment
The Agencies invite comment from all members of the public regarding all aspects of the interim final rule. The request for comment is limited to this interim final rule. The Agencies request comment on whether the interim final rule is consistent with the purposes of sections 619 and 171 of the Dodd-Frank Act.
The Agencies will carefully consider all comments that relate to this interim final rule.
IV. Administrative
A. Interim Final Rule
The Administrative Procedure Act generally requires an agency to publish notice of a proposed rulemaking in the
FOOTNOTE 7 See 5 U.S.C. 553(b). END FOOTNOTE
FOOTNOTE 8 Id. END FOOTNOTE
After the Agencies' adoption of the Final Rule implementing section 619, a number of community banking organizations reached out to the Agencies to express concerns about the Final Rule and, in particular, the implications for financial statement purposes relating to the banking organizations' holdings resulting from their previous capital-raising efforts involving TruPS issued by banking organizations for regulatory capital purposes. The Agencies requested comment in the Notices of Proposed Rulemaking issued by the Agencies /9/ regarding the effects of the definition of covered fund and ownership interests on issuers of asset-backed securities, including the distinctions between debt and equity interests. /10/ The Agencies also included a request for comment on trust preferred securities specifically in the context of the proposed rule's permitted activity for underwriting activities. /11/ Notwithstanding such requests, the Agencies believe that the recently expressed concerns regarding the impact of including TruPS CDOs in the definition of covered fund or on investments by community banks in TruPS CDOs were not included in comments to the Agencies during the comment process.
FOOTNOTE 9 See 76 FR 68,846 (
FOOTNOTE 10 See Questions 227-240 of the joint Notice of Proposed Rulemaking. END FOOTNOTE
FOOTNOTE 11 See Question 78 of the joint Notice of Proposed Rulemaking. END FOOTNOTE
The Agencies have considered carefully these recently identified concerns, particularly in light of the provisions in section 171 of the Dodd-Frank Act and the concerns raised by community banking organizations regarding the consistency of treatment regarding TruPS issued by community banking organizations, and grandfathered under section 171, and the TruPS CDOs that were used as capital access vehicles for the TruPS issuances. In light of the significant concerns expressed, the Agencies believe there is an urgent need to act in light of the uncertainty expressed by some community banking organizations about whether the Final Rule will require them to dispose of their holdings of TruPS CDOs, which they contend could have an immediate effect on their financial statements and their bank regulatory capital. The OCC, Board,
FOOTNOTE 12 See Statement, supra note 5, stating that the Agencies' intend to address this matter no later than
Accordingly, for the reasons discussed throughout, the Agencies find good cause to act immediately to adopt this rule on an interim final basis without prior solicitation of comment. With this interim final rule and request for comment, the Agencies are not reopening the final rules that have previously been adopted under section 619.
B. Use of Plain Language
Section 722 of the Gramm-Leach Bliley Act (Pub. L. 106-102, 113
C. Paperwork Reduction Act
The Agencies note that the new interim final rule does not create new regulatory obligations for banking entities, and therefore does not impose any new "collections of information" within the meaning of the Paperwork Reduction Act of 1995 ("PRA"), /13/ nor does it create any new filing, reporting, recordkeeping, or disclosure reporting requirements. Accordingly, the Agencies did not submit the interim final rule to the
FOOTNOTE 13 44 U.S.C. 3501 et seq. END FOOTNOTE
D. Regulatory Flexibility Act
The interim final rule applies to banking entities that may have ownership interests in TruPS CDOs. The requirements of the Regulatory Flexibility Act are not applicable to this interim final rule. /14/ Nonetheless, the Agencies observe that in light of the way the interim final rule operates, they believe that, with respect to the entities subject to the interim final rule and within each Agency's respective jurisdiction, the interim final rule would not have a significant economic impact on a substantial number of small entities. The Agencies request comment on their conclusion that the new interim final rule should not have a significant economic impact on a substantial number of small entities.
FOOTNOTE 14 The requirements of the Regulatory Flexibility Act are not applicable to rules adopted under the Administrative Procedure Act's "good cause" exception, See 5 U.S.C. 601(2) (defining "rule" and notice requirements under the Administrative Procedure Act). END FOOTNOTE
E. OCC Unfunded Mandates Reform Act of 1995 Determination
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1532, requires a Federal agency to prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of
V. Authority: 12 U.S.C. 1851
This interim final rule is issued under section 13 of the Bank Holding Company Act of 1956, as amended (12 U.S. 1851).
Common Text of the Interim Final Rule
Add new
Sec __.16 Ownership of Interests in and Sponsorship of Issuers of Certain Collateralized Debt Obligations Backed by Trust-Preferred Securities.
(a) The prohibition contained in
(1) The issuer was established, and the interest was issued, before
(2) The banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral; and
(3) The banking entity acquired such interest on or before
(b) For purposes of this
(c) Notwithstanding paragraph (a)(3) of this section, a banking entity may act as a market maker with respect to the interests of an issuer described in paragraph (a) of this section in accordance with the applicable provisions of SUBSEC __.4 and __.11.
(d) Without limiting the applicability of paragraph (a) of this section, the Board, the
End of Common Rule
List of Subjects
12 CFR Part 44
Administrative Practice and procedure, Banks, Banking, Compensation, Credit, Derivatives, Government securities, Insurance, Investments, National banks, Federal savings associations, Federal branches and agencies, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees.
12 CFR Part 248
Administrative practice and procedure, Banks and banking, Capital, Compensation, Conflict of interests, Credit, Derivatives, Foreign banking, Government securities, Holding companies, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees.
12 CFR Part 351
Banks, Banking, Capital, Compensation, Conflicts of interest, Credit, Derivatives, Government securities, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, State nonmember banks, State savings associations, Trusts and trustees.
17 CFR Part 75
Banks, Banking, Compensation, Credit, Derivatives, Federal branches and agencies, Federal savings associations, Government securities, Hedge funds, Insurance, Investments, National banks, Penalties, Proprietary trading, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Swap dealers, Trusts and trustees, Volcker rule.
17 CFR Part 255
Banks, Brokers, Dealers, Investment advisers, Recordkeeping, Reporting, Securities.
Authority and Issuance
For the reasons stated in the Common Preamble, the
PART 44--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS
1. The authority for part 44 continues to read as follows:
Authority: 7 U.S.C. 27 et seq., 12 U.S.C. 1, 24, 92a, 93a, 161, 1461, 1462a, 1463, 1464, 1467a, 1813(q), 1818, 1851, 3101, 3102, 3108, 5412.
2. Section 44.16 is added as set forth at the end of the Common Preamble.
Authority and Issuance
For the reasons set forth in the Common Preamble, the
PART 248--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS (Regulation VV)
3. The authority for part 248 continues to read as follows:
Authority: 12 U.S.C. 1851, 12 U.S.C.
4. Section 248.16 is added as set forth at the end of the Common Preamble.
Authority and Issuance
For the reasons set forth in the Common Preamble, the
PART 351--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS
5. The authority for part 351 continues to read as follows:
Authority: 12 U.S.C. 1851;
6. Section 351.16 is added as set forth at the end of the Common Preamble.
Authority and Issuance
For the reasons set forth in the Common Preamble, the
PART 75--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS
7. The authority for part 75 continues to read as follows:
Authority: 12 U.S.C. 1851.
8. Section 75.16 is added as set forth at the end of the Common Preamble.
Authority and Issuance
For the reasons set forth in the Common Preamble, the
PART 255--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS
9. The authority for part 255 continues to read as follows:
Authority: 12 U.S.C. 1851.
10. Section 255.16 is added as set forth at the end of the Common Preamble.
Dated:
Comptroller of the Currency.
By order of the
Robert deV. Frierson,
Secretary of the Board.
Dated at
By delegated authority from the Board of Directors of the
Executive Secretary.
Dated:
By the
Secretary.
Issued in
Secretary of the
Note: The following appendices will not appear in the Code of Federal Regulations.
Appendix 1--Commodity Futures Trading Commission Voting Summary
On this matter, Acting Chairman Wetjen and Commissioner Chilton voted in the affirmative, and Commissioner O'Malia concurred.
Appendix 2--Statement of CFTC Acting Chairman
I support the interim final rule adopted by the CFTC and the other Volcker Rule agencies. The Commission believed it was important to join the other agencies in ensuring community banks are protected, as
Appendix 3--Statement of Concurrence by CFTC Commissioner
I support the interim final rule adopted by the Commission and the OCC,
[FR Doc. 2014-02019 Filed 1-30-14;
BILLING CODE 6210-01-P; 6741-01-P; 6351-01-P; 8011-01-P; 4810-33-P
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