[Federal Register: February 6, 2009 (Volume 74, Number 24)]
[Rules and Regulations]
[Page 6225-6226]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06fe09-2]
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FEDERAL RESERVE SYSTEM
12 CFR Part 223
[Regulation W; Docket No. R-1330]
Transactions Between Member Banks and Their Affiliates: Exemption
for Certain Securities Financing Transactions Between a Member Bank and
an Affiliate
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: In light of the continuing unusual and exigent circumstances
in the financial markets, the Board has adopted a regulatory exemption
for member banks from certain provisions of section 23A of the Federal
Reserve Act and the Board's Regulation W. The exemption increases the
capacity of member banks, subject to certain conditions designed to
help ensure the safety and soundness of the banks, to enter into
securities financing transactions with affiliates.
DATES: Effective January 30, 2009.
FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Assistant
General Counsel, (202) 452-2263 or Andrea R. Tokheim, (202) 452-2300,
Legal Division, or Norah M. Barger, Deputy Director, (202) 452-2402,
Division of Banking Supervision and Regulation, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551. For the deaf, hard of hearing, and speech
impaired only, teletypewriter (TTY), (202) 263-4869.
SUPPLEMENTARY INFORMATION:
In light of the ongoing dislocations in the financial markets, and
the potential impact of such dislocations on the functioning of the
U.S. tri-party repurchase agreement market, the Board adopted on
September 14, 2008, on an interim basis with request for public
comment, the following exemption from section 23A of the Federal
Reserve Act (12 U.S.C. 371c) and the Board's Regulation W (12 CFR part
223). The exemption is meant to facilitate the ability of an affiliate
of a member bank (such as an SEC-registered broker-dealer) to obtain
financing, if needed, for securities or other assets that the affiliate
ordinarily would have financed through the U.S. tri-party repurchase
agreement market.
The exemption is subject to several conditions designed to protect
the safety and soundness of the member bank. First, the member bank may
use the exemption to finance only those asset types that the affiliate
financed in the U.S. tri-party repurchase agreement market during the
week of September 8-12, 2008.
Second, the transactions must be marked to market daily and subject
to daily margin maintenance requirements, and the member bank must be
at least as over-collateralized in its securities financing
transactions with the affiliate as the affiliate's clearing bank was in
its U.S. tri-party repurchase agreement transactions with the affiliate
on September 12, 2008. The Board expects the member bank and its
affiliate to use standard industry documentation for the exempt
securities financing transactions (which would, among other things,
qualify the transactions as securities contracts or repurchase
agreements for purposes of U.S. bankruptcy law).
Third, to ensure that member banks use the exemption in a manner
consistent with its purpose--that is, to help provide liquidity to the
U.S. tri-party repurchase agreement market--the aggregate risk profile
of the exempt securities financing transactions must be no greater than
the aggregate risk profile of the affiliate's U.S. tri-party repurchase
agreement transactions on September 12, 2008. The exemption, therefore,
permits an affiliate to obtain financing from its affiliated member
bank for securities positions that the affiliate did not own or finance
in the U.S. tri-party repurchase agreement market on September 12,
2008, but only if the new positions in the aggregate do not increase
the overall risk profile of the affiliate's portfolio.
Fourth, the member bank's top-tier holding company must guarantee
the obligations of the affiliate under the securities financing
transactions (or must provide other security to the bank that is
acceptable to the Board). Any member bank that intends to use a form of
credit enhancement other than a parent company guarantee must consult
in advance with Board staff. An example of the type of other security
arrangement that may be acceptable to the Board would be a pledge by
the affiliate or parent holding company to the member bank of a
sufficient amount of additional liquid, high-quality collateral.
Fifth, a member bank may use the exemption only if the bank has not
been specifically informed by the Board, after consultation with the
bank's appropriate Federal banking agency, that the bank may not use
this exemption. If the Board believes, after such consultation, that
the exempt securities financing transactions pose an unacceptable level
of risk to the bank, the Board may withdraw the exemption for the bank
or may impose supplemental conditions on the bank's use of the
exemption.
After considering the comments, the Board has adopted a final rule
that is identical to the interim final rule, except that the expiration
date has been extended. Consistent with its purpose to ameliorate
potential temporary dislocations in the U.S. tri-party repurchase
agreement market, the interim final rule provided that the exemption
would expire on January 30, 2009, unless extended by the Board. Because
of ongoing dislocation in the U.S. tri-party repurchase agreement
market, the Board has extended the expiration date of this exemption to
October 30, 2009.
The Board notes that any securities financing transactions between
the member bank and an affiliate are subject to the market terms
requirement of section 23B of the Federal Reserve Act (12 U.S.C. 371c-
1). Section 23B requires that financial transactions between a bank and
its affiliate be on terms and under circumstances (including credit
standards) that are substantially the same, or at least as favorable to
the bank, as those prevailing at the time for comparable transactions
with or involving nonaffiliates. Among other things, section 23B would
require the member bank to apply collateral haircuts to its affiliated
securities financing transaction counterparty that are at least as
strict as the bank would apply to comparable unaffiliated securities
financing transaction counterparties.
Administrative Procedure Act
Pursuant to sections 553 (d) of the Administrative Procedure Act (5
U.S.C. 553(d)), the Board finds that there is good cause for making the
rule effective immediately on January 30, 2009. The Board has adopted
the rule in light of, and to help address, the continuing unusual and
exigent circumstances in the financial markets. The rule will provide
immediate relief to participants in the U.S. tri-party repurchase
agreement market.
Regulatory Flexibility Act
The Regulatory Flexibility Act requires an agency that is issuing a
final rule to prepare and make available a regulatory flexibility
analysis that describes the impact of the final rule on small entities.
5 U.S.C. 603(a). The
[[Page 6226]]
Regulatory Flexibility Act provides that an agency is not required to
prepare and publish a regulatory flexibility analysis if the agency
certifies that the final rule will not have a significant economic
impact on a substantial number of small entities. 5 U.S.C. 605(b).
Pursuant to section 605(b), the Board certifies that this final
rule will not have a significant economic impact on a substantial
number of small entities. The rule reduces regulatory burden on large
and small insured depository institutions by granting an exemption from
the Federal transactions with affiliates regime for insured depository
institutions that engage in securities financing transactions with
affiliates.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5
CFR 1320 Appendix A.1), the Board has reviewed the final rule under
authority delegated to the Board by the Office of Management and
Budget. The rule contains no collections of information pursuant to the
Paperwork Reduction Act.
Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Board to use
``plain language'' in all proposed and final rules. In light of this
requirement, the Board has sought to present the final rule in a simple
and straightforward manner. The Board invited comment on whether the
Board could take additional steps to make the rule easier to
understand. The Board received no comments on this subject.
List of Subjects in 12 CFR Part 223
Banks, Banking, Federal Reserve System.
Authority and Issuance
0
For the reasons set forth in the preamble, Chapter II of Title 12 of
the Code of Federal Regulations is amended as follows:
PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES
(REGULATION W)
0
1. The authority citation for part 223 continues to read as follows:
Authority: 12 U.S.C. 371c and 371c-1.
0
2. In Sec. 223.42, revise paragraph (n) to read as follows:
Sec. 223.42 What covered transactions are exempt from the
quantitative limits, collateral requirements, and low-quality asset
prohibition?
* * * * *
(n) Securities financing transactions. (1) From September 15, 2008,
until October 30, 2009 (unless further extended by the Board),
securities financing transactions with an affiliate, if:
(i) The security or other asset financed by the member bank in the
transaction is of a type that the affiliate financed in the U.S. tri-
party repurchase agreement market at any time during the week of
September 8-12, 2008;
(ii) The transaction is marked to market daily and subject to daily
margin-maintenance requirements, and the member bank is at least as
over-collateralized in the transaction as the affiliate's clearing bank
was over-collateralized in comparable transactions with the affiliate
in the U.S. tri-party repurchase agreement market on September 12,
2008;
(iii) The aggregate risk profile of the securities financing
transactions under this exemption is no greater than the aggregate risk
profile of the securities financing transactions of the affiliate in
the U.S. tri-party repurchase agreement market on September 12, 2008;
(iv) The member bank's top-tier holding company guarantees the
obligations of the affiliate under the securities financing
transactions (or provides other security to the bank that is acceptable
to the Board); and
(v) The member bank has not been specifically informed by the
Board, after consultation with the member bank's appropriate Federal
banking agency, that the member bank may not use this exemption.
(2) For purposes of this exemption:
(i) Securities financing transaction means:
(A) A purchase by a member bank from an affiliate of a security or
other asset, subject to an agreement by the affiliate to repurchase the
asset from the member bank;
(B) A borrowing of a security by a member bank from an affiliate on
a collateralized basis; or
(C) A secured extension of credit by a member bank to an affiliate.
(ii) U.S. tri-party repurchase agreement market means the U.S.
market for securities financing transactions in which the
counterparties use custodial arrangements provided by JPMorgan Chase
Bank or Bank of New York or another financial institution approved by
the Board.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, January 30, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-2337 Filed 2-5-09; 8:45 am]
BILLING CODE 6210-01-P