BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF BANKING

SUPERVISION AND

REGULATION

September 17, 2007

Mr. John M. James

Corporate Controller

Bank ofAmerica Corporation

NC1-007-19-22

100 North Tryon Street

Charlotte, NC 28255

Dear Mr. James:

This is in response to your letter dated August 30, 2007 (the "request"), regarding

the regulatory capital treatment ofthe Regulation T margin debits ("Reg. T margin

loans") ofthe registered U.S. broker-dealer subsidiary ofBank ofAmerica Corporation

("BAC"), Bank of America Securities LLC. You ask that BAC be granted an exception

from the Board's risk-based capital adequacy guidelines for bank holding companies (the

"guidelines") (12 CFR part 225, App. A), which require a 100 percent risk weight for

Reg. T margin loans. Specifically, you ask for an exception from the guidelines to permit

BAC to assign a 10 percent risk weight to its Reg. T margin loans, consistent with the

capital treatment that the Board approved for Citigroup Inc. in a letter dated June 15,

2007.

In the request, you contend that the risk-based capital requirement for such loans

is excessive and represent that BAC has a de minimis internal economic capital charge

for credit risk on Reg. T margin loans.

A margin account at a broker-dealer registered with the Securities and Exchange

Commission ("SEC") is a leveraged account, through which securities can be purchased,

sold short, carried, or traded using a loan from the broker-dealer and a deposit of cash or

securities by the customer. The amount ofleverage available to a customer is limited by

the Board's Regulation T (12 CFR part 220), the margin-maintenance rule ofthe New

York Stock Exchange (NYSE Rule 431), and the lender's internal margin-maintenance

1
requirements.' The request also explains that BAC generally applies internal marginmaintenance requirements that exceed those in Regulation T or NYSE Rule 431.

As noted above, Reg. T margin loans held by U.S. bank holding companies

("BHCs") currently are assigned to the 100 percent risk weight category under the

guidelines, resulting in a risk-based capital requirement of 8 percent, In contrast, other

domestic and foreign firms, including foreign banking organizations that own U.S.

broker-dealers, as well as U.S. broker-dealers and consolidated supervised entities

("CSEs") regulated by the SEC, are currently required to hold either no or de minimis

regulatory capital against Reg. T margin loans.

After carefully considering the request, and subject to the conditions listed below,

the Board has approved an exception to the guidelines that permits BAC to treat Reg. T

margin loans in a manner that differs from that set forth in the guidelines. Specifically,

the Board will allow BAC to apply a 10 percent risk weight to its Reg. T margin loans.

The Board has approved this exception under the reservation-of-authority provision

contained in the guidelines (12 CFR part 225, App. A, § III.A). This provision permits

the Board, on a case-by-case basis, to determine the appropriate risk weight for any asset

or off-balance-sheet item that imposes risks on a BHC that are incommensurate with the

risk weight otherwise specified in the guidelines.

To qualify for the capital treatment outlined above, BACts Reg. T margin loans

must meet the following conditions:

1. The securities collateral for the Reg. T margin loans is liquid and readily

marketable;

2. The Reg. T margin loans and associated collateral are marked to market each

business day;

3. The Reg. T margin loans are subject to initial margin requirements under

Regulation T and daily margin-maintenance requirements under NYSE Rule 431;

and

4. BAC has a reasonable basis for concluding that it would be able to liquidate the

collateral for the Reg. T margin loans without undue delay, even in the case of

bankruptcy or insolvency ofthe borrower.

The Board believes that the capital treatment approved above for BAC's Reg. T

margin loans provides a more risk-sensitive treatment for these transactions than their

treatment under the guidelines. The combination ofinitial margin requirements under

Regulation T, ongoing margin-maintenance requirements under NYSE regulations,

generally higher ongoing margin-maintenance requirements under BAets internal

1 Ifthe broker-dealer is not a member ofthe NYSE, the margin-maintenance rule ofthe

NASD (NASD Rule 2520) generally would apply instead. Both rules impose the same

leverage limitations.

2
policies, BAC's daily mark-to-market and margin-call policies, the high liquidity ofthe

collateral, BAe's typical right to terminate the loan at any time, and BAe's general

protection from the automatic stay in. bankruptcy makes these loans a low-credit-risk

product that warrants a 10 percent risk weight.

This exception accommodates BAe's broker-dealer activities in a risk-sensitive

manner, helps remove an artificial and anachronistic constraint on certain ofBAC's

securities-based lending operations, and brings BAe's risk-based capital requirement for

Reg. T margin loans more in accord with the capital requirement for such loans that the

SEC imposes on broker-dealers and CSEs. BAC should be aware, however, that the

Board may in the future impose a regulatory capital treatment for Reg. T margin loans

that differs from the treatment described in the request, depending in part on the outcome

ofthe current efforts to implement the Basel II Capital Accord in the United States.

This determination is conditioned on BAC's compliance with all the """ "" 1.

and representations it has made to the Board in connection with the request. These

commitments and representations are deemed to be conditions imposed in writing by the

Board in connection with granting the request and, as such, may be enforced in

proceedings under applicable law. Further, this determination is based on the specific

facts and circumstances described in the request and in your discussions with Federal

Reserve staff. Any material change in those facts and circumstances or any failure by

BAC to observe any ofits commitments or representations may result in a different view

or in a revocation ofthe regulatory capital treatment permitted under this determination.

The capital treatment set forth in this letter for Reg. T margin loans will be made

available to similarly situated institutions that request and receive Board approval for

such treatment.

If you have any questions with regard to this letter, please direct them to Norah

Barger, Associate Director, at (202) 452-2402, or Juan C. Climent, Supervisory Financial

Analyst, at (202) 872-7526, in the Division ofBanking Supervision and Regulation; or

Mark E. Van Der Weide, Senior Counsel, at (202) 452-2263, or April Snyder, Senior

Attorney, at (202) 452-3099, in the Legal Division.

Sincerely,

~1.~ Roger T. Cole

Director