[Federal Register Volume 74, Number 24 (Friday, February 6, 2009)]
[Rules and Regulations]
[Pages 6223-6225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2336]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

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.

========================================================================


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

[[Page 6223]]



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 risk-
based 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\
---------------------------------------------------------------------------

    \1\ Board 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.
---------------------------------------------------------------------------

    Banking organizations that participate in the AMLF must acquire and 
hold ABCP on their balance sheet. These ABCP holdings attract leverage 
and risk-based 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.
---------------------------------------------------------------------------

    \2\ 73 FR 55706 (2008).
---------------------------------------------------------------------------

    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 non-recourse 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. Sec.  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.

[[Page 6224]]

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 risk-based 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-Leach-Bliley 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

0
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)

0
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.


0
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.
* * * * *

0
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 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.

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
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.


0
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.
* * * * *

0
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.


[[Page 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