Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 68095 

1 79 FR 27801 (May 15, 2014). 

2 12 U.S.C. 1467a(e)(2)(E), 1828(c), 1842(d)(2), 

1843(i)(8). The nationwide deposit cap generally 

prohibits the appropriate Federal banking agency 

from approving an application by a bank holding 

company, insured depository institution, or savings 

and loan holding company to acquire an insured 

depository institution located in a different home 

state than the acquiring company if the acquiring 

company controls, or following the acquisition 

would control, more than 10 percent of the total 

amount of deposits of insured depository 

institutions in the United States. 

3See 12 U.S.C. 1852(e). As noted in the Senate 

report that accompanied the Senate Banking 

Committee reported bill which became the DoddFrank Act, ‘‘[t]he intent [of this authority] is to have 

the Council determine how to effectively 

implement the concentration limit. . . .’’ See S. 

Rep. 111–176 at 92 (Apr. 30, 2010). 

4Study and Recommendations Regarding 

Concentration Limits on Large Financial Companies 

(January 2011), available at: http://www.treasury.

gov/initiatives/fsoc/studies-reports/Documents/

Study%20on%20Concentration%20Limits%20

on%20Large%20Firms%2001-17-11.pdf (Council 

study). See also 76 FR 6756 (Feb. 8, 2011). The 

Council noted that it would review and, if 

appropriate, revise these recommendations in light 

of the comments it received. As of the date of this 

final rule, the Council had not revised any 

recommendation made regarding the concentration 

limit and, as such, the final rule reflects the 

recommendations set forth in the Council’s last 

publication in the Federal Register. 

5See 12 U.S.C. 1852(e)(1). 

6Council study, p. 4. 

7 Id., p. 10. 

FEDERAL RESERVE SYSTEM 

12 CFR Part 251 

[Regulation XX; Docket No. R–1489] 

RIN 7100–AE 18 

Concentration Limits on Large 

Financial Companies 

AGENCY: Board of Governors of the 

Federal Reserve System (Board). 

ACTION: Final rule. 

SUMMARY: The Board is adopting a final 

rule (Regulation XX) to implement 

section 622 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (amending the Bank Holding 

Company Act to add a new section 14). 

Section 622 establishes a financial 

sector concentration limit that generally 

prohibits a financial company from 

merging or consolidating with, or 

acquiring, another company if the 

resulting company’s liabilities upon 

consummation would exceed 10 percent 

of the aggregate liabilities of all financial 

companies. In addition, the final rule 

establishes reporting requirements for 

financial companies that do not 

otherwise report consolidated financial 

information to the Board or other 

appropriate Federal banking agency to 

implement section 14 of the Bank 

Holding Company Act. 

DATES: Effective January 1, 2015. 

FOR FURTHER INFORMATION CONTACT: 

Laurie Schaffer, Associate General 

Counsel, (202) 452–2272, Christine 

Graham, Counsel, (202) 452–3005, or 

Joseph J. Carapiet, Senior Attorney, 

(202) 973–6957, Legal Division; Felton 

C. Booker, Senior Supervisory Financial 

Analyst, (202) 912–4651, or Sean 

Healey, Senior Financial Analyst, (202) 

912–4611, Division of Banking 

Supervision and Regulation; Dean 

Amel, Senior Economist, (202) 452– 

2911; Board of Governors of the Federal 

Reserve System, 20th and C Streets 

NW., Washington, DC 20551. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Overview of Comments 

III. Financial Sector Concentration Limit 

A. Calculating a Financial Company’s 

Liabilities 

1. U.S. Financial Companies 

2. Foreign Financial Companies 

B. Measuring Aggregate Financial Sector 

Liabilities 

1. Methodology and Data 

C. Applying the Concentration Limit 

1. Measuring Liabilities Upon 

Consummation of a Covered Acquisition 

2. Transactions for Which a Notice or 

Application Is Not Otherwise Required 

3. Acquisitions by Nonfinancial Companies 

D. Exceptions to the Concentration Limit 

1. Exceptions to the Concentration Limit 

a. Failing Insured Depository Institution 

and FDIC-Assisted Transactions 

b. De Minimis Transaction 

c. Prior Written Consent of the Board 

E. Other Provisions of Law 

IV. Administrative Law Matters 

A. Solicitation of Comments on the Use of 

Plain Language 

B. Regulatory Flexibility Act 

C. Paperwork Reduction Act 

I. Background 

On May 8, 2014, the Board invited 

comment on a proposed rule to 

implement section 622 of the DoddFrank Wall Street Reform and Consumer 

Protection Act (‘‘Dodd-Frank Act’’) 

(amending the Bank Holding Company 

Act to add a new section 14).1 Section 

622 establishes a financial sector 

concentration limit that prevents an 

insured depository institution, a bank 

holding company, a foreign bank or 

company that is treated as a bank 

holding company for purposes of the 

Bank Holding Company Act, a savings 

and loan holding company, any other 

company that controls an insured 

depository institution; or a nonbank 

financial company designated by the 

Council for supervision by the Board 

(‘‘financial company’’) from merging 

and consolidating with, acquiring all or 

substantially all of the assets of, or 

otherwise acquiring control of another 

company (‘‘covered acquisition’’) if the 

resulting company’s consolidated 

liabilities would exceed 10 percent of 

the aggregate consolidated liabilities of 

all financial companies. The 

concentration limit supplements the 

nationwide deposit cap in Federal 

banking law by imposing an additional 

limit on liabilities of financial 

companies.2

Section 622 provides that the 

concentration limit is ‘‘subject to’’ any 

recommendations made by the 

Financial Stability Oversight Council 

(‘‘Council’’) that the Council determines 

would more effectively implement 

section 622, and the Board is required 

to issue final regulations implementing 

section 622 that ‘‘reflect any 

recommendations made by the 

Council.’’ 3

On January 18, 2011, the Council 

made three recommendations,4

including that the Board’s regulations 

should: 

• Measure liabilities of financial 

companies not subject to consolidated 

risk-based capital rules by using U.S. 

generally accepted accounting 

principles (GAAP) or other applicable 

accounting standards, 

• use a two-year average in 

calculating aggregate financial sector 

liabilities, and provide that the Board 

publish annually by July 1 the current 

aggregate financial sector liabilities, and 

• extend the ‘‘failing bank exception’’ 

to the acquisition of any type of insured 

depository institution in default or in 

danger of default, rather than only to the 

acquisition of banks in default or danger 

of default. 

Section 622 of the Dodd-Frank Act 

directs the Council to complete a study 

of the extent to which the statutory 

concentration limit would affect 

financial stability, moral hazard in the 

financial system, the efficiency and 

competitiveness of U.S. financial firms 

and financial markets, and the cost and 

availability of credit and other financial 

services to households and businesses 

in the United States.5 In the Council 

study, the Council expressed the view 

that the concentration limit would have 

a positive impact on U.S. financial 

stability by reducing the systemic risks 

created by increased financial sector 

concentration arising from covered 

acquisitions involving the largest U.S. 

financial companies.6 It concluded that 

the concentration limit was likely to 

have little or no effect on moral hazard.7

With respect to the impact of the 

concentration limit on competitiveness, 

the Council expected the effect to be 

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68096 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

8 Id., p. 11. The Council also noted that the 

differences in treatment between U.S. and foreign 

firms could increase the degree to which the largest 

firms operating in the U.S. financial sector are 

foreign-owned, and recommended that the Board 

continue to monitor and report on the effect of the 

concentration limit on the ability of U.S. firms to 

compete with foreign banking organizations. The 

Council stated that it would make a 

recommendation to Congress to address adverse 

competitive dynamics if the Council were to later 

determine that there are any significant negative 

effects of the concentration limit because of the 

disparate treatment of U.S. and foreign firms. Id., 

p. 12. 

9 Id., p. 13. 

10 12 U.S.C. 1852(d). 

11Specifically, section 2(n) of the Bank Holding 

Company Act defines an ‘‘insured depository 

institution’’ with reference to section 3 of the 

Federal Deposit Insurance Act which includes ‘‘any 

savings associations the deposits of which are 

insured’’ by the FDIC. 12 U.S.C. 1841(n). Section 

2(a)(2) of the Bank Holding Company Act provides 

that a company would ‘‘control’’ an insured 

depository institution if the company (i) directly or 

indirectly, or acting through one or more other 

persons, owned, controlled, or had power to vote 

25 percent or more of any class of voting securities 

of the company; (ii) controlled in any manner the 

election of a majority of the directors or trustees of 

the company; or (iii) directly or indirectly exercised 

a controlling influence over the management or 

policies of the company. 12 U.S.C. 1841(a)(2). 

12 12 U.S.C. 1852(a)(3). 

positive generally, but expressed 

concern that the limit introduces the 

potential for disparate treatment of 

covered acquisitions between the largest 

U.S. and foreign firms, depending on 

which firm is the acquirer or the target.8

The Council found that the 

concentration limit is unlikely to have 

a significant effect on the cost and 

availability of credit and other financial 

services.9

Section 622 authorizes the Board to 

define terms, as necessary, and to issue 

interpretations or guidance regarding 

application of the concentration limit to 

an individual financial company or to 

financial companies in general.10

II. Overview of Comments 

The Board received 10 comments on 

the proposed rule from financial trade 

associations, law firms, policy 

institutions, and individuals. While 

commenters generally expressed 

support for the proposed rule, some 

commenters recommended revisions to 

provisions of the proposed rule. For 

instance, one commenter suggested that 

the Board measure liabilities for 

purposes of the initial period between 

July 1, 2015, and June 30, 2016, using 

data as of December 31, 2014. One 

commenter requested that the Board 

publish more specific details of the 

methodology used for calculating 

financial sector liabilities. Commenters 

provided views on whether certain 

transactions should be prohibited once 

a financial company’s liabilities 

exceeded the concentration limit and 

the appropriate level for a de minimis 

exception. In addition, commenters 

suggested that the Board not finalize 

either the proposed prior notice 

requirement applicable to financial 

companies with liabilities that are close 

to the limit or the proposed reporting 

requirement applicable to financial 

companies that do not otherwise report 

consolidated liabilities to an applicable 

Federal banking agency. 

As discussed further in the preamble, 

the Board modified the final rule as 

follows in response to these comments: 

• Provided that financial sector 

liabilities will be calculated as of 

December 31, 2014, for purposes of the 

period beginning July 1, 2015 and 

ending June 30, 2016, and the two-year 

average will be adopted for each year 

thereafter; 

• Removed the prior notice 

requirement for acquisitions by 

financial companies with total 

consolidated liabilities equal to or 

greater than 8 percent of aggregate 

financial sector liabilities; 

• Provided prior consent for a 

covered acquisition that would result in 

an increase in the liabilities of the 

financial company that does not exceed 

$100 million, when aggregated with all 

other covered acquisitions by the 

financial company during the twelve 

months preceding the consummation of 

the transaction and set forth a process 

and standard of review for de minimis 

transactions; and 

• Removed the exception for 

merchant banking investments and 

added an exception for securitization 

transactions to the definition of 

‘‘covered acquisition.’’ 

• Provided more specific details of 

the methodology used for calculating 

financial sector liabilities. 

These changes, as well as the Board’s 

other responses to the comments 

received, are discussed in greater detail 

below. 

III. Financial Sector Concentration 

Limit 

Under section 622 of the Dodd-Frank 

Act, a financial company is prohibited 

from consummating a covered 

acquisition if the ratio of the resulting 

financial company’s liabilities to the 

aggregate consolidated liabilities of all 

financial companies exceeds 10 percent. 

Consistent with section 622, the 

proposed rule defined a ‘‘financial 

company’’ as a company that is an 

insured depository institution; a bank 

holding company, a foreign bank or 

company that is treated as a bank 

holding company for purposes of the 

Bank Holding Company Act, a savings 

and loan holding company, any other 

company that controls an insured 

depository institution, and a nonbank 

financial company designated by the 

Council for supervision by the Board. 

The proposed rule defined an insured 

depository institution as that term is 

defined in section 3(c)(2) of the Federal 

Deposit Insurance Act. Companies that 

are not affiliated with an insured 

depository institution, such as standalone broker-dealers or insurance 

companies, are not subject to the 

concentration limit unless they have 

been designated by the Council for 

supervision by the Board. 

Commenters recommended that the 

Board modify the proposed definition of 

‘‘financial company’’ to exclude insured 

depository institutions that are limited 

purpose savings associations and the 

holding companies thereof. Another 

commenter suggested that companies 

that control insured depository 

institutions but that are not subject to 

risk-based capital requirements and that 

do not engage in bank-like activities 

should not be included in the definition 

of a ‘‘financial company’’ for purposes 

of section 622. Section 622 of the DoddFrank Act defines a ‘‘financial 

company’’ to include an ‘‘insured 

depository institution’’ and ‘‘a company 

that controls an insured depository 

institution.’’ Because section 622 

amends the Bank Holding Company 

Act, the terms ‘‘insured depository 

institution’’ and ‘‘control’’ are defined 

in section 2 of the Bank Holding 

Company Act.11 To the extent a 

company is or controls an insured 

depository institution, it is subject to the 

concentration limit by statute. 

Accordingly, the final rule preserves the 

definition of ‘‘insured depository 

institution,’’ consistent with section 

622. 

A. Calculating a Financial Company’s 

Liabilities 

1. U.S. Financial Companies 

Section 622 measures ‘‘liabilities’’ of 

a financial company as total riskweighted assets determined under the 

risk-based capital rules applicable to 

bank holding companies minus 

regulatory capital as calculated under 

the same rules.12 Currently, bank 

holding companies and insured 

depository institutions are the only 

classes of financial companies subject to 

these risk-based capital rules. For 

financial companies not subject to 

consolidated risk-based capital rules 

(such as nonbank companies that 

control savings associations and 

industrial loan companies), the Council 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 68097 

13Council study, p. 6. 

14 If a company does not calculate its total 

consolidated assets or liabilities under GAAP for 

any regulatory purpose (including compliance with 

applicable securities laws), the Board may, in its 

discretion and subject to Board review and 

adjustment, permit the company to provide 

estimated total consolidated liabilities on an annual 

basis using this accounting standard or method of 

estimation other than GAAP. 

15The Board is developing capital rules for 

savings and loan holding companies that are 

insurance companies, have subsidiaries engaged in 

insurance underwriting, or are substantially 

engaged in commercial activities. 

16Council study, p. 20. 

17See section 622 of the Dodd-Frank Act; 12 

U.S.C. 1852(a)(3)(C). 

18The final rule refers to these amounts as 

‘‘deducted from regulatory capital.’’ See 12 CFR 

3.22 (OCC); 12 CFR 217.22 (Board); and 12 CFR 

324.22 (FDIC). 

19The agencies’ risk-based capital rules require 

an advanced approaches banking organization 

(generally, a banking organization with $250 billion 

or more in total consolidated assets or $10 billion 

or more in total on-balance sheet foreign exposure 

or a subsidiary of such a banking organization) that 

has successfully completed its parallel run to 

calculate each of its risk-based capital ratios using 

the standardized approach and the advanced 

approaches, and directs the banking organization to 

use the lower of each ratio as its governing ratio. 

See 12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); and 

12 CFR 324.10 (FDIC). 

20See 12 U.S.C. 1852(a)(3)(A)(i) and (B)(i). Under 

the Federal banking agencies’ risk-based capital 

rules, bank holding companies and insured 

depository institutions are required to deduct fully 

certain assets from regulatory capital, such as 

goodwill, certain mortgage servicing rights, deferred 

tax assets, and other intangibles. See 12 CFR 3.22 

(OCC); 12 CFR 217.22 (Board); and 12 CFR 324.22 

(FDIC). 

21One is subtracted from the inverse of the total 

capital ratio to account for the fact that amounts 

deducted from regulatory capital are not added back 

into regulatory capital under section 622. To 

illustrate this method, if an institution’s total 

capital ratio were equal to 8 percent (the regulatory 

minimum), the institution-specific factor would 

equal 1⁄.08 ¥ 1, or 12.5 ¥ 1, or 11.5. If an 

Continued 

recommended that the Board measure 

liabilities using GAAP or other 

applicable accounting standards.13

Pursuant to the statutory direction to 

adopt the Council’s recommendation, 

the proposed rule would have required 

a U.S. financial company that is not 

subject to consolidated risk-based 

capital rules to calculate its liabilities in 

accordance with applicable accounting 

standards. ‘‘Applicable accounting 

standards’’ would have been defined as 

GAAP, or such other accounting 

standard or method of estimation that 

the Board determines is appropriate.14

Currently, U.S. savings and loan 

holding companies, nonbank financial 

companies supervised by the Board, 

bank holding companies with total 

consolidated assets of less than $500 

million, and U.S. depository institution 

holding companies that are not bank 

holding companies or savings and loan 

holding companies are not subject to 

consolidated risk-based capital rules, 

and thus will calculate their liabilities 

in accordance with applicable 

accounting standards. Savings and loan 

holding companies (other than those 

that are substantially engaged in 

insurance or commercial activities) will 

become subject to the risk-based capital 

rules beginning in 2015 and will be able 

to calculate their liabilities for purposes 

of section 622 using the rules applicable 

to bank holding companies, described 

below.15 The Board is in the process of 

applying risk-based capital rules to 

nonbank financial companies that are 

currently supervised by the Board. 

Commenters were generally 

supportive of the proposed rule’s 

calculation methodology. One 

commenter noted that certain mutual 

and fraternal insurance companies do 

not prepare consolidated GAAP 

financial statements for any regulatory 

purpose and, instead, prepare financial 

statements in accordance with statutory 

accounting principles (‘‘SAP’’), as 

required by state insurance law. This 

commenter requested that the Board 

clarify that SAP would automatically 

meet the definition of ‘‘applicable 

accounting standards,’’ and that SAPbased calculations of consolidated 

liabilities would be deemed sufficient 

for purposes of section 622. Under the 

financial rule, a U.S. financial company 

that files financial statements only in 

accordance with SAP and does not 

report consolidated financial statements 

under GAAP would be permitted to file 

an estimate of its consolidated 

liabilities. However, this estimation is 

subject to the Board’s review and 

adjustment. 

One commenter suggested that certain 

liabilities such as commercial paper of 

commercial and industrial companies, 

broker-dealers’ customer free credit 

balances, managed fund assets, and 

funds borrowed to manufacture 

automobiles should be excluded from 

the calculation of liabilities because in 

the commenter’s view, these liabilities 

do not affect U.S. financial stability. 

Excluding these types of liabilities from 

the calculation would run counter to the 

Council’s recommendation to use 

liabilities as reported under GAAP or 

applicable accounting standards. The 

Council, in making this 

recommendation, noted that for the 

purpose of transparency, the liabilities 

calculation should use financial 

information that is already publicly 

disclosed and that using such 

information as reported would avoid the 

need to make a series of assumptions 

that could undermine the integrity and 

transparency of the calculation.16 The 

commenter’s suggestion of excluding 

certain types of liabilities would require 

adjustments to the publicly disclosed 

financial figures and involve 

assumptions that could undermine the 

transparency of the calculation. 

Accordingly, the final rule adopts the 

proposed methodology without change. 

Section 622 defines the term 

‘‘liabilities’’ for nonbank financial 

companies supervised by the Board to 

mean ‘‘assets of the company as the 

Board shall specify by rule, in order to 

provide for consistent and equitable 

treatment of such companies.’’ 17 The 

final rule provides for consistent and 

equitable treatment of nonbank financial 

companies supervised by the Board by 

permitting each nonbank financial 

company to calculate its liabilities using 

applicable accounting standards until 

such companies are subject to risk-based 

capital requirements. 

U.S. Financial Companies Subject to 

Consolidated Risk-Based Capital Rules 

The proposed rule would have 

calculated liabilities of a U.S. financial 

company subject to consolidated riskbased capital rules—currently, bank 

holding companies and insured 

depository institutions—as the 

difference between its risk-weighted 

assets (as adjusted upward to reflect 

amounts that are deducted from 

regulatory capital elements pursuant to 

the agencies’ risk-based capital rules) 

and its total regulatory capital, as 

calculated under the applicable riskbased capital rules.18 As discussed in 

the preamble to the proposed rule, a 

bank holding company or insured 

depository institution will calculate 

risk-weighted assets for purposes of the 

concentration limit using the same 

methodology it uses to calculate riskweighted assets under the relevant riskbased capital rules.19

Section 622 provides that riskweighted assets of a financial company 

be ‘‘adjusted to reflect exposures that 

are deducted from regulatory capital.’’ 20

To reflect this adjustment, the proposed 

rule would define liabilities of a U.S. 

financial company subject to 

consolidated risk-based capital rules as: 

(i) The financial company’s riskweighted assets, plus (ii) the amount of 

assets deducted from the financial 

company’s regulatory capital multiplied 

by an institution-specific risk-weight, 

minus (iii) the financial company’s total 

regulatory capital. The proposed 

institution-specific risk-weight applied 

to deducted exposures was equal to the 

inverse of the institution’s total capital 

ratio minus one.21 This approach 

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68098 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

institution’s total capital ratio is equal to 16 percent 

(twice the regulatory minimum), the institutionspecific factor would equal 1⁄.16 ¥ 1, or 6.25 ¥ 1, 

or 5.25. 22 79 FR 17240 (March 27, 2014). 

effectively adds back a risk-weighted 

amount for assets that have been 

deducted from capital (which are 

generally considered risky) without 

penalizing a firm for having a high 

amount of capital. Commenters were 

generally supportive of the proposed 

methodology, and the final rule adopts 

this methodology as proposed. 

2. Foreign Financial Companies 

Section 622 provides that the 

liabilities of a ‘‘foreign financial 

company’’ equal the risk-weighted 

assets and regulatory capital attributable 

to the company’s ‘‘U.S. operations.’’ A 

‘‘foreign financial company’’ includes a 

foreign banking organization that is a 

bank holding company (i.e., owns a U.S. 

bank) or is treated as a bank holding 

company (i.e., operates a U.S. branch or 

agency), a foreign savings and loan 

holding company, a foreign company 

that controls a U.S. insured depository 

institutions but is not treated as a bank 

holding company (such as a company 

that controls an industrial loan 

company or limited-purpose credit card 

bank), and a foreign nonbank financial 

company designated by the Council for 

supervision by the Board. The final rule 

would define ‘‘U.S. operations’’ of a 

foreign financial company as the 

consolidated liabilities of all U.S. 

branches, agencies, and subsidiaries 

(including depository institutions and 

non-depository institutions) domiciled 

in the United States (including any 

lower-tier subsidiary of the U.S. 

subsidiary, whether domestic or 

foreign). 

Because the U.S. operations of foreign 

financial companies may include both 

entities that are subject to risk-weighted 

asset calculation requirements and 

entities that are not, the final rule (as 

did the proposed rule) computes U.S. 

liabilities using the risk-weighted asset 

methodology for subsidiaries subject to 

risk-based capital rules, and applicable 

accounting standards for all branches, 

agencies, and nonbank subsidiaries. For 

foreign banking organizations, the final 

rule computes liabilities for U.S. 

branches, agencies, and nonbank 

subsidiaries using ‘‘assets’’ under GAAP 

or applicable accounting standards 

because these operations are not 

required to hold regulatory capital 

separate from their parent. 

The final rule also requires a foreign 

banking organization to adjust U.S. 

liabilities to reflect transactions with 

affiliates. Specifically, the measure of 

liabilities must include any net amounts 

that the branch, agency, or U.S. 

subsidiary has lent to the foreign bank’s 

non-U.S. offices or non-U.S. affiliates 

(other than those non-U.S. affiliates 

owned by a U.S. subsidiary of the 

foreign banking organization) because 

these balances represent exposures of 

the U.S. branch, agency, or U.S. 

subsidiary to the non-U.S. affiliates. The 

amount of GAAP assets excludes 

amounts corresponding to balances and 

transactions between and among its U.S. 

branches, agencies, and U.S. 

subsidiaries (including any non-U.S. 

lower-tier subsidiaries of such U.S. 

subsidiaries) to the extent such items 

are not already eliminated in 

consolidation, to avoid double counting 

of assets of U.S. operations.22

Under the enhanced prudential 

standards rule adopted by the Board in 

February 2014, foreign banking 

organizations with $50 billion or more 

in global total consolidated assets and 

$50 billion or more in total non-branch 

U.S. assets must organize their U.S. 

subsidiaries under a single top-tier U.S. 

intermediate holding company by July 

1, 2016. A U.S. intermediate holding 

company will be subject to the same 

risk-based capital requirements 

applicable to U.S. bank holding 

companies, and will calculate its 

liabilities for purposes of the final rule 

using the risk-weighted assets approach. 

The U.S. assets of a foreign financial 

company that is not a foreign banking 

organization are calculated in a similar 

manner to the method described for 

foreign banking organizations, but the 

liabilities of a U.S. subsidiary not 

subject to risk-based capital rules are 

calculated based on the U.S. 

subsidiary’s liabilities under applicable 

accounting standards, rather than its 

assets. In addition, the foreign financial 

company is permitted, but not required, 

to adjust the measure of liabilities for 

transactions with affiliates. 

As noted above, section 622 requires 

the Board to establish the methodology 

for calculating the liabilities of a 

financial company that is an insurance 

company or other nonbank financial 

company supervised by the Board in 

order to provide for consistent and 

equitable treatment of such companies. 

For the reasons stated above, the final 

rule provides for consistent and 

equitable treatment of nonbank financial 

companies supervised by the Board by 

permitting each nonbank financial 

company to calculate its liabilities using 

applicable accounting standards. 

B. Measuring Aggregate Financial Sector 

Liabilities 

1. Methodology and Data 

Section 622 measures the total 

liabilities of each covered financial 

company against the aggregate liabilities 

of all financial companies in applying 

the 10 percent concentration limit. The 

aggregate consolidated liabilities of all 

financial companies are equal to the 

sum of individual financial company 

liabilities as calculated for each 

financial company using the applicable 

methodology, as described above. 

Consistent with the Council’s 

recommendation, the proposed rule 

would have measured aggregate 

financial sector liabilities for a given 

year as the average of the financial 

sector liabilities as of December 31 of 

each of the preceding two calendar 

years. In order to calculate the two year 

period for the initial period between 

July 1, 2015, and June 30, 2016, the 

proposed rule would have required 

certain companies (e.g., foreign banking 

organizations) who are not currently 

subject to the reporting requirements of 

a Federal banking agency to calculate 

and report their liabilities as of 

December 21, 2013. One commenter 

suggested that the Board measure 

liabilities for purposes of the initial 

period between July 1, 2015, and June 

30, 2016, using only data for one year 

(which would be liabilities as of 

December 31, 2014) and not require all 

financial companies to report their 

liabilities as of December 31, 2013. 

Foreign banking organizations were not 

otherwise required to report their U.S. 

assets as of December 31, 2013, and may 

not have data available to report their 

U.S. liabilities as of this date. 

To relieve burden on financial 

companies that do not currently report 

to a Federal banking agency, the final 

rule incorporates the commenters’ 

recommendation to use a one-year 

initial period. As such, pursuant to the 

final rule, the Board will calculated the 

denominator using the aggregate 

financial sector liabilities as of 

December 31, 2014 for the initial period 

between July 1, 2015, and June 30, 2016. 

For all subsequent periods, the Board 

will use the two-year average 

recommended by the Council. As 

discussed in further detail below, the 

final rule includes a new reporting 

requirement for financial companies 

that have not reported consolidated 

financial information to the Board or 

other appropriate Federal banking 

agency. 

One commenter suggested that the 

Board reserve authority to adjust the 

calculation methodology in the event 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 68099 

23Some respondents will not report the new item 

on the FR Y–7Q until December 2014. 24These institutions include savings and loan 

holding companies where the top-tier holding 

company is an insurance company that only 

prepares financial statements in accordance with 

SAP, holding companies of industrial loan 

companies, limited-purpose credit card banks, and 

limited-purpose trust banks, and currently, 

nonbank financial companies supervised by the 

Board. 

25A parent holding company would have been 

permitted, but not required, to reduce total 

liabilities by amounts corresponding to balances 

and transactions between U.S. subsidiaries of the 

parent holding company to the extent such items 

would not already be eliminated in consolidation. 

26The proposal referred to this report as the FR 

Y–17 report. 

27See 12 U.S.C. 1852(a)(3)(C). 28 5 U.S.C. § 552. 

that future regulatory changes have 

destabilizing or distortive effects. The 

Board will consider adjusting the 

calculation methodology, if necessary 

because of future regulatory changes, 

within the limits of the law. 

The preamble to the proposed rule 

noted that, to the maximum extent 

possible, the Board will calculate 

aggregate financial sector liabilities 

using information already reported by 

financial companies. For instance, bank 

holding companies report their riskweighted assets, regulatory deductions, 

and total capital on the Consolidated 

Financial Statements for Holding 

Companies (FR Y–9C), and the Board 

will use this information to calculate 

liabilities of these firms. For bank 

holding companies with total 

consolidated assets of less than $500 

million, the Board will measure 

consolidated liabilities by taking the 

difference between total consolidated 

assets minus the equity capital of such 

company on a consolidated basis, which 

amounts are reported on the Parent 

Company Only Financial Statements for 

Small Holding Companies (FR Y–9SP). 

For foreign banking organizations, the 

Board will use information reported on 

the Capital and Asset Report for Foreign 

Banking Organizations (FR Y–7Q) to the 

extent possible. In 2013, the Board 

amended the FR Y–7Q to require foreign 

banking organizations to report a new 

item entitled ‘‘Total combined assets of 

U.S. operations, net of intercompany 

balances and transactions between U.S. 

domiciled affiliates, branches, and 

agencies.’’ Foreign banking 

organizations began reporting this item 

as of March 31, 2014.23

In order to collect data necessary to 

implement the concentration limit, the 

proposed rule would have established a 

new reporting requirement for financial 

companies that have not historically 

reported consolidated financial 

information to the Board or other 

appropriate Federal banking agency.24

The new reporting requirement, the 

Financial Company Report of 

Consolidated Liabilities, would have 

required financial companies domiciled 

in the United States to report their total 

consolidated liabilities under applicable 

accounting standards and would require 

financial companies domiciled in a 

country other than the United States to 

report the sum of the total consolidated 

liabilities of each top-tier U.S. 

subsidiary of the financial company, as 

determined under applicable accounting 

standards.25 The report is referred to as 

the FR XX–1 report because it is being 

adopted pursuant to Regulation XX.26

One commenter argued that requiring 

financial companies that are not state 

member banks, bank holding 

companies, or subsidiaries of bank 

holding companies to submit FR XX–1 

exceeds the Board’s authority. This 

commenter also argued that requiring 

financial companies to submit the FR 

XX–1 imposes a disproportionate 

burden on financial companies that do 

not report liabilities to the Board, the 

estimated burden of 1 hour per 

respondent was too low, and that the 

reporting form should have been 

published in the Federal Register. 

Section 622 provides that ‘‘the Board 

shall issue regulations implementing 

this section in accordance with the 

recommendations of the Council.’’ 27

The proposed information collection is 

necessary for the Board to calculate 

aggregate liabilities and is consistent 

with the Board’s statutory authority. 

With regard to the commenter’s 

assertion that the reporting form is 

unduly burdensome, the proposed 

reporting form collects a single line item 

and collects the minimum information 

necessary to calculate an institution’s 

liabilities. However, after taking into 

account the comment, the Board has 

adjusted the burden to be 5 hours per 

respondent for the first year, and 2 

hours per respondent thereafter. The 

higher initial burden is intended to 

reflect time needed to educate staff, 

develop an approval process for the 

submitted report, and, for firms that 

seek to rely on accounting standards 

other than GAAP, develop a method of 

estimation. After this process is 

established, the aggregate burden to 

complete this form is expected to be 2 

hours per respondent per year. Finally, 

the preamble to the proposed rule 

described the FR XX–1 in detail, and the 

form was available on the Board’s Web 

site for comment. The Board is adopting 

the FR XX–1 as proposed. The Board 

will begin collecting the FR XX–1 as of 

December 31, 2014, and the submission 

date is 90 calendar days after the 

December 31 as-of-date. 

As discussed in the preamble to the 

proposed rule, information contained in 

a FR XX–1 filing generally will be made 

available to the public upon request. 

The Board proposed allowing a 

reporting holding company to request 

confidential treatment for the report if 

the holding company believed that 

disclosure of specific commercial or 

financial information in the report 

would likely result in substantial harm 

to its competitive position or that 

disclosure of the submitted information 

would result in unwarranted invasion of 

personal privacy. One commenter 

requested either that all reported 

information be treated as confidential 

information or that financial companies 

be permitted to make a one-time 

election for confidential treatment. 

The Freedom of Information Act, 5 

U.S.C. § 552, (FOIA) requires the Board 

to release information to the public 

unless a specific exemption applies.28

Reporting companies may request 

confidentiality but such requests must 

contain detailed justifications 

corresponding to the claimed FOIA 

exemption. In such cases, the burden is 

on the reporting company to 

demonstrate that the information falls 

within one of the exemptions under the 

FOIA. Requests for confidentiality must 

be evaluated on a case-by-case basis. If 

a reporting company requests 

confidential treatment, the Board will 

review the request to determine if the 

company has met the burden of 

demonstrating a particular FOIA 

exemption applies. 

One commenter requested that the 

Board provide additional detail on the 

methodology it uses to calculate 

aggregate financial sector liabilities for 

U.S. bank holding companies and 

foreign banking organizations. For U.S. 

bank holding companies, insured 

depository institutions, and savings and 

loan holding companies, the Board 

intends to rely on total risk-weighted 

assets, as reported on schedule HC–R, 

Regulatory Capital, of the FR Y–9C, and 

adjust that amount for amounts 

deducted from regulatory capital, as 

reported on schedule HC–R, multiplied 

by the institution-specific risk weight. 

In calculating the amounts deducted 

from regulatory capital, the Board will 

sum the total adjustments and 

deductions for the categories of 

regulatory capital (e.g., common equity 

tier 1 capital and additional tier 1 

capital). For foreign banking 

organizations, the Board generally 

intends to use the item on the FR Y–7Q 

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68100 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

29See 12 U.S.C. 1852(c). 

30 Id. 

31The Council noted that section 622 does not 

restrict an acquisition of a ‘‘bank’’ (as that term is 

defined in the Bank Holding Company Act) in 

default or in danger of default, subject to the prior 

written consent of the Board; however, this 

exception applies by its terms to a failing ‘‘bank,’’ 

rather than all types of failing insured depository 

institutions, including savings associations, 

industrial loan companies, and limited-purpose 

credit card banks. According to the Council, ‘‘the 

important policy that supports the exception for the 

acquisition of failing banks—namely, the strong 

public interest in limiting the costs to the Deposit 

Insurance Fund that could arise if a bank were to 

fail, which might be partly or wholly limited 

through acquisition of a failing bank by another 

firm—applies equally to insured depository 

institutions generally, and is not limited to ‘‘banks’’ 

as that term is defined in the [Bank Holding 

Company Act].’’ 

entitled ‘‘Total combined assets of U.S. 

operations, net of intercompany 

balances and transactions between U.S. 

domiciled affiliates, branches, and 

agencies’’ and, to the extent that a 

foreign banking organization has a U.S. 

bank holding company subsidiary, 

subtract assets attributable to the U.S. 

bank holding company and replace that 

amount with liabilities attributable to 

the U.S. bank holding company 

(calculated in accordance with the riskweighted asset methodology, using data 

from the FR Y–9C). To the extent that 

the Board uses different regulatory 

reporting sources to calculate liabilities, 

it generally expects to describe the 

sources in connection with publication 

of the financial sector liabilities figure. 

One commenter asked that the Board 

set forth a specific schedule for a review 

and ex post evaluation of the final rule. 

The Board generally reviews its rules 

every five years in order to update 

requirements, reduce unnecessary 

burden, and streamline regulatory 

requirements based on the Board’s 

experience in implementing a rule. As 

such, the Board does not believe that a 

separate schedule for a review and ex 

post evaluation of the final rule is 

necessary. 

C. Applying the Concentration Limit 

Section 622 prohibits a financial 

company from consummating a covered 

acquisition if the liabilities of the 

resulting financial company upon 

consummation of the covered 

acquisition would exceed 10 percent of 

aggregate financial sector liabilities. 

1. Measuring Liabilities Upon 

Consummation of a Covered Acquisition 

The proposed rule set forth a method 

for calculating liabilities upon 

consummation of an acquisition subject 

to the concentration limit (‘‘covered 

acquisition’’). As set forth in the 

proposed rule, where a covered 

acquisition would involve a foreign 

acquirer and a foreign target, the final 

rule would provide that liabilities 

immediately upon consummation of the 

covered acquisition would equal the 

total consolidated liabilities of the U.S. 

operations of the resulting foreign 

financial company, but would not 

include liabilities of the foreign 

operations of either the acquiring 

foreign bank or the target foreign firm, 

except to the extent these foreign assets 

are controlled by a U.S. subsidiary or 

branch of either foreign entity. Also in 

the case of a cross-border covered 

acquisition involving a U.S. company, 

the proposal rule would have included 

the liabilities of both the U.S. and 

foreign subsidiaries of the U.S. 

company, regardless of whether the U.S. 

company is the acquirer or target. The 

final rule adopts the proposed 

methodology without change. 

2. Transactions for Which a Notice or 

Application Is Not Otherwise Required 

Under the proposed rule, prior to 

consummating a covered acquisition, a 

financial company that was not 

otherwise required to file a prior notice 

or application with the Board would 

have been required to provide written 

notice to the Board if the company’s 

liabilities immediately after 

consummation of the transaction would 

be above 8 percent of the aggregate 

financial sector liabilities and the 

covered acquisition would increase the 

liabilities of the resulting financial 

company by more than $2 billion, when 

aggregated with all other covered 

acquisitions during the twelve months 

preceding the consummation of the 

transaction. This provision was 

proposed to provide notification to the 

Board regarding covered financial firms 

that were nearing the concentration 

limit. 

Commenters suggested that the Board 

not adopt this requirement because 

financial companies are well-placed to 

monitor their own compliance with the 

limit and will have incentives to consult 

with the Board should a transaction put 

the company at risk of exceeding the 

limit, given that the statute prohibits 

transactions that exceed the limit. One 

commenter argued that the imposition 

of a prior notice requirement would add 

burden and create administrative 

difficulties for financial companies 

without a corresponding benefit. 

In light of commenters’ views, the 

final rule does not include a prior notice 

requirement. If a company consummates 

a covered acquisition in violation of the 

limit, the company may be required to 

divest any company or assets acquired 

in violation of the limit. In order to 

ensure compliance with the 

concentration limit, a financial 

company should have policies and 

procedures in place to monitor its 

compliance with section 622. In 

addition, the Board will consider 

compliance with the concentration limit 

in reviewing proposed acquisitions or 

mergers under other laws such as the 

Bank Holding Company Act. If the 

Board receives a notice or application 

related to a covered acquisition, the 

Board will consider whether the 

transaction is permissible under section 

622. 

3. Acquisitions by Nonfinancial 

Companies 

Under the proposed rule, a covered 

acquisition between a financial 

company and a company that is not a 

financial company under section 622, 

including those in which the 

nonfinancial company is the acquirer, 

and becomes a financial company as a 

result of the transaction, would be 

covered by the limit. The final rule 

adopts this approach substantively as 

proposed. 

D. Exceptions to the Concentration 

Limit 

The statute exempts three types of 

acquisitions from the concentration 

limit: (i) An acquisition of a bank in 

default or in danger of default; (ii) an 

acquisition with respect to which the 

FDIC provides assistance under section 

13(c) of the Federal Deposit Insurance 

Act; and (iii) an acquisition that would 

result only in a de minimis increase in 

the liabilities of the financial 

company.29 Under the statute, each of 

these types of transactions requires prior 

written consent of the Board.30

1. Exceptions to the Concentration Limit 

a. Failing Insured Depository Institution 

and FDIC-Assisted Transactions 

The proposed rule provided that, with 

prior written consent of the Board, the 

concentration limit would not apply to 

the acquisition of an insured depository 

institution in default or in danger of 

default, as determined by the 

appropriate Federal banking agency of 

the insured depository institution, in 

consultation with the Board. The 

proposed rule was consistent with the 

Council’s recommendations to expand 

the ‘‘failing bank exception’’ to apply to 

the acquisition of any type of insured 

depository institution in default or in 

danger of default.31 This would include 

savings associations and industrial loan 

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32Council study, p. 3. 

33 604(d) and (e) of the Dodd-Frank Act; 12 U.S.C. 

1842(c)(7) and 1843(j)(2)(A). 

34See, Capital One Financial Corporation, FRB 

Order No. 2012–2 (Feb. 14, 2012). 35Council study, p. 3. 

companies, for example. Similarly, the 

proposed rule would have provided 

that, with prior written consent of the 

Board, the concentration limit would 

not apply to a covered acquisition with 

respect to which assistance is provided 

by the Federal Deposit Insurance 

Corporation under section 13(c) of the 

Federal Deposit Insurance Act (12 

U.S.C. 1823(c)). The final rule adopts 

these proposed exceptions without 

change. 

b. De Minimis Transaction 

The proposed rule would have 

defined a de minimis increase for 

purposes of the concentration limit as 

an increase in the total consolidated 

liabilities of a financial company that 

does not exceed $2 billion, when 

aggregated with all other acquisitions by 

the company under the de minimis 

authority during the twelve months 

preceding the date of the transaction. 

One commenter recommended that the 

Board raise the amount from $2 billion 

to $5 billion and another urged the 

Board to undertake further empirical 

analysis to determine the appropriate 

limit. 

The final rule maintains the $2 billion 

threshold. As the Council noted, section 

622 is intended, along with a number of 

other provisions in the Dodd-Frank Act, 

to promote financial stability.32 Section 

604 of the Dodd-Frank Act is another 

provision that, like section 622, is 

designed to promote financial stability. 

It amended sections 3 and 4 of the Bank 

Holding Company Act to require the 

Board to evaluate the risks to the 

stability of the U.S. banking or financial 

system in reviewing proposed 

acquisitions of banks and nonbanks by 

bank holding companies.33 In approving 

the acquisition by Capital One Financial 

Corporation of ING Bank, fsb, the Board 

offered three examples of transactions it 

may presume, absent other evidence, 

not to present financial stability 

concerns: (1) An acquisition of less than 

$2 billion of assets, (2) a transaction 

resulting in a firm with less than $25 

billion in total assets, or (3) a corporate 

reorganization. Similarly, in the Board’s 

view, a $2 billion threshold is 

appropriate as a de minimis threshold 

in this rule because it would only 

permit those covered acquisitions that 

would not likely, on their own, increase 

risk to financial stability posed by 

concentration in the financial sector.34

c. Prior Written Consent of the Board 

Under the proposed rule, a financial 

company that sought to consummate a 

covered acquisition that qualifies for an 

exception described above must obtain 

the prior written consent of the Board, 

in addition to any other regulatory 

notices or approvals otherwise required 

for the covered acquisition. One 

commenter recommended that the final 

rule set forth an explicit standard under 

which the Board would review a 

proposed transaction—specifically, 

whether the consummation of the 

proposed acquisition would create a 

level of concentration in the financial 

sector that would pose a threat to 

financial stability. In addition, the 

commenter requested that the Board 

specify the process under which it will 

review a de minimis acquisition. 

In response to comments, the final 

rule provides additional detail on the 

process and standard under which the 

Board will review a de minimis 

acquisition. Under the final rule, a 

financial company that seeks to make de 

minimis covered acquisition must file a 

request with the Board prior to 

consummation of the proposed 

transaction that describes the covered 

acquisition, the projected increase in the 

company’s liabilities resulting from the 

acquisition, the aggregate increase in the 

company’s liabilities from acquisitions 

during the twelve months preceding the 

projected date of the acquisition, and 

any additional information requested by 

the Board. The Board will act on such 

a request within 90 calendar days after 

receipt of the complete request, unless 

that time period is extended by the 

Board. To the extent that a proposed 

transaction requires approval by, or 

prior notice to, the Board under another 

statutory provision (for example, under 

the Bank Holding Company Act) the 

Board intends to act on the request for 

prior written consent under section 622 

concurrently with its action on the 

request for approval or notice under the 

other statute. 

In reviewing a proposed de minimis 

transaction, the Board will consider 

whether the consummation of the 

covered acquisition could pose a threat 

to financial stability. As noted by the 

Council in its study on the 

concentration limit, this concentration 

limit is intended, along with a number 

of other provisions in the Dodd-Frank 

Act, to promote financial stability and 

address the perception that large 

financial institutions are ‘‘too big to 

fail.’’ 35 The final rule’s standard for 

reviewing exceptions to the 

concentration limit is intended to 

further this statutory intent. Proposed 

de minimis transactions may also 

require a separate consideration under 

another statute and may be subject to a 

denial or objection pursuant to the 

standards under that statute. 

Commenters requested that the Board 

provide its general consent for 

transactions for which the consideration 

paid is $100 million or less, and for 

which the associated increase in 

liabilities is within the $2 billion de 

minimis cap, with only an after-the-fact 

notice. Transactions that, in aggregate, 

result in an increase in the total 

consolidated liabilities of a financial 

company of $100 million or less are 

unlikely to affect materially the 

concentration of the financial sector. As 

part of the final rule, the Board is 

providing general consent for 

transactions that result in an increase in 

the total consolidated liabilities of a 

financial company of less than $100 

million, when aggregated with all other 

acquisitions by the company under this 

general consent authority during the 

twelve months preceding the date of the 

transaction. A company must provide a 

notice to the Board no later than 10 days 

after consummating the covered 

acquisition that describes the covered 

acquisition, the increase in the 

company’s liabilities resulting from the 

acquisition, and the aggregate increase 

in the company’s liabilities from 

acquisitions during the twelve months 

preceding the date of the acquisition. 

2. Organic Growth 

Section 622 and the implementing 

final rule limit growth by the largest, 

most interconnected financial 

companies through acquisitions or 

mergers. The proposed rule would have 

identified certain activities that would 

not be treated as a covered acquisition, 

including acquiring shares in the 

ordinary course of collecting a debt 

previously contracted (DPC), in a 

fiduciary capacity, in connection with 

underwriting or market making, or 

merchant or investment banking or 

insurance company investment activity. 

The proposed rule would have also 

clarified that internal corporate 

reorganizations were not ‘‘covered 

acquisitions’’ for purposes of section 

622. 

One commenter requested that the 

Board reconsider the proposed 

exceptions for merchant banking 

investments and the acquisition of DPC 

assets. The commenter noted that 

Congress enumerated specific 

exceptions from the statutory 

concentration limit, and chose not to 

provide an exception for merchant 

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68102 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

36Specifically, the commenter requested that 

‘‘control’’ be defined as either majority ownership 

or substantial influence over the business decisions 

of the company. In the alternative, the commenter 

suggests that the Board exempt merchant banking 

investments and acquisition of DPC assets only if 

held for less than one year. 

37Council study, p. 10. 

38Council study, p. 10. 

39Council study, p. 5. 

40Section 941 of the Dodd-Frank Act, 15 U.S.C. 

78o–11. 41See sections 163, 173, and 604(d), (e) and (f) 

of the Dodd-Frank Act; 12 U.S.C. 1842(c), 

1843(j)(2)(A), 1828(c)(5), 5363, and 5373. 

banking investments or acquisition of 

DPC assets. In this commenter’s view, 

Congress intended to enact a 

comprehensive limitation on growth 

through acquisition, and the proposed 

exceptions for merchant banking 

investments and acquisition of DPC 

assets would create a loophole that 

could undermine the intent of the 

statute. The commenter expressed the 

view that merchant banking investments 

and ownership of DPC assets could lead 

to effective ownership and control of 

another company. 

In the alternative, the commenter 

recommended that the Board replace the 

exceptions for the acquisition of DPC 

assets and merchant banking 

investments with an actual specified 

time period or definition of control, 

which would exempt a brief ownership 

stake from triggering section 622’s 

limitations on acquisitions.36

In light of this comment, the Board 

has considered the language and 

legislative intent of section 622, as well 

as the Council’s study on the effects of 

the concentration limit. Based on these 

considerations, the Board is retaining 

the exception for acquisition of DPC 

assets, but eliminating the exception for 

merchant banking investments. The 

Council’s study described the 

concentration limit as intended to 

promote financial stability and address 

the perception that large financial 

institutions are ‘‘too big to fail.’’ 37 In its 

study, the Council expressed the view 

that the concentration limit will reduce 

the risks to U.S. financial stability 

created by increased concentration 

arising from mergers, consolidations or 

acquisitions involving the largest U.S. 

financial companies.38 It also expressed 

the view that the concentration limit 

does not prevent firms from growing 

larger through internal, organic 

growth.39

In the Board’s view, the acquisition of 

an interest in a company during the 

regular course of securing or collecting 

a debt previously contracted is integral 

to the business of lending, and should 

not be constrained by the concentration 

limit. An acquisition of shares of a 

company through a DPC acquisition 

results from a borrower defaulting on a 

loan, rather than an intentional 

investment by a financial company. 

These acquisitions protect the lender 

from loss, and typically require a 

divestiture of the interests within five 

years. 

In contrast to a DPC acquisition, 

engaging in a merchant banking 

investment that results in control of a 

company is an intentional investment 

decision by a financial company. A 

merchant banking investment is solely 

for the purpose of acquiring an interest 

in a nonfinancial company. As such, the 

Board has determined that merchant 

banking investments that result in 

control of a company should not be 

exempt. Merchant banking investments 

are fundamentally different from the 

situation where a company must 

foreclose on shares of a company held 

as collateral in order to recover the 

funds it has lent. Therefore, to the 

extent that a merchant banking 

investment gives rise to control under 

the Bank Holding Company Act, it will 

be treated as a ‘‘covered acquisition’’ for 

purposes of section 622. A financial 

company whose liabilities exceeded the 

concentration limit could still make 

merchant banking investments, 

provided that it did not acquire control 

of the portfolio company. 

Other commenters suggested several 

additional types of transactions that 

should be exempt from the definition of 

covered acquisition because they are 

ordinary business transactions. Among 

these suggestions were the acquisition 

of a loan portfolio structured as an 

acquisition of a special purpose vehicle 

instead of the purchase of underlying 

loans, community development 

investments, investments in small 

business investment companies, leases 

structured as an investment in a 

company, the acquisition of securities in 

connection with customer-driven 

hedging positions, securities repurchase 

financing transactions, securities 

borrowing and lending transactions, and 

investments by funds of which a 

financial company subsidiary serves as 

a general partner. 

In response to commenters’ 

observation that the acquisition of 

certain assets, such as a loan portfolio, 

may be structured as a legal matter as an 

acquisition of a special purpose vehicle, 

the final rule would include a new 

exception for securitization 

transactions. Specifically, a ‘‘covered 

acquisition’’ would exclude an 

acquisition of ownership or control of a 

company that is, or will be, an issuer of 

asset-backed securities (as defined in 

section 3(a) of the Securities and 

Exchange Act of 1934) so long as the 

financial company that retains an 

ownership interest in the company 

complies with the credit risk retention 

requirements in the regulations issued 

pursuant to section 15G of the Securities 

and Exchange Act of 1934. The credit 

risk retention requirements are found in 

section 941 of the Dodd-Frank Act, and 

the exception would permit a financial 

company to continue sponsoring 

securitizations after the financial 

company’s liabilities exceed the 

concentration limit, consistent with the 

requirements of the Dodd-Frank Act.40

With respect to the commenter’s 

suggestion that the Board exempt small 

business and community development 

investments, leases structured as 

investments, acquisition of securities in 

connection with customer-driven 

hedging positions, investments by funds 

of which a financial company 

subsidiary serves as a general partner, 

securities repurchase financing 

transactions, and securities borrowing 

and lending transactions, these 

investments would not be prohibited 

under the final rule so long as they do 

not give rise to control over the investee 

company. 

Commenters requested clarification of 

the proposed exception for fiduciary 

acquisitions, requesting that there be a 

complete, unconditional exclusion of 

assets acquired by a financial company 

acting in a fiduciary capacity. The final 

rule clarifies that the fiduciary 

exception in section 622 would permit 

a financial company to continue to 

engage in bona fide fiduciary activities 

in accordance with applicable fiduciary 

law. As discussed below, the final rule 

contains an anti-evasion provision 

applicable to all transactions that 

prohibits a financial company from 

organizing or operating its business or 

structuring any acquisition of, or merger 

or consolidation with, another company 

in such a manner that would result in 

evasion of application of the 

concentration limit. 

E. Other Provisions of Law 

Other provisions of the Dodd-Frank 

Act require the Board, in evaluating 

applications or notices under section 3 

or 4 of the Bank Holding Company Act 

or under section 163 of the Dodd-Frank 

Act, to consider the risks to financial 

stability posed by a merger or 

acquisition by a financial company.41

These provisions may result in more 

stringent limitations than the 

concentration limit for a particular 

transaction or proposal, depending on 

the Board’s analysis of the effects of the 

proposal on financial stability. 

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42See, e.g., 12 U.S.C. 1842(d) and 1843(j); 12 CFR 

225.14(c)(5) and (6). 

Furthermore, other restrictions on 

acquisitions, such as the competitive 

restrictions contained in the Bank 

Holding Company Act or Federal 

antitrust laws, may also limit certain 

transactions by financial companies.42

III. Administrative Law Matters 

A. Solicitation of Comments on the Use 

of Plain Language 

Section 722 of the Gramm-LeachBliley Act (Pub. L. No. 106–102, 113 

Stat. 1338, 1471, 12 U.S.C. 4809) 

requires the Federal banking agencies to 

use plain language in all proposed and 

final rules published after January 1, 

2000. The Board received no comments 

on these matters and believes that the 

final rule is written plainly and clearly. 

B. Paperwork Reduction Act Analysis 

In accordance with section 3512 of 

the Paperwork Reduction Act of 1995 

(44 U.S.C. § 3501–3521) (PRA), the 

Board may not conduct or sponsor, and 

a respondent is not required to respond 

to, an information collection unless it 

displays a currently valid Office of 

Management and Budget (OMB) control 

number. The Board will obtain an OMB 

control number for this information 

collection. The Board reviewed the final 

rule under the authority delegated to the 

Board by OMB. 

The final rule contains requirements 

subject to the PRA. The reporting 

requirements are found in sections 

251.4(b), 251.4(c), and 251.6. To 

implement the reporting requirements 

set forth in 251.6, the Board proposes to 

create a new reporting form, the 

Financial Company Report of 

Consolidated Liabilities (FR XX–1). This 

information collection requirement 

would implement section 622 of the 

Dodd-Frank Act. 

Of the comments received on the 

proposed rule, four specifically 

referenced the PRA. In response to these 

comments, the Board modified the final 

rule as follows (1) provided that 

financial sector liabilities will be 

calculated as of December 31, 2014, for 

purposes of the period beginning July 1, 

2015 and ending June 30, 2016, and the 

two-year average will be adopted for 

each year thereafter; (2) removed the 

prior notice requirement for acquisitions 

by financial companies with total 

consolidated liabilities equal to or 

greater than 8 percent of aggregate 

financial sector liabilities; (3) provided 

prior consent for a covered acquisition 

that would result in an increase in the 

liabilities of the financial company that 

does not exceed $100 million, when 

aggregated with all other covered 

acquisitions by the financial company 

during the twelve months preceding the 

consummation of the transaction and set 

forth a process and standard of review 

for de minimis transactions. These 

changes, as well as the Board’s other 

responses to the comments received, are 

discussed in greater detail above. 

Proposed Information Collection 

Title of Information Collection: 

Reporting Requirements Associated 

with Regulation XX (Concentration 

Limit) (Reg XX); Financial Company 

Report of Consolidated Liabilities (FR 

XX–1). 

Frequency of Response: Reg XX: 

Annual, event generated; FR XX–1: 

Annual. 

Affected Public: Businesses or other 

for-profit. 

Respondents: Reg XX: Insured 

depository institutions, bank holding 

companies, foreign banking 

organizations, savings and loan holding 

company, companies that control 

insured depository institutions, and 

nonbank financial companies 

supervised by the Board; FR XX–1: U.S. 

and foreign financial companies that do 

not otherwise report consolidated 

financial information to the Board or 

other appropriate Federal banking 

agency. 

Abstract: Section 622 of the DoddFrank Wall Street Reform and Consumer 

Protection Act, which adds a new 

section 14 to the Bank Holding 

Company Act of 1956, as amended, 

establishes a financial sector 

concentration limit that generally 

prohibits a financial company from 

merging or consolidating with, or 

acquiring, another company if the 

resulting company’s liabilities upon 

consummation would exceed 10 percent 

of the aggregate liabilities of all financial 

companies as calculated under that 

section. In addition, the rule requires 

certain financial companies to report 

information necessary to calculate the 

financial sector concentration limit. 

Section 251.4(b) requires a financial 

company with liabilities in excess of the 

concentration limit cap to request that 

the Board provide prior written consent 

before consummates a transaction that is 

exempt from the concentration limit. 

The request for prior written consent 

must contain a description of the 

covered acquisition, the projected 

increase in the company’s liabilities 

resulting from the acquisition, the 

projected aggregate increase in the 

company’s liabilities from acquisitions 

during the twelve months preceding the 

projected date of the acquisition (if the 

request is made pursuant to paragraph 

(a)(3) of this section); and any additional 

information requested by the Board. 

Section 251.4(c) requires a financial 

company with liabilities in excess of the 

concentration limit cap may provide 

after-the-fact notice to the Board if a 

covered acquisition would result in an 

increase in the liabilities of the financial 

company of less than $100 million, 

when aggregated with all other covered 

acquisitions by the financial company 

made pursuant to section 251.4(c) 

during the twelve months preceding the 

date of the acquisition. A financial 

company that relies on this provision 

must provide a notice to the Board 

within 10 days after consummating the 

covered acquisition that describes the 

covered acquisition, the increase in the 

company’s liabilities resulting from the 

acquisition, and the aggregate increase 

in the company’s liabilities from 

covered acquisitions during the twelve 

months preceding the date of the 

acquisition. 

Section 251.6 requires financial 

companies that do not report 

consolidated financial information to 

the Board or other appropriate Federal 

banking agency to report information on 

their total liabilities. At present, many 

financial companies do not report 

consolidated financial information to 

the Board or other appropriate Federal 

banking agency. These institutions 

include savings and loan holding 

companies where the top-tier holding 

company is an insurance company that 

only prepares financial statements in 

accordance with SAP, holding 

companies of industrial loan companies, 

limited-purpose credit card bans, and 

limited-purpose trust banks. Because 

this information is necessary to 

implement section 622, this rule creates 

a new report, the Financial Company 

Report of Consolidated Liabilities (FR 

XX–1) on which a financial company 

that does not otherwise report 

consolidated financial information to 

the Board or other appropriate Federal 

banking agency would be required to 

report information on their total 

liabilities. 

Because the Board is required to 

report a final calculation based on data 

collected as of the end of each calendar 

year, this proposed new report would be 

completed annually beginning with the 

report as of December 31, 2014. The 

Board will collect the first report by 

March 31, 2015. 

Specifically, with respect to a 

financial company domiciled in the 

United States, the institution is required 

to report total consolidated liabilities of 

the financial company under applicable 

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68104 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

43 ‘‘Applicable accounting standards’’ are defined 

for purposes of the proposed rule as GAAP, or such 

other accounting standards applicable to the 

company that the Board determines are appropriate. 

If a company does not calculate its total 

consolidated assets or liabilities under GAAP for 

any regulatory purpose (including compliance with 

applicable securities laws), the company may 

submit a request to the Board that it use an 

accounting standard or method of estimation other 

than GAAP to calculate its liabilities for purposes 

of this subpart. The Board may, in its discretion and 

subject to Board review and adjustment, permit the 

company to provide estimated total consolidated 

liabilities on an annual basis using this accounting 

standard or method of estimation. 

44See 5 U.S.C. 603(a). 

45See 12 U.S.C. 5365 and 5366. 

46 13 CFR 121.201. 

accounting standards.43 With respect to 

a financial company domiciled in a 

country other than the United States, 

the financial company is required to 

report the total consolidated liabilities 

of the combined U.S. operations of the 

financial company as of December 31. 

‘‘Total consolidated liabilities of the 

combined U.S. operations of the 

financial company’’ would mean the 

sum of the total consolidated liabilities 

of each top-tier U.S. subsidiary of 

financial company, as determined under 

GAAP. A parent holding company is 

permitted, but is not required, to reduce 

‘‘total consolidated liabilities of the 

combined U.S. operations of the parent 

holding company’’ by amounts 

corresponding to balances and 

transactions between U.S. subsidiaries 

of the parent holding company to the 

extent such items would not already be 

eliminated in consolidation. 

Information contained in this report 

generally will be made available to the 

public upon request. However, a 

reporting holding company may request 

confidential treatment for the report if 

the holding company is of the opinion 

that disclosure of specific commercial or 

financial information in the report 

would likely result in substantial harm 

to its competitive position, or that 

disclosure of the submitted information 

would result in unwarranted invasion of 

personal privacy. 

Estimated Burden per Response: Reg 

XX: Section 251.4(b), 10 hours; Section 

251.4(c), 10 hours; FR XX–1: 2 hours; 

one-time implementation: 5 hours. 

Number of Respondents: Reg XX: 

Section 251.4(b), 1; Section 251.4(c), 1; 

FR XX–1: 40. 

Total Estimated Annual Burden: Reg 

XX: 20 hours; FR XX–1: 80 hours; onetime implementation: 200. 

C. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act, 5 

U.S.C. 601 et seq. (RFA), generally 

requires that an agency prepare and 

make available for public comment an 

initial regulatory flexibility analysis in 

connection with a notice of proposed 

rulemaking.44 The regulatory flexibility 

analysis otherwise required under 

section 604 of the RFA is not required 

if an agency certifies that the rule will 

not have a significant economic impact 

on a substantial number of small entities 

and publishes its certification and a 

short, explanatory statement in the 

Federal Register along with its rule. 

The agencies solicited public 

comment on the rule in a notice of 

proposed rulemaking. The agencies did 

not receive any comments regarding 

burden to small banking organizations. 

The Board adding Regulation XX (12 

CFR 251 et seq.) to implement section 

14 of the Bank Holding Company Act 

(added by section 622 of the DoddFrank Act), reflecting the 

recommendations of the Council.45

Section 622 establishes a financial 

sector concentration limit that generally 

prohibits a financial company from 

merging or consolidating with, or 

acquiring, another company if the 

resulting company’s liabilities upon 

consummation would exceed 10 percent 

of the aggregate liabilities of all financial 

companies as calculated under that 

section. 

Under regulations issued by the Small 

Business Administration (SBA), a 

‘‘small entity’’ includes those firms 

within the ‘‘Finance and Insurance’’ 

sector with asset sizes that vary from 

$35.5 million or less in assets to $550 

million or less in assets.46 The Finance 

and Insurance sector constitutes a 

reasonable universe of firms for these 

purposes because such firms generally 

engage in actives that are financial in 

nature. Consequently, bank holding 

companies or nonbank financial 

companies with assets sizes of $550 

million or less are small entities for 

purposes of the RFA. 

As discussed in the Supplementary 

Information, the final rule prohibits a 

financial company from merging or 

consolidating with, or acquiring, 

another company if the resulting 

company’s liabilities upon 

consummation would exceed 10 percent 

of the aggregate liabilities of all financial 

companies as calculated under that 

section, unless the transaction would 

qualify for an exception to the 

prohibition. For instance, transactions 

that involve only a de minimis increase 

in the liabilities of a financial company 

would not be subject to the 

concentration limit. A de minimis 

increase would be defined as an 

increase of $2 billion, when aggregated 

with all other acquisitions by the 

company under the de minimis 

authority during the twelve months 

preceding the date of the acquisition. 

A company with $550 million or less 

in assets will not, in practice, be 

affected by the final rule, which limits 

covered acquisitions only by firms 

whose liabilities will exceed ten percent 

of the aggregate financial sector 

liabilities. As noted in the preamble to 

the proposed rule, as of December 31, 

2013, under the estimated proposed 

method, financial sector liabilities is 

approximately $18 trillion. 

Furthermore, the reporting requirement 

for financial companies that do not 

otherwise report consolidated financial 

information to the Board or other 

appropriate Federal banking agency is 

anticipated to result in an aggregate 

annual burden of only 25 hours. 

As noted above, because the rule is 

not likely to apply to any company with 

assets of $550 million or less, it is not 

expected to apply to any small entity for 

purposes of the RFA. The Board does 

not believe that the rule duplicates, 

overlaps, or conflicts with any other 

Federal rules. In light of the foregoing, 

the Board does not believe that the rule 

would have a significant economic 

impact on a substantial number of small 

entities supervised. 

List of Subjects in 12 CFR Part 251 

Administrative practice and 

procedure, Banks, Banking, 

Concentration Limit, Federal Reserve 

System, Holding companies, Reporting 

and recordkeeping requirements, 

Securities. 

Authority and Issuance 

For the reasons stated in the 

Supplementary Information, the Board 

of Governors of the Federal Reserve 

System is adding part 251 to read as 

follows: 

PART 251—CONCENTRATION LIMIT 

(REGULATION XX) 

Sec. 

251.1 Authority, purpose, and other 

authorities. 

251.2 Definitions. 

251.3 Concentration limit. 

251.4 Exceptions to the concentration limit. 

251.5 No evasion. 

251.6 Reporting requirements. 

Authority: 12 U.S.C. 1818, 1844(b), 1852, 

3101 et seq. 

§ 251.1 Authority, purpose, and other 

authorities. 

(a) Authority. This part is issued by 

the Board of Governors of the Federal 

Reserve System under sections 5 and 14 

of the Bank Holding Company Act of 

1956, as amended (12 U.S.C. 1844 and 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 68105 

1852); section 8 of the Federal Deposit 

Insurance Act, as amended (12 U.S.C. 

1818); the International Banking Act of 

1978, as amended (12 U.S.C. 3101 et 

seq.); and the recommendations of the 

Financial Stability Oversight Council 

(76 Federal Register 6756) (February 8, 

2011). 

(b) Purpose. This subpart implements 

section 14 of the Bank Holding 

Company Act, which generally prohibits 

a financial company from merging or 

consolidating with, acquiring all or 

substantially all of the assets of, or 

otherwise acquiring control of, another 

company if the resulting company’s 

consolidated liabilities would exceed 10 

percent of the aggregate consolidated 

liabilities of all financial companies. 

(c) Other authorities. Nothing in this 

part limits the authority of the Board 

under any other provision of law or 

regulation to prohibit or limit a financial 

company from merging or consolidating 

with, acquiring all or substantially all of 

the assets of, or otherwise acquiring 

control of, another company. 

§ 251.2 Definitions. 

Unless otherwise specified, for the 

purposes of this part: 

(a) Applicable accounting standards 

means, with respect to a company, U.S. 

generally accepted accounting 

principles (GAAP), or such other 

accounting standard or method of 

estimation that the Board determines is 

appropriate pursuant to § 251.3(e). 

(b) Applicable risk-based capital rules 

means consolidated risk-based capital 

rules established by an appropriate 

Federal banking agency that are 

applicable to a financial company. 

(c) Appropriate Federal banking 

agency has the same meaning as in 

section 3(q) of the Federal Deposit 

Insurance Act (12 U.S.C. 1813(q)). 

(d) Control has the same meaning as 

in § 225.2(e) of the Board’s Regulation Y 

(12 CFR 225.2(e)). 

(e) Council means the Financial 

Stability Oversight Council established 

by section 111 of the Dodd-Frank Act 

(12 U.S.C. 5321). 

(f) Covered acquisition means a 

transaction in which a company directly 

or indirectly merges or consolidates 

with, acquires all or substantially all of 

the assets of, or otherwise acquires 

control of another company. A covered 

acquisition does not include an 

acquisition of ownership or control of a 

company: 

(1) In the ordinary course of collecting 

a debt previously contracted in good 

faith if the acquired securities or assets 

are divested within the time period 

permitted by the appropriate Federal 

banking agency (including extensions) 

or, if the financial company does not 

have an appropriate Federal banking 

agency, five years; 

(2) In a fiduciary capacity in good 

faith under applicable fiduciary law if 

the acquired securities or assets are held 

in the ordinary course of business and 

not acquired for the benefit of the 

company or its shareholders, 

employees, or subsidiaries; 

(3) In connection with bona fide 

underwriting or market-making 

activities; 

(4) Solely in connection with a 

corporate reorganization and the 

companies involved are lawfully 

controlled and operated by the financial 

company both before and following the 

reorganization; and 

(5) That is, or will be, an issuer of 

asset back securities (as defined in 

Section 3(a) of the Securities and 

Exchange Act of 1934) so long as the 

financial company that retains an 

ownership interest in the company 

complies with the credit risk retention 

requirements in the regulations issued 

pursuant to section 15G of the Securities 

and Exchange Act of 1934. 

(g) Financial company includes: 

(1) An insured depository institution; 

(2) A bank holding company; 

(3) A savings and loan holding 

company; 

(4) A company that controls an 

insured depository institution; 

(5) A nonbank financial company 

supervised by the Board, and 

(6) A foreign bank or company that is 

treated as a bank holding company for 

purposes of the Bank Holding Company 

Act. 

(h) Foreign financial company means 

a financial company that is incorporated 

or organized in a country other than the 

United States. 

(i) Insured depository institution has 

the same meaning as in section 3(c)(2) 

of the Federal Deposit Insurance Act (12 

U.S.C. 1813(c)(2)). 

(j) Nonbank financial company 

supervised by the Board means any 

nonbank financial company that the 

Council has determined under section 

113 of the Dodd-Frank Act (12 U.S.C. 

5323) shall be supervised by the Board 

and for which such determination is 

still in effect. 

(k) State means any state, 

commonwealth, territory, or possession 

of the United States, the District of 

Columbia, the Commonwealth of Puerto 

Rico, the Commonwealth of the 

Northern Mariana Islands, American 

Samoa, Guam, or the United States 

Virgin Islands. 

(l) U.S. agency has the same meaning 

as the term ‘‘agency’’ in § 211.21(b) of 

the Board’s Regulation K (12 CFR 

211.21(b)). 

(m) Total regulatory capital has the 

same meaning as the term ‘‘total 

capital’’ as defined under the applicable 

risk-based capital rules. 

(n) Total risk-based capital ratio 

means the ‘‘total capital ratio’’ as 

calculated under the applicable riskbased capital rules. 

(o) Total risk-weighted assets means 

the measure of consolidated riskweighted assets that a financial 

company uses to calculate its risk-based 

capital ratios under the applicable riskbased capital rules. 

(p) U.S. branch has the same meaning 

as the term ‘‘branch’’ in § 211.21(e) of 

the Board’s Regulation K (12 CFR 

211.21(e)). 

(q) U.S. company means a company 

that is incorporated in or organized 

under the laws of the United States or 

any State. 

(r) U.S. financial company means a 

financial company that is a U.S. 

company. 

(s) U.S. subsidiary means any 

subsidiary, as defined in § 225.2(o) of 

Regulation Y (12 CFR 225.2(o)), that is 

a U.S. company. 

§ 251.3 Concentration limit. 

(a) In general. (1) Except as otherwise 

provided in § 251.4, a company may not 

consummate a covered acquisition if 

upon consummation of the transaction, 

the liabilities of the resulting company 

would exceed 10 percent of the 

financial sector liabilities, and the 

company is or would become a financial 

company. 

(2) Financial sector liabilities. (i) 

Subject to paragraph (a)(2)(ii) of this 

section, as of July 1 of a given year, 

financial sector liabilities are equal to 

the average of the year-end financial 

sector liabilities figure for the preceding 

two calendar years. The measure of 

financial sector liabilities will be in 

effect until June 30 of the following 

calendar year. 

(ii) For the period beginning July 1, 

2015, and ending June 30, 2016, 

financial sector liabilities are equal to 

the year-end financial sector liabilities 

figure as of December 31, 2014. 

(iii) The year-end financial sector 

liabilities figure equals the sum of the 

total consolidated liabilities of all toptier U.S. financial companies (as 

calculated under paragraph (b) of this 

section) and the U.S. liabilities of all 

top-tier foreign financial companies (as 

calculated under paragraph (c) of this 

section) as of December 31 of that year. 

(iv) On an annual basis and no later 

than July 1 of any calendar year, the 

Board will calculate and publish the 

financial sector liabilities for the 

preceding calendar year and the average 

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68106 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Rules and Regulations 

of the financial sector liabilities for the 

preceding two calendar years. 

(b) Calculating total consolidated 

liabilities. For purposes of paragraph (a) 

of this section: 

(1) Covered acquisition by a U.S. 

company. For a covered acquisition in 

which a U.S. company would acquire a 

U.S. company or a foreign company, 

liabilities of the resulting U.S. financial 

company equal the consolidated 

liabilities of the resulting U.S. financial 

company, calculated on a pro forma 

basis in accordance with paragraph (c) 

of this section. 

(2) Covered acquisition by a foreign 

company of another foreign company. 

For a covered acquisition in which a 

foreign company would acquire another 

foreign company, liabilities of the 

resulting foreign financial company 

equal the U.S. liabilities of the resulting 

financial company, calculated on a pro 

forma basis in accordance with 

paragraph (d) of this section. 

(3) Covered acquisition by a foreign 

company of a U.S. company. For a 

covered acquisition in which a foreign 

company would acquire a U.S. 

company, liabilities of the resulting 

foreign financial company equal the 

sum of: (i) The U.S. liabilities of the 

foreign company immediately preceding 

the transaction (calculated in 

accordance with paragraph (d) of this 

section) and (ii) the consolidated 

liabilities of the U.S. company 

immediately preceding the transaction 

(calculated in accordance with 

paragraph (c) of this section), reduced 

by the amount corresponding to any 

balances and transactions that would be 

eliminated in consolidation upon 

consummation of the transaction. 

(c) Liabilities of a U.S. company—(1) 

U.S. company subject to applicable riskbased capital rules. For a U.S. company 

subject to applicable-risk based capital 

rules, consolidated liabilities are equal 

to: 

(i) Total risk-weighted assets of the 

company; plus 

(ii) The amount of assets that are 

deducted from the company’s regulatory 

capital elements under the applicable 

risk-based capital rules, times a 

multiplier that is equal to the inverse of 

the company’s total risk-based capital 

ratio minus one; minus 

(iii) Total regulatory capital of the 

company. 

(2) U.S. company not subject to 

applicable risk-based capital rules. For 

a U.S. company that is not subject to 

applicable risk-based capital rules, 

consolidated liabilities are equal to the 

total liabilities of such company on a 

consolidated basis, as determined under 

applicable accounting standards. 

(d) Liabilities of a foreign company— 

(1) Foreign banking organization. For a 

foreign banking organization, U.S. 

liabilities are equal to: 

(i) The total consolidated assets of 

each U.S. branch or U.S. agency of the 

foreign banking organization, calculated 

in accordance with applicable 

accounting standards; plus 

(ii) The total consolidated liabilities of 

each top-tier U.S. subsidiary that is 

subject to applicable risk-based capital 

rules (or reports information to the 

Board regarding its capital under riskbased capital rules applicable to bank 

holding companies), calculated as: 

(A) Total consolidated risk-weighted 

assets of the subsidiary; plus 

(B) The amount of assets that are 

deducted from the subsidiary’s 

regulatory capital elements under the 

applicable risk-based capital rules, 

times a multiplier that is equal to the 

inverse of the subsidiary’s total riskbased capital ratio minus one; minus 

(C) Total consolidated regulatory 

capital of the subsidiary; plus 

(iii) The total consolidated assets of 

each top-tier U.S. subsidiary that is not 

subject to applicable risk-based capital 

rules and does not report information 

regarding its capital under risk-based 

capital rules applicable to bank holding 

companies, calculated in accordance 

with applicable accounting standards. 

(2) Foreign financial company that is 

not a foreign banking organization. For 

a foreign company that is not a foreign 

banking organization, U.S. liabilities are 

equal to: 

(i) The total consolidated liabilities of 

each top-tier U.S. subsidiary that is 

subject to applicable risk-based capital 

rules (or reports information to the 

Board regarding its capital under riskbased capital rules applicable to bank 

holding companies), calculated as: 

(A) Total consolidated risk-weighted 

assets of the subsidiary; plus 

(B) The amount of assets that are 

deducted from the subsidiary’s 

regulatory capital elements under the 

applicable risk-based capital rules, 

times a multiplier that is equal to the 

inverse of the company’s total riskbased capital ratio minus one; minus 

(C) Total regulatory capital of the 

subsidiary; plus 

(ii) The total consolidated liabilities of 

each top-tier U.S. subsidiary that is not 

subject to applicable risk-based capital 

rules, calculated in accordance with 

applicable accounting standards. 

(3) Intercompany balances and 

transactions—(i) Foreign banking 

organization. A foreign banking 

organization must reduce the amount of 

consolidated liabilities of its U.S. 

operations calculated pursuant to this 

paragraph (d) by amounts corresponding 

to intercompany balances and 

intercompany transactions between the 

foreign banking organization’s U.S. 

domiciled affiliates, branches or 

agencies to the extent such items are not 

eliminated in consolidation, and 

increase consolidated liabilities by net 

intercompany balances and 

intercompany transactions between a 

non-U.S. domiciled affiliate and a U.S. 

domiciled affiliate, branch, or agency of 

the foreign banking organization, to the 

extent such items are not reflected in 

the measure of liabilities. 

(ii) Foreign financial company. A 

foreign company that is not a foreign 

banking organization may reduce the 

amount of consolidated liabilities of its 

U.S. operations calculated pursuant to 

this paragraph (d) by amounts 

corresponding to intercompany balances 

and intercompany transactions between 

the foreign organization’s U.S. 

domiciled affiliates to the extent such 

items are not already eliminated in 

consolidation; provided that it increases 

consolidated liabilities by net 

intercompany balances and 

intercompany transactions between a 

non-U.S. domiciled affiliate and a U.S. 

domiciled affiliate, to the extent such 

items are not already reflected in the 

measure of liabilities. 

(e) Applicable accounting standard. If 

a company does not calculate its total 

consolidated assets or liabilities under 

GAAP for any regulatory purpose 

(including compliance with applicable 

securities laws), the company may 

submit a request to the Board that the 

company use an accounting standard or 

method of estimation other than GAAP 

to calculate its liabilities for purposes of 

this part. The Board may, in its 

discretion and subject to Board review 

and adjustment, permit the company to 

provide estimated total consolidated 

liabilities on an annual basis using this 

accounting standard or method of 

estimation. 

§ 251.4 Exceptions to the concentration 

limit. 

(a) General. With the prior written 

consent of the Board, the concentration 

limit under § 251.3 shall not apply to: 

(1) A covered acquisition of an 

insured depository institution that is in 

default or in danger of default (as 

determined by the appropriate Federal 

banking agency of the insured 

depository institution, in consultation 

with the Board); 

(2) A covered acquisition with respect 

to which assistance is provided by the 

Federal Deposit Insurance Corporation 

under section 13(c) of the Federal 

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Deposit Insurance Act (12 U.S.C. 

1823(c)); or 

(3) A covered acquisition that would 

result in an increase in the liabilities of 

the financial company that does not 

exceed $2 billion, when aggregated with 

all other acquisitions by the financial 

company made pursuant to this 

paragraph (a)(3) during the twelve 

months preceding the projected date of 

the acquisition. 

(b) Prior written consent—(1) General. 

Except as provided in paragraph (c) of 

this section, a financial company must 

request that the Board provide prior 

written consent before the financial 

company consummates a transaction 

described in paragraph (a) of this 

section. 

(2) Contents of request. (i) A request 

for prior written consent under 

paragraph (a) of this section must 

contain: 

(A) A description of the covered 

acquisition; 

(B) The projected increase in the 

company’s liabilities resulting from the 

acquisition; 

(C) If the request is made pursuant to 

paragraph (a)(3) of this section, the 

projected aggregate increase in the 

company’s liabilities from acquisitions 

during the twelve months preceding the 

projected date of the acquisition; and 

(D) Any additional information 

requested by the Board. 

(ii) A financial company may satisfy 

the requirements of this paragraph (b) if: 

(A) The proposed transaction 

otherwise requires approval by, or prior 

notice to, the Board under the Change 

in Bank Control Act, Bank Holding 

Company Act, Home Owners’ Loan Act, 

International Banking Act, or any other 

applicable statute, and any regulation 

thereunder; and 

(B) The financial company includes 

the information required in paragraph 

(b)(2) of this section in the notice or 

request for prior approval described in 

paragraph (b)(2)(ii)(A) of this section. 

(3) Procedures for providing written 

consent. (i) The Board will act on a 

request for prior written consent filed 

under this paragraph (b) within 90 

calendar days after the receipt of a 

complete request, unless that time 

period is extended by the Board. To the 

extent that a proposed transaction 

otherwise requires approval from, or 

prior notice to, the Board under another 

provision of law, the Board will act on 

that request for prior written consent 

concurrently with its action on the 

request for approval or notice. 

(ii) In acting on a request under this 

paragraph (b), the Board will consider 

whether the consummation of the 

covered acquisition could pose a threat 

to financial stability. 

(c) General consent. The Board grants 

prior written consent for a covered 

acquisition that would result in an 

increase in the liabilities of the financial 

company that does not exceed $100 

million, when aggregated with all other 

covered acquisitions by the financial 

company made pursuant to this 

paragraph (c) during the twelve months 

preceding the date of the acquisition. A 

financial company that relies on prior 

written consent pursuant to this 

paragraph (c) must provide a notice to 

the Board within 10 days after 

consummating the covered acquisition 

that describes the covered acquisition, 

the increase in the company’s liabilities 

resulting from the acquisition, and the 

aggregate increase in the company’s 

liabilities from covered acquisitions 

during the twelve months preceding the 

date of the acquisition. 

§ 251.5 No evasion. 

A financial company may not 

organize or operate its business or 

structure any acquisition of or merger or 

consolidation with another company in 

such a manner that results in evasion of 

the concentration limit established by 

section 14 of the Bank Holding 

Company Act or this part. 

§ 251.6 Reporting requirements. 

By March 31 of each year: 

(a) A U.S. financial company (other 

than a U.S. financial company that is 

required to file the Bank Consolidated 

Reports of Condition and Income (Call 

Report), the Consolidated Financial 

Statements for Holding Companies (FR 

Y–9C), the Parent Company Only 

Financial Statements for Small Holding 

Companies (FR Y–9SP), or the Parent 

Company Only Financial Statements for 

Large Holding Companies (FR Y–9LP), 

or is required to report consolidated 

total liabilities on the Quarterly Savings 

and Loan Holding Company Report (FR 

2320)) must report to the Board its 

consolidated liabilities as of the 

previous calendar year-end in the 

manner and form prescribed by the 

Board; and 

(b) A foreign financial company (other 

than a foreign financial company that is 

required to file a FR Y–7) must report 

to the Board its U.S. liabilities as of the 

previous calendar year-end in the 

manner and form prescribed by the 

Board. 

By order of the Board of Governors of the 

Federal Reserve System, November 4, 2014. 

Robert deV. Frierson, 

Secretary of the Board. 

[FR Doc. 2014–26747 Filed 11–13–14; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 25 

[Docket No. FAA–2014–0564; Special 

Conditions No. 25–XXX–SC] 

Special Conditions: Dassault Model 

Falcon 900EX Airplane; Electronic 

System-Security Protection From 

Unauthorized External Access 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final special conditions, request 

for comments. 

SUMMARY: These special conditions are 

issued for Dassault Model Falcon 900EX 

airplanes. These airplanes will have a 

novel or unusual design feature 

associated with electronic systemsecurity protection from unauthorized 

external access. The applicable 

airworthiness regulations do not contain 

adequate or appropriate safety standards 

for this design feature. These special 

conditions contain the additional safety 

standards that the Administrator 

considers necessary to establish a level 

of safety equivalent to that established 

by the existing airworthiness standards. 

DATES: Effective December 15, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Varun Khanna, FAA, Airplane and 

Flightcrew Interface Branch, ANM–111, 

Transport Airplane Directorate, Aircraft 

Certification Service, 1601 Lind Avenue 

SW., Renton, Washington, 98057–3356; 

telephone (425) 227–1298; facsimile 

(425) 227–1320. 

SUPPLEMENTARY INFORMATION: 

Background 

On March 20, 2013, Dassault Aircraft 

Services applied for a type certificate for 

their new Model 900EX airplane. 

The Dassault Falcon 900EX is a 

business jet with seating for up to 19 

passengers. Three Allied Signal TFE 

731–60–1C engines power the airplane, 

which has a maximum takeoff weight of 

49,000 pounds. 

Contemporary transport-category 

airplanes have both safety-related and 

non-safety-related electronic system 

networks for many operational 

functions. However, electronic systemnetwork-security considerations and 

functions have played a relatively minor 

role in the certification of such systems 

because of the isolation, protection 

mechanisms, and limited connectivity 

between the different networks. 

Comments Invited 

We invite interested people to take 

part in this rulemaking by sending 

mstockstill on DSK4VPTVN1PROD with RULES