[Federal Register Volume 73, Number 188 (Friday, September 26, 2008)]
[Rules and Regulations]
[Pages 55708-55710]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22701]


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FEDERAL RESERVE SYSTEM

12 CFR Part 223

[Regulation W; Docket No. R-1331]


Transactions Between Member Banks and Their Affiliates: Exemption 
for Certain Purchases of Asset-Backed Commercial Paper by a Member Bank 
From an Affiliate

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule with request for public comment.

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SUMMARY: To reduce liquidity and other strains being experienced by 
money market mutual funds, the Federal Reserve System adopted on 
September 19, 2008, a special lending facility that enables depository 
institutions and bank holding companies to borrow from the Federal 
Reserve Bank of Boston on a non-recourse basis if they use the proceeds 
of the loan to purchase certain types of asset-backed commercial paper 
(ABCP) from money market mutual funds (ABCP Lending Facility). To 
facilitate use of the ABCP Lending Facility by member banks, the Board 
of Governors of the Federal Reserve System (Board) also has adopted, on 
an interim final basis, regulatory exemptions for member banks from 
certain provisions of sections 23A and 23B of the Federal Reserve Act 
and the Board's Regulation W. The exemptions would increase the 
capacity of a member bank to purchase ABCP from affiliated money market 
mutual funds in connection with the ABCP Lending Facility.

DATES: The exemption became effective on September 19, 2008. Comments 
must be received on or before October 31, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1331, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov Follow the 
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Street, NW) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Mark E. Van Der Weide, Assistant 
General Counsel, (202) 452-2263, or Andrea R. Tokheim, Counsel, (202) 
452-2300, Legal Division; or Norah M. Barger, Deputy Director, (202) 
452-2402, Division of Banking Supervision and Regulation. For the 
hearing impaired only, Telecommunication Device for the Deaf (TDD), 
(202) 263-4869.

SUPPLEMENTARY INFORMATION: In light of the ongoing dislocations in the 
financial markets, and the impact of such dislocations on the 
functioning of the ABCP markets and on the operations of money market 
mutual funds, the Board adopted the ABCP Lending Facility on September 
19, 2008. Under the facility, depository institutions and bank holding 
companies (banking organizations) are able to borrow from the Federal 
Reserve Bank of Boston on a non-recourse basis on condition that the 
organizations use the proceeds of the Federal Reserve credit to 
purchase, at amortized cost, certain highly rated U.S. dollar-
denominated ABCP from money market mutual funds. The ABCP purchased 
must be used to secure the borrowing from the Reserve Bank. The purpose 
of the ABCP Lending Facility is to assist money market mutual funds to 
obtain liquidity by enabling them to sell some of their high-credit-
quality secured assets at amortized cost. The

[[Page 55709]]

ABCP Lending Facility will expire on January 30, 2009 (unless extended 
by the Board).
    To facilitate usage of the ABCP Lending Facility, the Board has 
adopted on an interim basis exemptions from sections 23A and 23B of the 
Federal Reserve Act (12 U.S.C. 371c, 371c-1) and the Board's Regulation 
W (12 CFR part 223). The exemptions increase the capacity of a member 
bank to purchase ABCP from an affiliated money market mutual fund in 
connection with the ABCP Lending Facility. In addition, a member bank 
may use the exemptions 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 these exemptions. If 
the Board believes, after such consultation, that use of the exemptions 
would not be appropriate for the member bank, the Board may withdraw 
the exemptions for the bank or may impose supplemental conditions on 
the bank's use of the exemptions.
    The Board has determined that these exemptions are in the public 
interest and consistent with the purposes of sections 23A and 23B. The 
substantial protections provided to intermediaries by the Federal 
Reserve in connection with the ABCP Lending Facility largely mitigate 
the safety-and-soundness concerns that sections 23A and 23B were 
designed to address. Because Federal Reserve extensions of credit to a 
member bank under the ABCP Lending Facility are on a non-recourse 
basis, the bank should bear no risk of loss from purchases of ABCP 
under the facility. Therefore, the Board believes that it is 
appropriate to exempt a member bank that serves as an intermediary in 
the ABCP Lending Facility from the requirements of sections 23A and 23B 
and Regulation W.
    Consistent with its purpose to mitigate temporary stresses faced by 
money market mutual funds, the interim final rule will expire on 
January 30, 2009, unless extended by the Board.

Administrative Procedure Act

    Pursuant to sections 553(b) and (d) of the Administrative Procedure 
Act (5 U.S.C. 553(b) and (d)), the Board finds that there is good cause 
for making the rule effective immediately on September 19, 2008, and 
that it is impracticable, unnecessary, or contrary to the public 
interest to issue a notice of proposed rulemaking and provide an 
opportunity to comment before the effective date. The Board has adopted 
the rule in light of, and to help address, the continuing unusual and 
exigent circumstances in the financial markets. The rule will provide 
immediate relief to depository institutions that elect to participate 
in the ABCP Lending Facility. The Board is soliciting comment on all 
aspects of the rule and will make any changes that it considers 
appropriate or necessary after review of any comments received.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
5 U.S.C. 605(b).
    Pursuant to section 605(b), the Board certifies that this interim 
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 exemptions from 
the Federal transactions with affiliates regime for insured depository 
institutions that purchase ABCP from affiliated money market mutual 
funds pursuant to the ABCP Lending Facility.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR Part 1320 Appendix A.1), the Board has reviewed the interim 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 interim final rule in 
a simple and straightforward manner. The Board invites comment on 
whether it could take additional steps to make the rule easier to 
understand.

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, the Board amends Chapter II 
of Title 12 of the Code of Federal Regulations 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, add paragraph (o) to read as follows:


Sec.  223.42  What covered transactions are exempt from the 
quantitative limits, collateral requirements, and low-quality asset 
prohibition?

* * * * *
    (o) Purchases of certain asset-backed commercial paper. Purchases 
of asset-backed commercial paper from an affiliated SEC-registered 
open-end investment company that holds itself out as a money market 
mutual fund under SEC Rule 2a-7 (17 CFR 270.2a-7), if the member bank:
    (1) Purchases the asset-backed commercial paper between September 
19, 2008, and January 30, 2009 (unless extended by the Board), pursuant 
to the asset-backed commercial paper lending facility established by 
the Board on September 19, 2008; and
    (2) 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.

0
3. Add a new Sec.  223.56 to subpart F to read as follows:


Sec.  223.56  What transactions are exempt from the market-terms 
requirement of section 23B?

    The following transactions are exempt from the market-terms 
requirement of Sec.  223.51.
    (a) Purchases of certain asset-backed commercial paper. Purchases 
of asset-backed commercial paper from an affiliated SEC-registered 
open-end investment company that holds itself out as a money market 
mutual fund under SEC Rule 2a-7 (17 CFR 270.2a-7), if the member bank:
    (1) Purchases the asset-backed commercial paper between September 
19, 2008, and January 30, 2009 (unless extended by the Board), pursuant 
to the asset-backed commercial paper lending facility established by 
the Board on September 19, 2008; and
    (2) 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.
    (b) [Reserved]


[[Page 55710]]


    By order of the Board of Governors of the Federal Reserve 
System, September 19, 2008.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E8-22701 Filed 9-25-08; 8:45 am]
BILLING CODE 6210-01-P