This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

6223 

Vol. 74, No. 24 

Friday, February 6, 2009 

1Board of Governors of the Federal Reserve 

System (2008), ‘‘Federal Reserve announces the 

extension of three liquidity facilities through April 

30, 2009,’’ press release, December 2. 

2 73 FR 55706 (2008). 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 208 and 225 

[Regulations H and Y; Docket No. 1332] 

Risk-Based Capital Guidelines; 

Leverage Capital Guidelines 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: To reduce liquidity and other 

strains being experienced by money 

market mutual funds, the Federal 

Reserve System adopted on September 

19, 2008, the Asset-Backed Commercial 

Paper Money Market Mutual Fund 

Lending Facility (AMLF) that enables 

depository institutions and bank 

holding companies to borrow from the 

Federal Reserve Bank of Boston on a 

nonrecourse basis if they use the 

proceeds of the loan to purchase certain 

types of asset-backed commercial paper 

(ABCP) from money market mutual 

funds. To facilitate this Federal Reserve 

lending program, the Board of 

Governors of the Federal Reserve 

System (Board) also adopted an 

exemption from its leverage and riskbased capital rules for ABCP held by a 

state member bank or bank holding 

company as a result of its participation 

in this program. 

DATES: Effective January 30, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Mark E. Van Der Weide, Assistant 

General Counsel, (202) 452–2263, or 

Andrea R. Tokheim, Counsel, (202) 452– 

2300, Legal Division; Barbara J. 

Bouchard, Associate Director, (202) 

452–3072, or Juan C. Climent, Senior 

Supervisory Financial Analyst, (202) 

872–7526, Division of Banking 

Supervision and Regulation. For the 

hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (202) 263–4869. 

SUPPLEMENTARY INFORMATION: 

In light of the ongoing dislocations in 

the financial markets, and the impact of 

such dislocations on the functioning of 

the markets for ABCP and on the 

operations of money market mutual 

funds, the Board adopted the AMLF on 

September 19, 2008. Under the AMLF, 

depository institutions and bank 

holding companies (banking 

organizations) are able to borrow from 

the Federal Reserve Bank of Boston on 

a nonrecourse basis on condition that 

the organizations use the proceeds of 

the Federal Reserve credit to purchase, 

at amortized cost, certain highly rated 

U.S. dollar-denominated ABCP from 

money market mutual funds. The ABCP 

purchased must be used to secure the 

borrowing from the Reserve Bank. The 

purpose of the AMLF is to assist money 

market mutual funds to obtain liquidity 

by enabling them to sell some of their 

high-credit-quality secured assets at 

amortized cost. The AMLF, which was 

initially scheduled to expire on January 

31, 2009, has been extended to April 30, 

2009.1

Banking organizations that participate 

in the AMLF must acquire and hold 

ABCP on their balance sheet. These 

ABCP holdings attract leverage and riskbased capital charges under the Board’s 

regulatory capital rules for state member 

banks and bank holding companies. To 

facilitate the AMLF, and for the reasons 

discussed below, on September 19, 

2008, the Board adopted, on an interim 

final basis, and requested public 

comment on, an exemption from its 

leverage and risk-based capital rules for 

ABCP purchased by a state member 

bank or bank holding company as a 

result of its participation in the facility.2

Specifically, the interim final rule (i) 

amended the Board’s risk-based capital 

rules for state member banks and bank 

holding companies to assign a zero 

percent risk weight to ABCP purchased 

by the banking organization as a result 

of its participation in the facility; and 

(ii) amended the Board’s leverage 

capital rules for state member banks and 

bank holding companies to permit 

banking organizations to exclude from 

average total consolidated assets—the 

denominator of the leverage ratio— 

ABCP purchased by the banking 

organization as a result of its 

participation in the facility. 

After considering the comments, the 

Board has adopted a final rule that is 

largely identical to the interim final rule 

but includes minor changes to reflect 

the extended duration of the AMLF. The 

interim final rule provided that the 

exemptions applied only to ABCP 

purchased between September 19, 2008, 

and January 30, 2009 from an affiliated 

SEC-registered open-end investment 

company that holds itself out as a 

money market mutual fund under SEC 

Rule 2a–7 (17 CFR 270.2a–7). This 

timeframe coincided with the dates of 

the AMLF. In the final rule, the date 

range for eligible ABCP purchases has 

been eliminated, but the rule continues 

to provide that the exemptions are 

available only for ABCP that are 

purchased in order to secure borrowing 

from the AMLF. As a result, the 

exemptions effectively will no longer be 

available once the AMLF expires. 

The Board has determined that the 

current leverage and risk-based capital 

requirements for ABCP acquired by a 

banking organization pursuant to the 

AMLF do not reflect the substantial 

protections provided to the organization 

by the Federal Reserve in connection 

with the facility. Because of the nonrecourse nature of the Federal Reserve’s 

credit extension to the banking 

organization, the organization is not 

exposed to the credit or market risk of 

the ABCP purchased by the organization 

and pledged to the Federal Reserve. 

Therefore, the Board believes that it is 

appropriate—and consistent with the 

economic substance of the 

transactions—not to impose regulatory 

capital requirements on the ABCP 

purchased by a banking organization in 

connection with its service as an 

intermediary in the AMLF. 

Administrative Procedure Act 

Pursuant to sections 553(d) of the 

Administrative Procedure Act (5 U.S.C. 

§ 553(d)), the Board finds that there is 

good cause for making the rule effective 

immediately on January 30, 2009. The 

Board has adopted the rule in light of, 

and to help address, the continuing 

unusual and exigent circumstances in 

the financial markets. The rule will 

provide immediate relief to depository 

institutions that elect to participate in 

the AMLF. 


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6224 Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Rules and Regulations 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires an agency that is issuing a final 

rule to prepare and make available a 

regulatory flexibility analysis that 

describes the impact of the final rule on 

small entities. 5 U.S.C. 603(a). The 

Regulatory Flexibility Act provides that 

an agency is not required to prepare and 

publish a regulatory flexibility analysis 

if the agency certifies that the final rule 

will not have a significant economic 

impact on a substantial number of small 

entities. 5 U.S.C. 605(b). 

Pursuant to section 605(b), the Board 

certifies that this final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

The rule reduces regulatory burden on 

large and small state member banks and 

bank holding companies by granting an 

exemption from the leverage and riskbased capital rules for state member 

banks and bank holding companies that 

purchase ABCP from money market 

mutual funds pursuant to the Federal 

Reserve’s ABCP lending program. 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act (44 U.S.C. 3506; 5 CFR 

1320 Appendix A.1), the Board has 

reviewed the final rule under authority 

delegated to the Board by the Office of 

Management and Budget. The rule 

contains no collections of information 

pursuant to the Paperwork Reduction 

Act. 

Plain Language 

Section 722 of the Gramm-LeachBliley Act requires the Board to use 

‘‘plain language’’ in all proposed and 

final rules. In light of this requirement, 

the Board has sought to present the final 

rule in a simple and straightforward 

manner. The Board invited comment on 

whether it could take additional steps to 

make the rule easier to understand. The 

Board received no comments on this 

subject. 

List of Subjects 

12 CFR Part 208 

Confidential business information, 

Crime, Currency, Federal Reserve 

System, Mortgages, Reporting and 

recordkeeping requirements, Securities. 

12 CFR Part 225 

Administrative practice and 

procedure, Banks, banking, Federal 

Reserve System, Holding companies, 

Reporting and recordkeeping 

requirements, Securities. 

Authority and Issuance 

■ For the reasons stated in the preamble, 

the Board of Governors of the Federal 

Reserve System amends parts 208 and 

225 of chapter II of title 12 of the Code 

of Federal Regulations as follows: 

PART 208—MEMBERSHIP OF STATE 

BANKING INSTITUTIONS IN THE 

FEDERAL RESERVE SYSTEM 

(REGULATION H) 

■ 1. The authority citation for part 208 

continues to read as follows: 

Authority: 12 U.S.C. 24, 36, 92a, 93a, 

248(a), 248(c), 321–338a, 371d, 461, 481–486, 

601, 611, 1814, 1816, 1818, 1820(d)(9), 

1823(j), 1828(o), 1831, 1831o, 1831p–1, 

1831r–1, 1835a, 1882, 2901–2907, 3105, 

3310, 3331–3351, and 3906–3909; 15 U.S.C. 

78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5), 78q, 

78q–1, and 78w, 6801, and 6805; 31 U.S.C. 

5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, 

and 4128. 

■ 2. In appendix A to part 208, amend 

section III.C.1. by revising the last 

undesignated paragraph to read as 

follows: 

Appendix A to Part 208—Capital 

Adequacy Guidelines for State Member 

Banks: Risk-Based Measure 

* * * * * 

III. * * * 

C. * * * 

1. * * * 

* * * * * 

This category also includes ABCP (i) 

purchased on or after September 19, 

2008, by a bank from an SEC-registered 

open-end investment company that 

holds itself out as a money market 

mutual fund under SEC Rule 2a–7 (17 

CFR 270.2a–7) and (ii) pledged by the 

bank to a Federal Reserve Bank to 

secure financing from the ABCP lending 

facility (AMLF) established by the Board 

on September 19, 2008. 

* * * * * 

■ 3.In appendix B to part 208, amend 

section II. by revising paragraph h. to 

read as follows: 

Appendix B to Part 208—Capital 

Adequacy Guidelines for State Member 

Banks: Tier 1 Leverage Measure 

* * * * * 

h. Notwithstanding anything in this 

appendix to the contrary, a bank may 

deduct from its average total 

consolidated assets the amount of any 

asset-backed commercial paper (i) 

purchased by the bank on or after 

September 19, 2008, from an SECregistered open-end investment 

company that holds itself out as a 

money market mutual fund under SEC 

Rule 2a–7 (17 CFR 270.2a–7) and (ii) 

pledged by the bank to a Federal 

Reserve Bank to secure financing from 

the ABCP lending facility (AMLF) 

established by the Board on September 

19, 2008. 

PART 225—BANK HOLDING 

COMPANIES AND CHANGE IN BANK 

CONTROL (REGULATION Y) 

■ 1. The authority citation for part 225 

continues to read as follows: 

Authority: 12 U.S.C. 1817(j)(13), 1818, 

1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b), 

1972(1), 3106, 3108, 3310, 3331–3351, 3907, 

and 3909; 15 U.S.C. 6801 and 6805. 

■ 2. In appendix A to part 225, amend 

section III.C.1. by revising the last 

undesignated paragraph to read as 

follows: 

Appendix A to Part 225—Capital 

Adequacy Guidelines for Bank Holding 

Companies: Risk-Based Measure 

* * * * * 

III. * * * 

C. * * * 

1. * * * 

* * * * * 

This category also includes ABCP (i) 

purchased by a bank holding company 

on or after September 19, 2008, from an 

SEC-registered open-end investment 

company that holds itself out as a 

money market mutual fund under SEC 

Rule 2a–7 (17 CFR 270.2a–7) and (ii) 

pledged by the bank holding company 

to a Federal Reserve Bank to secure 

financing from the ABCP lending 

facility (AMLF) established by the Board 

on September 19, 2008. 

* * * * * 

■ 3. In appendix D to part 225, amend 

section II. by revising paragraph d. to 

read as follows: 

Appendix D to Part 225—Capital 

Adequacy Guidelines for Bank Holding 

Companies: Tier 1 Leverage Measure 

* * * * * 

d. Notwithstanding anything in this 

appendix to the contrary, a bank 

holding company may deduct from its 

average total consolidated assets the 

amount of any asset-backed commercial 

paper (i) purchased by the bank holding 

company on or after September 19, 

2008, from an SEC-registered open-end 

investment company that holds itself 

out as a money market mutual fund 

under SEC Rule 2a–7 (17 CFR 270.2a– 

7) and (ii) pledged by the bank holding 

company to a Federal Reserve Bank to 

secure financing from the ABCP lending 

facility (AMLF) established by the Board 

on September 19, 2008. 


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Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Rules and Regulations 6225 

By order of the Board of Governors of the 

Federal Reserve System, January 28, 2009. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–2336 Filed 2–5–09; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 223 

[Regulation W; Docket No. R–1330] 

Transactions Between Member Banks 

and Their Affiliates: Exemption for 

Certain Securities Financing 

Transactions Between a Member Bank 

and an Affiliate 

AGENCY: Board of Governors of the 

Federal Reserve System (Board). 

ACTION: Final rule. 

SUMMARY: In light of the continuing 

unusual and exigent circumstances in 

the financial markets, the Board has 

adopted a regulatory exemption for 

member banks from certain provisions 

of section 23A of the Federal Reserve 

Act and the Board’s Regulation W. The 

exemption increases the capacity of 

member banks, subject to certain 

conditions designed to help ensure the 

safety and soundness of the banks, to 

enter into securities financing 

transactions with affiliates. 

DATES: Effective January 30, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Mark E. Van Der Weide, Assistant 

General Counsel, (202) 452–2263 or 

Andrea R. Tokheim, (202) 452–2300, 

Legal Division, or Norah M. Barger, 

Deputy Director, (202) 452–2402, 

Division of Banking Supervision and 

Regulation, Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. For the deaf, hard of hearing, 

and speech impaired only, 

teletypewriter (TTY), (202) 263–4869. 

SUPPLEMENTARY INFORMATION:

In light of the ongoing dislocations in 

the financial markets, and the potential 

impact of such dislocations on the 

functioning of the U.S. tri-party 

repurchase agreement market, the Board 

adopted on September 14, 2008, on an 

interim basis with request for public 

comment, the following exemption from 

section 23A of the Federal Reserve Act 

(12 U.S.C. 371c) and the Board’s 

Regulation W (12 CFR part 223). The 

exemption is meant to facilitate the 

ability of an affiliate of a member bank 

(such as an SEC-registered brokerdealer) to obtain financing, if needed, 

for securities or other assets that the 

affiliate ordinarily would have financed 

through the U.S. tri-party repurchase 

agreement market. 

The exemption is subject to several 

conditions designed to protect the safety 

and soundness of the member bank. 

First, the member bank may use the 

exemption to finance only those asset 

types that the affiliate financed in the 

U.S. tri-party repurchase agreement 

market during the week of September 

8–12, 2008. 

Second, the transactions must be 

marked to market daily and subject to 

daily margin maintenance requirements, 

and the member bank must be at least 

as over-collateralized in its securities 

financing transactions with the affiliate 

as the affiliate’s clearing bank was in its 

U.S. tri-party repurchase agreement 

transactions with the affiliate on 

September 12, 2008. The Board expects 

the member bank and its affiliate to use 

standard industry documentation for the 

exempt securities financing transactions 

(which would, among other things, 

qualify the transactions as securities 

contracts or repurchase agreements for 

purposes of U.S. bankruptcy law). 

Third, to ensure that member banks 

use the exemption in a manner 

consistent with its purpose—that is, to 

help provide liquidity to the U.S. triparty repurchase agreement market—the 

aggregate risk profile of the exempt 

securities financing transactions must 

be no greater than the aggregate risk 

profile of the affiliate’s U.S. tri-party 

repurchase agreement transactions on 

September 12, 2008. The exemption, 

therefore, permits an affiliate to obtain 

financing from its affiliated member 

bank for securities positions that the 

affiliate did not own or finance in the 

U.S. tri-party repurchase agreement 

market on September 12, 2008, but only 

if the new positions in the aggregate do 

not increase the overall risk profile of 

the affiliate’s portfolio. 

Fourth, the member bank’s top-tier 

holding company must guarantee the 

obligations of the affiliate under the 

securities financing transactions (or 

must provide other security to the bank 

that is acceptable to the Board). Any 

member bank that intends to use a form 

of credit enhancement other than a 

parent company guarantee must consult 

in advance with Board staff. An 

example of the type of other security 

arrangement that may be acceptable to 

the Board would be a pledge by the 

affiliate or parent holding company to 

the member bank of a sufficient amount 

of additional liquid, high-quality 

collateral. 

Fifth, a member bank may use the 

exemption only if the bank has not been 

specifically informed by the Board, after 

consultation with the bank’s appropriate 

Federal banking agency, that the bank 

may not use this exemption. If the Board 

believes, after such consultation, that 

the exempt securities financing 

transactions pose an unacceptable level 

of risk to the bank, the Board may 

withdraw the exemption for the bank or 

may impose supplemental conditions 

on the bank’s use of the exemption. 

After considering the comments, the 

Board has adopted a final rule that is 

identical to the interim final rule, except 

that the expiration date has been 

extended. Consistent with its purpose to 

ameliorate potential temporary 

dislocations in the U.S. tri-party 

repurchase agreement market, the 

interim final rule provided that the 

exemption would expire on January 30, 

2009, unless extended by the Board. 

Because of ongoing dislocation in the 

U.S. tri-party repurchase agreement 

market, the Board has extended the 

expiration date of this exemption to 

October 30, 2009. 

The Board notes that any securities 

financing transactions between the 

member bank and an affiliate are subject 

to the market terms requirement of 

section 23B of the Federal Reserve Act 

(12 U.S.C. 371c–1). Section 23B requires 

that financial transactions between a 

bank and its affiliate be on terms and 

under circumstances (including credit 

standards) that are substantially the 

same, or at least as favorable to the 

bank, as those prevailing at the time for 

comparable transactions with or 

involving nonaffiliates. Among other 

things, section 23B would require the 

member bank to apply collateral 

haircuts to its affiliated securities 

financing transaction counterparty that 

are at least as strict as the bank would 

apply to comparable unaffiliated 

securities financing transaction 

counterparties. 

Administrative Procedure Act 

Pursuant to sections 553 (d) of the 

Administrative Procedure Act (5 U.S.C. 

553(d)), the Board finds that there is 

good cause for making the rule effective 

immediately on January 30, 2009. The 

Board has adopted the rule in light of, 

and to help address, the continuing 

unusual and exigent circumstances in 

the financial markets. The rule will 

provide immediate relief to participants 

in the U.S. tri-party repurchase 

agreement market. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires an agency that is issuing a final 

rule to prepare and make available a 

regulatory flexibility analysis that 

describes the impact of the final rule on 

small entities. 5 U.S.C. 603(a). The 


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