[Federal Register: March 4, 2009 (Volume 74, Number 41)]
[Rules and Regulations]
[Page 9521-9525]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04mr09-11]
[[Page 9521]]
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Part III
Federal Deposit Insurance Corporation
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12 CFR Parts 327 and 370
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Federal Deposit Insurance Corporation Amended Restoration Plan;
Assessments; Modification of Temporary Liquidity Guarantee Program;
Notice, Interim Final Rule, and Final Rule
[[Page 9522]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 370
RIN 3064-AD37
Modification of Temporary Liquidity Guarantee Program
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Interim rule with request for comments.
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SUMMARY: The FDIC is issuing this Interim Rule to make a minor
modification to the Temporary Liquidity Guarantee Program (TLGP) to
include certain issuances of mandatory convertible debt (MCD) under the
TLGP debt guarantee program.
DATES: The Interim Rule becomes effective February 27, 2009. Comments
on the Interim Rule must be received by March 19, 2009.
ADDRESSES: You may submit comments on the Interim Rule, by any of the
following methods:
Agency Web Site: http://www.FDIC.gov/regulations/laws/
federal/notices.html. Follow instructions for submitting comments on
the Agency Web site.
E-mail: Comments@FDIC.gov. Include RIN 3064-AD37
on the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7 a.m. and 5 p.m.
Instructions: All comments received will be posted generally
without change to http://www.fdic.gov/regulations/laws/federal/
propose.html, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Munsell St. Clair, Chief, Bank and
Regulatory Policy Section, Division of Insurance and Research, (202)
898-8967 or mstclair@fdic.gov; Robert C. Fick, Counsel, Legal Division,
(202) 898-8962 or rfick@fdic.gov; A. Ann Johnson, Counsel, Legal
Division (202) 898-3573 or aajohnson@fdic.gov; Mark L. Handzlik,
Attorney, Legal Division, (202) 898-3990 or mhandzlik@fdic.gov; Gail
Patelunas, Deputy Director, Division of Resolutions and Receiverships,
(202) 898-6779 or gpatelunas@fdic.gov; (for questions or comments
related to MCD applications): Lisa D. Arquette, Associate Director,
Division of Supervision and Consumer Protection, (202) 898-8633 or
larquette@fdic.gov or Donna Saulnier, Manager, Assessment Policy
Section, Division of Finance, (703) 562-6167 or dsaulnier@fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Background
In October 2008 the FDIC adopted the TLGP as part of a coordinated
effort by the FDIC, the U.S. Department of the Treasury, and the Board
of Governors of the Federal Reserve System (Federal Reserve) to address
unprecedented disruptions in credit markets and the resultant effects
on the ability of financial institutions to fund themselves and to make
loans to creditworthy borrowers. The TLGP and other programs have had
favorable effects, but experience has indicated that further
improvements to the TLGP can be made. In this Interim Rule, the FDIC is
making a very narrow targeted improvement to the TLGP.
By extending its guarantee to certain new issues of mandatory
convertible debt, the FDIC will offer more flexibility for entities
currently participating in the debt guarantee program. Specifically,
the FDIC's guarantee of certain mandatory convertible debt will give
issuing entities more flexibility to obtain funding from investors that
may have a longer-term investment horizon. At the same time, including
certain mandatory convertible debt under the TLGP program will reduce
the amount of FDIC-guaranteed debt likely to require rollover in mid-
2012 by providing a built-in ``exit strategy'' of having the debt
convert to common stock rather than being rolled over.\1\
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\1\ This extension of the TLGP is supported by the rationale for
establishing the existing TLGP and is consistent with the
determination of systemic risk made on October 14, 2008, pursuant to
12 U.S.C. section 1823(c)(4)(G), by the Secretary of the Treasury
(after consultation with the President) following receipt of the
written recommendation dated October 13, 2008, of the FDIC's Board
of Directors (Board) and the similar written recommendation of the
Federal Reserve.
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II. The Interim Rule
Amendment To Allow FDIC Guarantees of Mandatory Convertible Debt
As currently written, the TLGP regulation, at Section 370.2(e)(5),
precludes an FDIC guarantee for any ``convertible debt.'' The FDIC has
decided to amend the regulation to allow eligible entities to apply to
have the FDIC guarantee newly issued senior unsecured debt with a
feature that mandates conversion of the debt into common shares of the
issuing entity at a specified date no later than the expiration date of
the FDIC's guarantee. No FDIC-guaranteed mandatory convertible debt may
be issued without the FDIC's prior written approval.
The intent of the mandatory convertible debt amendment to the TLGP
is to give eligible entities additional flexibility to obtain funding
from investors with longer-term investment horizons. Further, MCD
issuances could reduce the concentration of FDIC-guaranteed debt
maturing in mid-2012, which debt might otherwise have to be rolled into
new debt.
To be eligible for the FDIC's guarantee, MCD must meet the
definition of senior unsecured debt in Section 370.2(e) of the final
rule; must be newly issued on or after February 27, 2009; and must
provide in the debt instrument for the mandatory conversion of the debt
into common shares of the issuing entity on a specified date that is on
or before June 30, 2012 (unless the issuing entity fails to timely make
any payment required under the debt instrument, or merges or
consolidates with any other entity and is not the surviving or
resulting entity.) In addition, the proposed Interim Rule provides for
a number of disclosures relative to the MCD aspect of the TLGP.
This amendment will not result in a change to an eligible entity's
existing debt guarantee cap.
The Interim Rule requires a participating entity to file a written
application with the FDIC and its appropriate Federal banking agency,
and to obtain the FDIC's prior written approval, before issuing MCD.
Like other applications described in the TLGP, an eligible entity
that wishes to issue MCD must include the details of the request, a
summary of the applicant's strategic operating plan, and a description
of the proposed use of the debt proceeds. In addition, an application
to issue FDIC-guaranteed MCD must include the proposed date of
issuance, the amount of MCD to be issued, the mandatory conversion
date, and the conversion rate (as described in Section 370.3(h)).
Finally, since the issuance of debt that will convert into stock could
raise control issues, an applicant seeking to issue FDIC-guaranteed MCD
must provide confirmation that the applicant has submitted to its
appropriate Federal banking agency all applications and all notices
required under the Bank Holding Company Act of 1956, as amended, the
Home Owners' Loan Act, as amended, or the Change in Bank Control Act,
as amended in order to issue the debt.
The amount of the assessment fee for the FDIC's guarantee of MCD
will be
[[Page 9523]]
based on the time period from issuance of the MCD until its mandatory
conversion date.
III. Request for Comments
The FDIC invites comments on all aspects of the MCD feature of the
TLGP as described in the Interim Rule and seeks suggestions for its
implementation.
IV. Regulatory Analysis and Procedure
A. Administrative Procedure Act
The process of amending Part 370 by means of this Interim Rule is
governed by the Administrative Procedure Act (APA). Pursuant to Section
553(b)(B) of the APA, general notice and opportunity for public comment
are not required with respect to a rule making when an agency for good
cause finds that ``notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.''
Similarly, Section 553(d)(3) of the APA provides that the publication
of a rule shall be made not less than 30 days before its effective
date, except ``* * * (3) as otherwise provided by the agency for good
cause found and published with the rule.''
Consistent with Section 553(b)(B) of the APA, the FDIC finds that
good cause exists for a finding that general notice and opportunity for
public comment are impracticable and contrary to the public interest.
The TLGP was announced by the FDIC on October 14, 2008 as an initiative
to counter the system-wide crisis in the nation's financial sector, and
was preceded by a determination of systemic risk by the Secretary of
the Treasury after consultation with the President. The systemic risk
determination allowed the FDIC to take certain actions to avoid or
mitigate serious adverse effects on economic conditions and financial
stability. The purpose of the TLGP is to promote financial stability by
preserving confidence in the banking system and encouraging liquidity
in order to ease lending to creditworthy businesses and consumers,
favorably impacting both the availability and cost of credit. This
Interim Rule is a modification of the TLGP and permits the FDIC to
guarantee senior debt that converts into common stock. Immediate
issuance of this Interim Rule furthers the public interest by
addressing unprecedented disruption in credit markets. For these same
reasons, the FDIC finds good cause to publish this Interim Rule with an
immediate effective date. See 5 U.S.C. 553(d)(3).
Although general notice and opportunity for public comment are not
required prior to the effective date, the FDIC invites comments on all
aspects of the Interim Rule, which the FDIC may revise if necessary or
appropriate in light of the comments received.
B. Riegle Community Development and Regulatory Improvement Act
The Riegle Community Development and Regulatory Improvement Act
(RCDRIA) provides that any new regulations or amendments to regulations
prescribed by a Federal banking agency that impose additional
reporting, disclosures, or other new requirements on insured depository
institutions shall take effect on the first day of a calendar quarter
which begins on or after the date on which the regulations are
published in final form, unless the agency determines, for good cause
published with the rule, that the rule should become effective before
such time.\2\ For the same reasons discussed above, the FDIC finds that
good cause exists for an immediate effective date for the Interim Rule.
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\2\ 12 U.S.C. 4802.
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C. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has previously determined that
the Interim Rule is not a ``major rule'' within the meaning of the
relevant sections of the Small Business Regulatory Enforcement Act of
1996 (SBREFA), 5 U.S.C. 801 et seq. As required by SBREFA, the FDIC
will file the appropriate reports with Congress and the Government
Accountability Office so that the Interim Rule may be reviewed.
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (Pub. L. 96-354, Sept. 19, 1980)
(RFA) applies only to rules for which an agency publishes a general
notice of proposed rule making pursuant to 5 U.S.C. 553(b). As
discussed above, consistent with Section 553(b)(B) of the APA, the FDIC
has determined for good cause that general notice and opportunity for
public comment would be impracticable and contrary to the public
interest. Therefore, the RFA, pursuant to 5 U.S.C. 601(2), does not
apply.
E. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.), an agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a currently valid Office of Management and Budget (OMB)
control number. This Interim Rule establishes an application
requirement for institutions wishing to issue FDIC-guaranteed mandatory
convertible debt. This new collection of information would modify the
FDIC's existing collection of information entitled, ``Temporary
Liquidity Guarantee Program'' (OMB Control No. 3064-0166).
Specifically, sections 370.3(h)(1)(v) and 370.3(h)(2) contain the new
collection of information that was submitted to OMB under emergency
clearance procedures, with a request for clearance by February 27,
2009. The use of emergency clearance procedures is necessary because of
the sudden, unanticipated systemic risks posed to the nation's
financial system by recent economic conditions and because public harm
is reasonably likely to result if liquidity is not restored to
financial markets. This new collection of information is necessary for
implementation of the FDIC guarantee of mandatory convertible debt
under the Debt Guarantee component of the TLG program.
The proposed burden estimate for the application to issue FDIC-
guaranteed mandatory convertible debt is as follows:
Title: Temporary Liquidity Guarantee Program.
OMB Number: 3064-0166.
Frequency of Response: 5.
Estimated Number of Respondents: 25.
Average Time for Response: 1 hour.
Estimated Annual Burden: 125 hours
Previous Annual Burden: 2,201,500 hours
Total New Burden: 2,201,625 hours
If the FDIC obtains OMB approval of its emergency clearance
request, it will be followed by a request for clearance under normal
procedures in accordance with the provisions of OMB regulation 5 CFR
1320.10. In accordance with normal clearance procedures, public comment
will be invited for an initial 60-day comment period and a subsequent
30-day comment period on: (1) Whether this collection of information is
necessary for the proper performance of the FDIC's functions, including
whether the information has practical utility; (2) the accuracy of the
estimates of the burden of the information collection, including the
validity of the methodologies and assumptions used; (3) ways to enhance
the quality, utility, and clarity of the information to be collected;
and (4) ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and (5) estimates
of capital or start up costs, and
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costs of operation, maintenance and purchase of services to provide the
information. In the interim, interested parties are invited to submit
written comments by any of the following methods.
All comments should refer to the name and number of the collection:
http://www.FDIC.gov/regulations/laws/federal/propose.html.
E-mail: comments@fdic.gov. Include the name and number of
the collection in the subject line of the message.
Mail: Leneta Gregorie (202-898-3719), Counsel, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429.
Hand Delivery: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street), on business days between 7 a.m. and 5 p.m.
A copy of the comment may also be submitted to the OMB Desk Officer for
the FDIC, Office of Information and Regulatory Affairs, Office of
Management and Budget, New Executive Office Building, Room 3208,
Washington, DC 20503.
List of Subjects in 12 CFR Part 370
Banks, Banking, Bank deposit insurance, Holding companies, National
banks, Reporting and recordkeeping requirements, Savings associations.
0
For the reasons stated in the preamble, the Federal Deposit Insurance
Corporation amends part 370 of chapter III of Title 12 of the Code of
Federal Regulations to read as follows:
PART 370--TEMPORARY LIQUIDITY GUARANTEE PROGRAM
0
1. The authority citation for part 370 shall continue to read as
follows:
Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818,
1819(a)(Tenth), 1820(f), 1821(a), 1821(c), 1821(d), 1823(c)(4).
0
2. In part 370, amend Sec. 370.2 as follows:
0
a. Add a new paragraph (e)(1)(iii);
0
b. Revise the first sentence of paragraph (e)(3) and the first sentence
of paragraph (e)(5); and
0
c. Add new paragraph (m), as follows:
Sec. 370.2 Definitions.
* * * * *
(e) * * *
(1) * * *
(iii) After February 27, 2009, unsecured borrowing that satisfies
the criteria listed in paragraphs (e)(1)(i)(A) through (e)(1)(i)(D) of
this section, that has a stated maturity of more than 30 days, and that
includes, without limitation, mandatory convertible debt.
* * * * *
(3) Senior unsecured debt may include, for example, the following
debt, provided it meets the requirements of paragraph (e)(1) of this
section: mandatory convertible debt as described in paragraph (m) of
this section, federal funds purchased, promissory notes, commercial
paper, unsubordinated unsecured notes, including zero-coupon bonds,
U.S. dollar denominated certificates of deposit owed to an insured
depository institution, an insured credit union as defined in the
Federal Credit Union Act, or a foreign bank, U.S. dollar denominated
deposits in an international banking facility (IBF) of an insured
depository institution owed to an insured depository institution or a
foreign bank, and U.S. dollar denominated deposits on the books and
records of foreign branches of U.S. insured depository institutions
that are owed to an insured depository institution or a foreign bank. *
*
* * * * *
(5) Senior unsecured debt excludes, for example, any obligation
that has a stated maturity of ``one month'' \1\ obligations from
guarantees or other contingent liabilities, derivatives, derivative-
linked products, debts that are paired or bundled with other
securities, convertible debt other than mandatory convertible debt
described in paragraph (m) of this section, capital notes, the
unsecured portion of otherwise secured debt, negotiable certificates of
deposit, deposits denominated in a foreign currency or other foreign
deposits (except as allowed under paragraph (e)(3) of this section),
revolving credit agreements, structured notes, instruments that are
used for trade credit, retail debt securities, and any funds regardless
of form that are swept from individual, partnership, or corporate
accounts held at depository institutions.
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\1\ This recognizes that certain instruments have stated
maturities of ``one month,'' but have a term of up to 35 days
because of weekends, holidays, and calendar issues.
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* * *
* * * * *
(m) Mandatory convertible debt. The term ``mandatory convertible
debt'' means senior unsecured debt that is required by the terms of the
debt instrument to convert into common shares of the issuing entity on
a fixed and specified date, on or before June 30, 2012, unless the
issuing entity
(1) Fails to timely make any payment required under the debt
instrument, or
(2) Merges or consolidates with any other entity and is not the
surviving or resulting entity.
0
3. In part 370, amend Sec. 370.3 as follows:
0
a. Revise paragraph (b)(1) and (d);
0
b. In paragraph (h):
0
i. Revise the heading for paragraph (h)
0
ii. Add new paragraph (h)(1)(v),
0
iv. Revise paragraph (h)(2);
0
v. Revise the first sentence of paragraph (h)(3); and
0
vi. Add a new sentence at the end of paragraph (h)(4); as follows:
Sec. 370.3 Debt Guarantee Program.
* * * * *
(b) * * *
(1) Except as provided in paragraphs (b)(2) through (b)(6) of this
section, the maximum amount of outstanding debt that is guaranteed
under the debt guarantee program for each participating entity at any
time is limited to 125 percent of the par value of the participating
entity's senior unsecured debt, as that term is defined in Sec.
370.2(e)(1)(i) (excluding mandatory convertible debt), that was
outstanding as of the close of business September 30, 2008 and that was
scheduled to mature on or before June 30, 2009.
* * * * *
(d) Duration of Guarantee.
For guaranteed debt issued on or before June 30, 2009, the
guarantee expires on the earliest of the date of the entity's opt-out,
if any, the mandatory conversion date for mandatory convertible debt,
the maturity of the debt, or June 30, 2012.
* * * * *
(h) Applications for exceptions, eligibility, and issuance of
certain debt.
(1) * * *
(v) A request by a participating entity to issue FDIC-guaranteed
mandatory convertible debt.
(2) Each letter application must describe the details of the
request, provide a summary of the applicant's strategic operating plan,
describe the proposed use of the debt proceeds, and in the case of an
application for approval of the issuance of
(i) Mandatory convertible debt, must also include:
(A) the proposed date of issuance;
(B) the total amount of the mandatory convertible debt to be
issued;
(C) the mandatory conversion date,
(D) the conversion rate (i.e., the total number of shares of common
stock that will result from the conversion divided by the total dollar
amount of the mandatory convertible debt to be issued),
(E) confirmation that all applications and all notices required
under the Bank
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Holding Company Act of 1956, as amended, the Home Owners' Loan Act, as
amended, or the Change in Bank Control Act, as amended, have been
submitted to the applicant's appropriate Federal banking agency in
connection with the proposed issuance; and
(F) any other relevant information that the FDIC deems appropriate.
(3) The factors to be considered by the FDIC in evaluating
applications filed pursuant to paragraphs (h)(1)(i) through (h)(1)(iii)
and (h)(1)(v) of this section include: the financial condition and
supervisory history of the eligible/surviving entity. * * *
(4) * * * Applications made pursuant to paragraph (h)(1)(v) of this
section must be filed with the FDIC no later than June 30, 2009.
* * * * *
0
4. In part 370, amend Sec. 370.5 as follows:
0
a. At the end of paragraph (h)(2), remove the last italicized sentence
and add in its place two new sentences; and
0
b. Add new paragraph (j) as follows:
Sec. 370.5 Participation.
* * * * *
(h) * * *
(2) * * * [If the debt being issued is mandatory convertible debt,
add: The expiration date of the FDIC's guarantee is the earlier of the
mandatory conversion date or June 30, 2012]. [If the debt being issued
is any other senior unsecured debt, add: The expiration date of the
FDIC's guarantee is the earlier of the maturity date of the debt or
June 30, 2012.]
* * * * *
(j) No mandatory convertible debt may be issued without obtaining
the FDIC's prior written approval.
0
5. In part 370, amend Sec. 370.6 as follows:
0
a. Revise paragraphs (d)(1).
0
b. Revise the first sentence of (d)(3).
0
c. Revise (d)(5) as follows:
Sec. 370.6 Assessments under the Debt Guarantee Program.
* * * * *
(d) * * *
(1) Calculation of assessment. Except as provided in paragraph
(d)(3) of this section, the amount of assessment will be determined by
multiplying the amount of FDIC-guaranteed debt times the term of the
debt or, in the case of mandatory convertible debt, the time period
from issuance to the mandatory conversion date, times an annualized
assessment rate determined in accordance with the following table.
------------------------------------------------------------------------
The
annualized
For debt with a maturity or time period to conversion assessment
date of-- rate (in basis
points) is--
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180 days or less (excluding overnight debt)............. 50
181-364 days............................................ 75
365 days or greater..................................... 100
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* * * * *
(3) The amount of assessment for an eligible entity, other than an
insured depository institution, that controls, directly or indirectly,
or is otherwise affiliated with, at least one insured depository
institution will be determined by multiplying the amount of FDIC-
guaranteed debt times the term of the debt or, in the case of mandatory
convertible debt, the time period from issuance to the mandatory
conversion date, times an annualized assessment rate determined in
accordance with the rates set forth in the table in paragraph (d)(1) of
this section, except that each such rate shall be increased by 10 basis
points, if the combined assets of all insured depository institutions
affiliated with such entity constitute less than 50 percent of
consolidated holding company assets. * * *
* * * * *
(5) No assessment reduction for early retirement of guaranteed
debt. A participating entity's assessment shall not be reduced if
guaranteed debt is retired prior to its scheduled maturity date or
conversion date.
* * * * *
0
6. In part 370, amend Sec. 370.12 to add a new sentence immediately
after the first sentence in paragraph (b)(2); as follows:
Sec. 370.12 Payment on the guarantee.
* * * * *
(b) * * *
(2) * * * For purposes of mandatory convertible debt, principal
payment shall be limited to amounts paid by holders under the issuance.
* * *
* * * * *
[FR Doc. E9-4586 Filed 2-27-09; 4:15 pm]
BILLING CODE 6714-01-P