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 


dwashington3 on PROD1PC60 with RULES
6226 Federal Register / Vol. 74, No. 24 / Friday, February 6, 2009 / Rules and Regulations 

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 insured depository 

institutions by granting an exemption 

from the Federal transactions with 

affiliates regime for insured depository 

institutions that engage in securities 

financing transactions with affiliates. 

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 the Board could take additional 

steps to make the rule easier to 

understand. The Board received no 

comments on this subject. 

List of Subjects in 12 CFR Part 223 

Banks, Banking, Federal Reserve 

System. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, Chapter II of Title 12 of the 

Code of Federal Regulations is amended 

as follows: 

PART 223—TRANSACTIONS 

BETWEEN MEMBER BANKS AND 

THEIR AFFILIATES (REGULATION W) 

■ 1. The authority citation for part 223 

continues to read as follows: 

Authority: 12 U.S.C. 371c and 371c–1. 

■ 2. In § 223.42, revise paragraph (n) to 

read as follows: 

§ 223.42 What covered transactions are 

exempt from the quantitative limits, 

collateral requirements, and low-quality 

asset prohibition? 

* * * * * 

(n) Securities financing transactions. 

(1) From September 15, 2008, until 

October 30, 2009 (unless further 

extended by the Board), securities 

financing transactions with an affiliate, 

if: 

(i) The security or other asset financed 

by the member bank in the transaction 

is of a type that the affiliate financed in 

the U.S. tri-party repurchase agreement 

market at any time during the week of 

September 8–12, 2008; 

(ii) The transaction is marked to 

market daily and subject to daily 

margin-maintenance requirements, and 

the member bank is at least as overcollateralized in the transaction as the 

affiliate’s clearing bank was overcollateralized in comparable 

transactions with the affiliate in the U.S. 

tri-party repurchase agreement market 

on September 12, 2008; 

(iii) The aggregate risk profile of the 

securities financing transactions under 

this exemption is no greater than the 

aggregate risk profile of the securities 

financing transactions of the affiliate in 

the U.S. tri-party repurchase agreement 

market on September 12, 2008; 

(iv) The member bank’s top-tier 

holding company guarantees the 

obligations of the affiliate under the 

securities financing transactions (or 

provides other security to the bank that 

is acceptable to the Board); and 

(v) The member bank has not been 

specifically informed by the Board, after 

consultation with the member bank’s 

appropriate Federal banking agency, 

that the member bank may not use this 

exemption. 

(2) For purposes of this exemption: 

(i) Securities financing transaction 

means: 

(A) A purchase by a member bank 

from an affiliate of a security or other 

asset, subject to an agreement by the 

affiliate to repurchase the asset from the 

member bank; 

(B) A borrowing of a security by a 

member bank from an affiliate on a 

collateralized basis; or 

(C) A secured extension of credit by 

a member bank to an affiliate. 

(ii) U.S. tri-party repurchase 

agreement market means the U.S. 

market for securities financing 

transactions in which the counterparties 

use custodial arrangements provided by 

JPMorgan Chase Bank or Bank of New 

York or another financial institution 

approved by the Board. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, January 30, 2009. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. E9–2337 Filed 2–5–09; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 223 

[Regulation W; Docket No. R–1331] 

Transactions Between Member Banks 

and Their Affiliates: Exemption for 

Certain Purchases of Asset-Backed 

Commercial Paper by a Member Bank 

From an Affiliate 

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 Board of 

Governors of the Federal Reserve 

System (Board) 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 

non-recourse 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 use of the AMLF by 

member banks, the Board also has 

adopted regulatory exemptions for 

member banks from certain provisions 

of sections 23A and 23B of the Federal 

Reserve Act and the Board’s Regulation 

W. The exemptions increase the 

capacity of a member bank to purchase 

ABCP from affiliated money market 

mutual funds in connection with the 

AMLF. 

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; or Norah M. 

Barger, Deputy Director, (202) 452– 

2402, 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 ABCP markets and on the operations 

of money market mutual funds, the 

Board adopted the AMLF on September 


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