[Federal Register Volume 77, Number 120 (Thursday, June 21, 2012)]
[Rules and Regulations]
[Pages 37265-37283]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-15004]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 77, No. 120 / Thursday, June 21, 2012 / Rules
and Regulations
[[Page 37265]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 32, 159 and 160
[Docket ID OCC-2012-0007]
RIN 1557-AD59
Lending Limits
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Interim final rule and request for comments.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
amending its regulation governing lending limits for national banks to
consolidate the lending limit rules applicable to national banks and
savings associations and remove its separate regulation governing
lending limits for savings associations. The OCC also is amending its
rules to implement section 610 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, which amends the statutory definition of
``loans and extensions of credit'' to include credit exposures arising
from derivative transactions, repurchase agreements, reverse repurchase
agreements, securities lending transactions and securities borrowing
transactions. Pursuant to the OCC's authority in section 5200(d) of the
Revised Statutes, the OCC is amending the lending limit rules to
provide a temporary exception for the transactions covered by section
610 until January 1, 2013, in order to allow institutions a sufficient
period to make adjustments to assure compliance with the new
requirements.
DATES: This interim final rule is effective on July 21, 2012, except
that amendatory instruction 3a amending Sec. 32.2 is effective January
1, 2013. Comments must be received by August 6, 2012.
ADDRESSES: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
the Federal eRulemaking Portal or email, if possible. Please use the
title ``Lending Limits'' to facilitate the organization and
distribution of the comments. You may submit comments by any of the
following methods:
Federal eRulemaking Portal--``regulations.gov'': Go to
http://www.regulations.gov. Click ``Advanced Search''. Select
``Document Type'' of ``Interim Final Rule'', and in ``By Keyword or
ID'' box, enter Docket ID ``OCC-2012-0007'', and click ``Search''. If
rules for more than one agency are listed, in the ``Agency'' column,
locate the interim final rule for the OCC. Comments can be filtered by
Agency using the filtering tools on the left side of the screen. In the
``Actions'' column, click on ``Submit a Comment'' or ``Open Docket
Folder'' to submit or view public comments and to view supporting and
related materials for this rulemaking action.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting or viewing public comments, viewing other supporting and
related materials, and viewing the docket after the close of the
comment period.
Email: regs.comments@occ. treas.gov.
Mail: Office of the Comptroller of the Currency, 250 E
Street SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2012-0007'' in your comment. In general, OCC will enter
all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this interim final rule by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov. Click ``Advanced Search''. Select ``Document
Type'' of ``Public Submission'', and in ``By Keyword or ID'' box enter
Docket ID ``OCC-2012-0007'', and click ``Search''. If comments from
more than one agency are listed, the ``Agency'' column will indicate
which comments were received by the OCC. Comments can be filtered by
Agency using the filtering tools on the left side of the screen.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
FOR FURTHER INFORMATION CONTACT: Jonathan Fink, Assistant Director,
Bank Activities and Structure Division, (202) 874-5300; Heidi M.
Thomas, Special Counsel, Legislative and Regulatory Activities
Division, (202) 874-5090; or Kurt Wilhelm, Director for Financial
Markets, (202) 874-4479.
SUPPLEMENTARY INFORMATION:
I. Background
Section 5200 of the Revised Statutes, 12 U.S.C. 84, provides that
the total loans and extensions of credit by a national bank to a person
outstanding at one time shall not exceed 15 percent of the unimpaired
capital and unimpaired surplus of the bank if the loan is not fully
secured, plus an additional 10 percent of unimpaired capital and
unimpaired surplus if the loan is fully secured. Section 5(u)(1) of the
Home Owners' Loan Act (HOLA), 12 U.S.C. 1464(u)(1), provides that
section 5200 of the Revised Statutes ``shall apply to savings
associations in the same manner and to the same extent as it applies to
[[Page 37266]]
national banks.'' In addition, section 5(u)(2) of HOLA, 12 U.S.C.
1464(u)(2), includes exceptions to the lending limits for certain loans
made by savings associations. These HOLA provisions apply to both
Federal and state-chartered savings associations.
OCC regulations at 12 CFR parts 32 and 160.93 implement these
statutes for national banks and state and Federal savings
associations,\1\ respectively. Section 160.93 specifically applies 12
U.S.C. 84 and the lending limit regulations and interpretations
promulgated by the OCC for national banks to Federal and state savings
associations. Section 160.93 also implements specific statutory lending
limit exceptions unique to Federal and state savings associations.
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\1\ The OCC has rulemaking authority for lending limit
regulations applicable to national banks and to all savings
associations, both state- and Federally-chartered. However, the
FDIC, not the OCC, is the appropriate Federal banking agency for
state savings associations and enforces these rules as to state
savings associations.
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Section 610 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010) (Dodd-Frank
Act), amends section 5200 of the Revised Statutes \2\ to provide that
the definition of ``loans and extensions of credit'' includes any
credit exposure to a person arising from a derivative transaction,
repurchase agreement, reverse repurchase agreement, securities lending
transaction, or securities borrowing transaction between a national
bank and that person. This amendment is effective July 21, 2012. By
virtue of section 5(u)(1) of the HOLA, this new definition of ``loans
and extensions of credit'' applies to all savings associations as well
as to national banks.
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\2\ 12 U.S.C. 84.
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II. Description of the Interim Final Rule
A. Integration of Savings Associations
This interim final rule amends part 32 to consolidate the lending
limit rules applicable to national banks and savings associations.
Specifically, the interim final rule amends the authority section,
Sec. 32.1(a), to include relevant statutory citations for savings
associations; amends the scope section, Sec. 32.1(c), to include
savings associations; inserts the term ``savings association''
elsewhere throughout the rule where necessary; and replaces ``OCC'' or
``Comptroller'' with ``appropriate Federal banking agency,'' as
appropriate. The rule defines ``appropriate Federal banking agency'' as
having the same meaning as in 12 U.S.C. 1813(q). For purposes of part
32, therefore, ``appropriate Federal banking agency'' means the OCC in
the case of a national bank or Federal savings association, and the
Federal Deposit Insurance Corporation (FDIC) in the case of a state
savings association. The OCC also is removing 12 CFR 160.93 as no
longer necessary in light of this consolidation. These changes will
eliminate duplication and create efficiencies by establishing a single
set of lending limit rules for national banks and savings associations,
without substantially changing the requirements.
Certain statutory provisions apply only to savings associations,
and the interim final rule amends part 32 by adding Sec. 32.3(d) to
account for these statutory exceptions, which are included in current
Sec. 160.93. First, 12 U.S.C. 1464(u)(2)(A)(i) permits a savings
association to make loans to one borrower in an amount not to exceed
$500,000, even if its limit as calculated under section 84 would be
lower. Second, 12 U.S.C. 1464(u)(2)(A)(ii) prescribes a specific
lending limit to develop domestic residential housing units provided
certain conditions are met. This latter exception as included in the
interim final rule differs from the provision in Sec. 160.93 in that
it incorporates a change made by section 404 of the Financial Services
Regulatory Relief Act of 2006, which removed from 12 U.S.C.
1464(u)(2)(A)(ii) the requirement that the final purchase price of each
single family dwelling unit not exceed $500,000.
To complement the inclusion of these exception, the interim final
rule adds an appendix to part 32 that is substantively identical to the
current appendix to Sec. 160.93 and that provides further
interpretation of the domestic residential housing unit development
exception. The interim final rule also adds to Sec. 32.2 the
definition of ``residential housing units,'' a term used in this
exception and included in Sec. 160.93(b).
In addition, the interim final rule carries over in new Sec.
32.3(d)(3) the provision now contained in Sec. 160.93(d)(5),\3\ which
provides that notwithstanding the lending limit, a Federal savings
association may invest up to 10 percent of unimpaired capital and
unimpaired surplus in obligations of one issuer evidenced by commercial
paper or corporate debt securities that are, as of the date of
purchase, investment grade.\4\
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\3\ As part of the integration of bank and savings association
rules, the OCC is considering whether to revise part 1 to include
savings associations, in which case we will move this provision for
savings associations from part 32 to part 1.
\4\ The OCC recently revised Sec. 160.93 in its rulemaking to
implement section 939A of the Dodd-Frank Act by adopting
alternatives to the use of external credit ratings. See 77 FR 35253
(June 13, 2012).
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The interim final rule also deletes the current provision at Sec.
160.93(h), which states that the OCC may impose more stringent
restrictions on a Federal savings association's loans to one borrower
if the agency determines that such restrictions are necessary to
protect the safety and soundness of the savings association, since this
provision simply repeats section 5(u)(3) of HOLA, 12 U.S.C. 1464(u)(3).
The OCC also has authority to take action to prevent any type of unsafe
or unsound lending practice by a savings association (or a national
bank) on a case-by-case basis, and the OCC's broad authority under 12
U.S.C. 84(d)(1) to establish lending limits applicable to particular
categories or classes of loans or extensions of credit broadly
authorizes adjustments to the lending limits across types of loans and
types of institutions. Furthermore, Sec. 32.1(c)(4), as revised,
provides that loans and extensions of credit made by national banks,
savings associations, and their domestic operating subsidiaries must be
consistent with safe and sound banking practices.
The treatment of financed sales of bank assets in part 32, Sec.
32.2(k)(2)(iii), and the provision now contained in the savings
association rule, Sec. 160.93(e), addressing the financed sale of real
property acquired in satisfaction of debts previously contracted (DPC
property) are comparable. Specifically, current Sec. 32.2(k)(2)(iii)
provides that the financed sale of bank assets is not treated as a loan
for purposes of the lending limit if the financing does not place the
bank in a worse position than when the bank held title to the assets.
Section 160.93(e) applies the same treatment to the financed sale of
DPC property. The final rule incorporates savings associations into the
part 32 provision, renumbered as Sec. 32.2(q)(2)(iii) by this interim
final rule. While the scope of the national bank rule is somewhat
broader, covering the financed sale of all bank assets and not just DPC
property, the financed sale of other bank assets, subject to the
existing requirement that the sale not place the bank in a worse
position, is consistent with safety and soundness considerations. OCC
supervisory experience does not indicate that exempting the financed
sale of all bank assets from the general lending limit, where the sale
does not place the bank in a worse position, has been a problem at
national banks, and therefore the interim final rule applies such
treatment to the financed sale of a savings
[[Page 37267]]
association's assets. Accordingly, under the interim final rule,
financed sales of a savings association's own assets, including Other
Real Estate Owned, do not constitute loans or extensions of credit if
the financing does not put the institution in a worse position than
when it held title to the assets. Financed sales that put the savings
association in a worse position than when it held title to the assets
are subject to the general combined limit set forth in Sec. 32.3(a).
This treatment is consistent with Sec. 160.93(e).
The interim final rule also revises the scope provision in part 32.
Current Sec. 32.1(c) excludes loans made to affiliates, operating
subsidiaries, or Edge Act or Agreement Corporation subsidiaries. The
amendment incorporates the exclusion in Sec. 160.93(a) of loans to
certain savings association service corporations. It also broadens in
some respects the exclusion for loans to certain subsidiaries of
national banks. As amended, the exclusion also will apply to loans to
any subsidiary consolidated with the bank under Generally Accepted
Accounting Principles (GAAP).
Question 1: Has the OCC appropriately addressed the applicability
of the lending limit to loans made to subsidiaries with respect to the
amendments made to the scope section?
Under the interim final rule, savings associations are required to
calculate their lending limits in accordance with the rules set forth
in Sec. 32.4. Although stated differently in Sec. 160.93(f), the
calculation rule for a national banks and savings associations lending
limit produces the same result. Section 32.4 provides that a national
bank shall calculate its lending limit as of (1) the most recent of the
last day of the preceding calendar quarter (effective as of the earlier
of the date on which the bank's Consolidated Reports of Condition and
Income (Call Report) is submitted or the date it is required to be
submitted) or (2) the date on which there is a change in the bank's
capital category (effective when the lending limit is to be
calculated.) The OCC may require more frequent calculations for safety
and soundness reasons. The current rule for savings associations, set
forth at Sec. 160.93(f), provides for the savings association to
calculate its lending limit as of the most recent periodic report
required to be filed prior to the date of the loan unless the savings
association knows or has reason to know of a significant change
subsequent to filing the report. Under Sec. 160.93(f), the most recent
periodic report is the savings association's Call Report, which is
filed, as with national banks, for each calendar quarter. A
``significant change'' would include a change in the savings
association's capital category. Therefore, there is no substantive
difference in how a savings association will calculate its lending
limit under the interim final rule.
Part 32 and Sec. 160.93 differ in certain respects and there are
some differences that are not being incorporated into part 32. First,
the scope of part 32 is narrower than that of Sec. 160.93. Part 32
applies the lending limit restrictions to loans and extensions of
credit made by national banks and their domestic operating
subsidiaries. The lending limit restrictions in current Sec. 160.93
apply to loans made by savings associations and all their subsidiaries.
Question 2: Has the OCC appropriately addressed the applicability
of the lending limit to loans made by subsidiaries of savings
associations by narrowing the scope of the rule to domestic operating
subsidiaries?
Second, Sec. 160.93(f) requires savings associations to document
their lending limit compliance if the loan is greater than $500,000 or
5 percent of unimpaired capital and unimpaired surplus. The interim
final rule does not include this unique documentation requirement in
part 32. Consistent with safe and sound banking practices, institutions
should always maintain documentation showing compliance with the
lending limit.
The interim final rule also makes a clarifying change to Sec.
32.7, Residential real estate loans, small business loans, and small
farm loans, by amending the title of this section to reference the
``Supplemental Lending Limits Program,'' and by replacing the phrase
``special lending limits'' with ``supplemental lending limits''
throughout the section. This conforms Sec. 32.7 to the terminology
currently used by the OCC.
B. Section 610 of the Dodd-Frank Act
The interim final rule amends part 32 to implement section 610 of
the Dodd-Frank Act. Section 610 amends section 5200(b) of the Revised
Statutes \5\ to provide that the definition of ``loans and extensions
of credit'' includes any credit exposure to a person arising from a
derivative transaction, repurchase agreement, reverse repurchase
agreement, securities lending transaction, or securities borrowing
transaction between a national bank and the person. Section 610 also
amends section 5200(b) by adding a definition of ``derivative
transaction'' to include any transaction that is a contract, agreement,
swap, warrant, note, or option that is based, in whole or in part, on
the value of, any interest in, or any quantitative measure or the
occurrence of any event relating to, one or more commodities,
securities, currencies, interest or other rates, indices, or other
assets. These amendments are effective July 21, 2012, two years after
enactment of the Dodd-Frank Act.
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\5\ 12 U.S.C. 84(b).
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Section 610 adds to the scope and complexity of the lending limits.
To implement these new requirements, the interim final rule amends the
definition of ``loans and extensions of credit'' in Sec. 32.2, to
include certain credit exposure arising from a derivative transaction
or a securities financing transaction. A securities financing
transaction is defined as a repurchase agreement, reverse repurchase
agreement, securities lending transaction, or securities borrowing
transaction. The interim final rule also removes current Sec.
32.2(k)(1)(iii), which excludes repurchase agreements for Type I
securities from the definition of loan or extension of credit. Instead,
it adds a provision, set forth at Sec. 32.3(c)(11) and explained
below, that exempts credit exposure arising from securities financing
transactions involving Type I securities for all securities financing
transactions.\6\
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\6\ We note, however, that the deletion of current Sec.
32.2(k)(1)(iii), renumbered as Sec. 32.2(q)(1)(vii) in the interim
final rule, is effective as of January 1, 2013, the date new Sec.
32.3(c)(11) takes effect pursuant to new Sec. 32.1(d), discussed
below.
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The interim final rule also adds a definition of ``derivative
transaction'' as new paragraph (k) of Sec. 32.2 that mirrors the
definition added to section 5200 of the Revised Statutes by section
610. To complement these changes, it amends the definition of
``borrower,'' redesignated as Sec. 32.2(b), to include a party to whom
the bank has credit exposure arising from a derivative transaction or a
securities financing transaction. It also amends Sec. 32.2 to add the
definitions of ``credit derivative,'' ``qualifying central
counterparty,'' and ``qualifying master netting agreement,'' all
defined as in current 12 CFR part 3, as well as ``effective margining
arrangement,'' ``eligible credit derivative,'' and ``eligible
protection provider.'' These terms are used in new Sec. 32.9, as
described below.
Question 3: Are these terms adequately defined? Are there other
terms we should define in part 32 to help implement section 610 of the
Dodd-Frank Act?
Section 610 does not provide guidance on how to measure the
[[Page 37268]]
fluctuating credit exposure of derivative transactions and securities
financing transactions for purposes of the lending limit. In order to
reduce the practical burden of such calculations, particularly for
smaller and mid-size banks and savings associations, the OCC is
providing different options for measuring the appropriate exposures in
new Sec. 32.9, as discussed below. The OCC believes these alternatives
implement the statutory changes, consistent with safety and soundness
and the goals of the statute, in a manner that seeks to reduce
unnecessary new regulatory burden.
1. Derivative Transactions
The ``credit exposure'' arising from a derivative transaction is
commonly viewed as the sum of the current credit exposure on the
contract or portfolio plus some measure of potential future exposure
(PFE). Under the interim final rule, the ``current credit exposure'' is
determined by the mark-to-market value (MTM) of the derivative
contract. The current MTM is generally zero at execution of the
contract. Subsequent to the execution of the contract, if the MTM value
is positive, then the current credit exposure equals that MTM value. If
the MTM value is zero or negative, than the current credit exposure is
zero. This current credit exposure determination is the same as that
included in the capital rules at 12 CFR part 3, Appendix A, Sec.
3(b)(7)(A).
PFE, on the other hand, recognizes the possibility that the MTM
amount may increase over time, based upon changes in market factors.
The PFE, when added to the MTM amount, can be viewed as the anticipated
ceiling of credit exposure at the execution of a derivative
transaction.
The interim final rule provides three methods for calculating
credit exposure of derivative transactions other than credit
derivatives. Unless required to use a specific method by the
appropriate Federal banking agency pursuant to Sec. 32.9(b)(3), a
national bank or savings association may choose which of these methods
it will use. However, a national bank or savings association must use
the same method for calculating credit exposure arising from all
derivative transactions. Examples of these three approaches are
reflected in the Explanatory Table that appears in section 4 of this
preamble.
Question 4: Is the requirement to use the same method when
calculating credit exposure for all non-credit derivative transactions
appropriate? Should institutions be allowed to use a different method
for different types of transactions or for the same transaction type
but different parties?
Under the first method, the ``Internal Model Method,'' national
banks and savings associations may model their exposures via an
internal model approved by the OCC. Under this method, the counterparty
credit exposure of a derivative transaction will be measured by a model
that estimates a credit exposure amount, inclusive of the current MTM.
A bank or savings association using this approach should calculate its
exposure by using the internal model that it considers most appropriate
in evaluating the risk associated with derivative transactions. The
model must have been approved for purposes of section 53 of the
Advanced Approaches Appendices of the appropriate Federal banking
agencies' capital rules, 12 CFR part 3, Appendix C for national banks;
12 CFR part 167, Appendix C for Federal savings associations; and 12
CFR 390, subpart Z, Appendix A for state savings associations, or be
another appropriate model approved by the appropriate Federal banking
agency. A national bank or savings association that elects to calculate
its credit exposure by using the Internal Model Method will be
permitted to net credit exposure of derivative transactions arising
under the same qualifying master netting agreement, thereby reducing
the institution's exposure to the borrower to the net exposure under
the master netting agreement.
Question 5: Would it be more appropriate to require that national
banks and savings associations use other models instead of the one
included in part 3?
Second, pursuant to Sec. 32.9(b)(1)(ii), a national bank or
savings association may choose to measure the credit exposure arising
from a derivative transaction under the ``Conversion Factor Matrix
Method.'' Under this method, the credit exposure will equal and remain
fixed at the PFE of the derivative transaction, as determined at
execution of the transaction by reference to a simple look-up table
(Table 1). This table is similar to Table B included in the Risk-Based
Capital Guidelines Appendix of 12 CFR part 3, but has been adjusted so
that the table adequately reflects the absence of the current MTM
component of the credit exposure of these transactions. This approach
will be considerably less burdensome than the Internal Model Method
because institutions would not have to establish statistical
simulations of future PFE calculations.
Under the third method, the Remaining Maturity Method, as set forth
in Sec. 32.9(b)(1)(iii), the measurement of the credit exposure
incorporates both the current MTM and the transaction's remaining
maturity (measured in years) as well as a fixed add-on for each year of
the transaction's remaining life. Specifically, this method measures
credit exposure by adding the current MTM value of the transaction to
the product of the notional amount of the transaction, the remaining
maturity of the transaction, and a fixed multiplicative factor. These
multiplicative factors differ based on product type and are determined
by a look-up table (Table 2).
The credit exposure calculated under the Remaining Maturity Method
accounts for the diminishing maturity of the transaction as well as the
current MTM of the transaction. Institutions may find that any
additional burden involved with determining the MTM under this optional
method is balanced by the fact that, depending on the MTM, as the
maturity decreases, the credit exposure also decreases, thereby
permitting additional extensions of credit under the lending limit.
In addition, the Remaining Maturity Method incorporates the fact
that a negative MTM for a bank offsets the positive contribution to
exposure from the remaining life portion of the calculation, though the
overall calculation has a floor of zero.
Question 6: Does the calculation under the Remaining Maturity
Method adequately measure the credit exposures attributable to
derivative transactions? For the Conversion Factor Matrix Method, has
the OCC adjusted the numbers in the look-up table (Table 1) in a manner
that adequately captures, overstates, or understates the credit
exposures of these transactions? Similarly, for the Remaining Maturity
Method, has the OCC calibrated the values included in Table 2 correctly
so that they appropriately measure the credit risk?
In the case of credit derivatives, in which a national bank or
savings association buys or sells credit protection against loss on a
third-party reference entity, a special rule applies that is set forth
in Sec. 32.9(b)(2) of the interim final rule. Specifically, a national
bank or savings association that uses the Conversion Factor Matrix
Method or Remaining Maturity Method, or that uses the Internal Model
Method without entering an effective margining arrangement with its
counterparty as defined in Sec. 32.2(l) of the interim final rule,
calculates the counterparty credit exposure arising from credit
derivatives by adding the net notional value of all protection
purchased from the
[[Page 37269]]
counterparty on each reference entity. For example, Bank A buys and
sells credit protection from and to Bank B on Firms X, Y and Z. No
effective margining arrangement exists between the banks. Bank A's net
notional protection purchased from Bank B is $50 for Firm X and $100
for Firm Y. Bank A's net protection sold to Bank B is $35 for Firm Z.
The lending limit exposure of Bank A to Bank B is $150.
In addition, a national bank or savings association calculates the
credit exposure to a reference entity \7\ arising from credit
derivatives by adding the notional value of all protection sold on the
reference entity. For example, Bank C buys and sells credit protection
on Firms 1, 2 and 3. Bank C's notional protection sold is $100 for Firm
1, $200 for Firm 2 and $300 for Firm 3. The lending limit exposure of
Bank C to Firm 1 is $100, to Firm 2 is $200 and to Firm 3 is $300.
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\7\ Section 610 of the Dodd-Frank Act applies the lending limit
to counterparty credit exposures arising from derivative
transactions (``credit exposure to a person arising from a * * *
transaction between the national banking association and the
person'') (emphasis added). Section 610 (a)(1), as codified at 12
U.S.C. 84(b)(1)(C). The OCC's authority to apply the lending limit
to exposures to reference entities in credit derivatives derives
from 12 U.S.C. 84(b)(1)(B) (loans subject to the lending limit
include ``to the extent specified by the Comptroller of the
Currency, any liability * * * to advance funds to or on behalf of a
person pursuant to a contractual commitment'').
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However, the bank or savings association may reduce its exposure to
a reference entity by the amount of any eligible credit derivative, as
defined in Sec. 32.2(m), purchased on that reference entity from an
eligible protection provider, as defined in Sec. 32.2(o). In the last
example, if Bank C purchases protection on Firm 3 from an eligible
protection provider in the amount of $25 via an eligible credit
derivative, Bank C can reduce its $300 lending limit exposure to Firm 3
to $275.
Question 7: Has the OCC appropriately provided for exposure to both
counterparties and reference entities?
Question 8: Should protection purchased from eligible protection
providers by way of eligible credit derivatives be allowed to reduce
other exposures under the lending limit, for example, loans
traditionally covered by the lending limit and counterparty credit
exposure arising from financial derivatives, at least where the
protection contract maturity is as long as the maturity of the other
exposure?
Although both the Internal Model Method, the Remaining Maturity
Method, and the Conversion Factor Matrix Method will generally be
available to all institutions, the interim final rule provides that the
OCC, in the case of national banks and Federal savings associations,
and the FDIC, in the case of state savings associations, may require
use of a specific method to calculate credit exposure if it finds that
such method is necessary to promote the safety and soundness of the
bank or savings association.
The OCC is aware that, under the Conversion Factor Matrix Method,
the actual MTM value at a given point in the life of a derivative
contract may exceed the initially estimated PFE, and that it would be
possible for a bank to make a new loan that, combined with the actual
exposure (were such exposure based on current MTM value), could exceed
the lending limit. The OCC believes that the risks in such case are
limited and can be addressed in the supervisory process by examiners
appropriately responding to unsafe and unsound concentrations, and that
the certainty and simplicity of allowing non-complex banks and savings
associations to ``lock in'' the attributable exposure at the execution
of the contract balance the possible risks.
Question 9: Has the OCC properly reflected the different derivative
transactions undertaken by community, mid-size, and large institutions
for purposes of application of the lending limits? Does the rule
adequately capture the actual risks of these transactions?
2. Securities Financing Transactions
The interim final rule provides national banks and savings
associations with two options for determining the credit exposure of
securities financing transactions, defined as repurchase agreements,
reverse repurchase agreements, securities lending transactions, and
securities borrowing transactions. These methods recognize that the
size of the institution and complexity and volume of the securities
financing transactions engaged in by the institution may warrant
different approaches. As with derivative transactions, unless required
to use a specific method pursuant to Sec. 32.9(c)(2), a national bank
or savings association may choose which of the two methods it will use
and must use this same method for calculating credit exposure arising
from all securities financing transactions.
Question 10: Is the requirement to use the same method to calculate
credit exposure for all securities financing transactions appropriate?
Should institutions be allowed to use a different method for different
types of securities financing transactions, or for the same transaction
type but different parties?
The first option, the Internal Model Method, provides that an
institution may calculate the credit exposure of a securities financing
transaction by using an internal model approved by the appropriate
Federal banking agency for purposes of Sec. 32(d) of the Internal-
Ratings-Based Appendices of the OCC or FDIC's capital rules,\8\ as
appropriate, or any other appropriate model approved by the appropriate
Federal banking agency.
---------------------------------------------------------------------------
\8\ 12 CFR part 3, Appendix C for national banks; 12 CFR part
167, Appendix C for Federal savings associations; and 12 CFR 390,
subpart Z, Appendix A for state savings associations.
---------------------------------------------------------------------------
The calculation of the credit exposure under the second option, the
Non-Model Method, is based on the type of securities financing
transaction at issue. As with derivative transactions, the OCC finds
that for non-complex institutions engaged in these transactions, the
simpler approach to measuring credit exposure in the Non-Model Method
adequately protects the safety and soundness of the institution while
mitigating regulatory burden. The specific method for calculating
credit exposure under the Non-Model Method for each type of securities
financing transaction is set forth below.
Repurchase agreements and securities lending transactions. In a
repurchase agreement, also known as a liability repo, an institution
that owns securities borrows funds by selling the specified securities
to another party under a simultaneous agreement to repurchase the same
securities at a specified price and date. In a securities lending
transaction, an institution lends securities to a counterparty (who may
use them to cover a short sale or satisfy some other obligation). A
securities loan is collateralized, usually by cash but sometimes by
other securities. The economics of a securities lending transaction are
identical to a repurchase agreement when the collateral received by the
institution is cash. If the collateral is securities, the economics are
slightly different because there is the risk of market price changes on
both the securities loaned and the securities received as collateral.
For example, the value of the security loaned could increase, and the
value of the collateral received could decrease.
The interim final rule provides under the Non-Model Method, in
Sec. Sec. 32.9(c)(1)(ii)(A) and (ii)(B)(1), that for a repurchase
agreement or a securities loan where the collateral is cash, exposure
under the lending limit will be equal to and remain fixed at the net
current exposure, i.e., the market value at execution of the
transaction of
[[Page 37270]]
securities transferred to the other party, less cash received from the
other party. For securities lending transactions where the collateral
is other securities (i.e., not cash), Sec. 32.9(c)(1)(ii)(B)(2) of the
interim final rule provides that the exposure will be equal to and
remain fixed at the product of the higher of the two haircuts
associated with the securities, as determined by a look-up table
included in the regulation (Table 3), and the higher of the two par
values of the securities. The haircuts in Table 3 are consistent with
the standard supervisory market price volatility haircuts in 12 CFR
part 3, Appendix C.
Reverse repurchase agreements (asset repos) and securities
borrowing transactions. In a reverse repurchase agreement, also known
as an asset repo, an institution lends money to a counterparty by
purchasing a security and agreeing to resell the security to the
counterparty at a future date. For example, an institution may enter
into an asset repo to invest excess liquidity or to obtain securities
to use as collateral in other transactions, or an institution may need
securities to cover short positions or to pledge against public funds
to obtain a low-cost source of funding.
In a typical securities borrowing transaction, an institution
needing to borrow securities obtains the securities from a securities
lender and posts collateral in the form of cash and/or marketable
securities with the securities lender (or an agent acting on behalf of
the securities lender) in an amount that fully covers the value of the
securities borrowed plus an additional margin, usually ranging from two
to five percent. The economics of a securities borrowing transaction
are identical to a reverse repurchase agreement (asset repo) when the
collateral posted by the institution is cash.
Under the Non-Model Method, Sec. Sec. 32.9(c)(1)(ii)(C) and
(c)(1)(ii)(D)(1) of the interim final rule provide that the credit
exposure arising from a reverse repurchase agreement or a securities
borrowing transaction where the collateral is cash will equal and
remain fixed at the product of the haircut associated with the
collateral received, as determined in Table 3, and the amount of cash
transferred to the other party. Section 32.9(c)(1)(ii)(D)(2) provides
that the credit exposure arising from a securities borrowed transaction
where the collateral is other securities (i.e., not cash) shall equal
and remain fixed at the product of the higher of the two haircuts
associated with the securities, as determined in Table 3, and the
higher of the two par values of the securities.
Question 11: Are the look-up tables provided in the rule
appropriate? Would another look-up table included in 12 CFR part 3 be
more appropriate? Do the numbers included in Table 1 adequately capture
the credit exposure of the transactions in question?
Provision applicable to all securities financing transactions--Type
I securities. New Sec. 32.3(c)(11) of the interim final rule excepts
from the lending limit credit exposures arising from securities
financing transactions in which the securities being financed are
certain government securities, specifically, Type I securities, as
defined in 12 CFR 1.2(j), in the case of national banks; or securities
listed in section 5(c)(1)(C), (D), (E), and (F) of HOLA and general
obligations of a state or subdivision as listed in section 5(c)(1)(H)
of HOLA, 12 U.S.C. 1464(c)(1)(C), (D), (E), (F), and (H), in the case
of savings associations.\9\ This exception is appropriate because these
transactions typically involve less risk and involve securities in
which national banks and savings associations may invest under 12
U.S.C. 24 (Seventh) and section 5(c)(1) of the HOLA, as appropriate,
without limit. This treatment follows the treatment of reverse
repurchase agreements in current part 32, under which such transactions
are treated as loans subject to an exception for transactions relating
to Type I securities as defined in 12 CFR part 1. This exception may
reduce regulatory burden for community and midsize institutions because
it is relatively uncommon for these institutions to engage in a
securities financing transaction involving non-type I securities and
non-5(c)(1) securities.\10\
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\9\ For national banks, a Type I security means: (1) Obligations
of the United States; (2) obligations issued, insured, guaranteed by
a department or an agency of the United States Government, if the
obligation, insurance, or guarantee commits the full faith and
credit of the United States for the repayment of the obligation; (3)
obligations issued by a department or agency of the United States,
or an agency or political subdivision of a state of the United
States, that represent an interest in a loan or a pool of loans made
to third parties, if the full faith and credit of the United States
has been validly pledged for the full and timely payment of interest
on, and principal of, the loans in the event of non-payment by the
third party obligor(s); (4) general obligations of a state of the
United States or any political subdivision thereof; and municipal
bonds if the national bank is well capitalized; (5) obligations
authorized under 12 U.S.C. 24 (Seventh) as permissible for a
national bank to deal in, underwrite, purchase, and sell for the
bank's own account, including qualified Canadian government
obligations; and (6) other securities the OCC determines to be
eligible as Type I securities under 12 U.S.C. 24 (Seventh). See
section 24 (Seventh) of the Revised Statutes, 12 U.S.C. 24 (Seventh)
and 12 CFR 1.2(j). For Federal savings associations, these
investments include obligations of, or fully guaranteed as to
principal and interest by, the United States; investments in
securities of the Federal Home Loan Banks, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Association, or any agency of the
United States; and investments in obligations issued by any state or
political subdivision thereof. See section 5(c)(1) of the HOLA, 12
U.S.C. 1464(c)(1).
\10\ See current Sec. 32.2(k)(1)(iii). As noted above, the
interim final rule deletes Sec. 32.2(k)(1)(iii) (renumbered by the
interim final rule as (Sec. 32.2(q)(1)(vii)) as we have added new
Sec. 32.3(c)(11).
---------------------------------------------------------------------------
(3) Mandatory use of model. Finally, as with derivative
transactions, Sec. 32.9(c)(2) provides that the OCC or FDIC, as
appropriate, may require a national bank or savings association to use
a specific method to calculate the credit exposure of securities
financing transactions if the OCC or FDIC finds that this method is
necessary to promote the safety and soundness of the bank or savings
association.
Question 12: Has the OCC properly accounted for the different
securities financing transactions in institutions of different size and
complexity? Does the rule adequately capture the actual risks of these
transactions?
Question 13: Please comment on the provision that provides the OCC
and FDIC with authority to require modeling. Is this discretion
appropriately described?
3. Provisions Applicable to Both Derivative Transactions and Securities
Financing Transactions
Unless described above, all provisions of part 32 will apply to
credit exposures arising from a derivative transaction or a securities
financing transaction, including the lending limit calculation rules of
Sec. 32.4 and the combination rules of Sec. 32.5. In addition, the
interim final rule adds the following provisions to part 32 that apply
only to derivative transactions or securities financing transactions.
Exception. The interim final rule amends Sec. 32.3(c) to add
intraday credit exposures arising from a derivative transaction or
securities financing transaction as an additional exception to the
lending limits for national banks and savings associations. This
exception will help minimize the impact of the interim final rule on
the payment and settlement of financial transactions and is consistent
with the current application of national bank lending limits to certain
transactions.\11\
---------------------------------------------------------------------------
\11\ We note that the lending limit rules have long provided
that an intraday overdraft and a sale of Federal funds with a
maturity of one day or less are not subject to the lending limit.
See 12 CFR 32.2(k)(l)(v), (vi) of the current rule.
---------------------------------------------------------------------------
Question 14: Is the intraday exception appropriate? Should the OCC
exempt other types of intraday exposures?
[[Page 37271]]
Should the OCC provide for other exemptions for credit exposures
arising from derivative transactions or securities financing
transactions? Why?
Nonconforming Loans and Extensions of Credit. The interim final
rule adds a new paragraph (a)(3) to Sec. 32.6 to provide that a credit
exposure arising from a derivative transaction or securities financing
transaction and determined by the Internal Model Method specified in
Sec. 32.9(b)(1)(i) or Sec. 32.9 (d)(3), respectively, will not be
deemed a violation of the lending limits statute or regulation and will
be treated as nonconforming if the extension of credit was within the
national bank's or savings association's legal lending limit at
execution and is no longer in conformity because the exposure has
increased since execution.
Question 15: The interim final rule does not address the
applicability of the lending limit rules to a national bank's or
savings association's contingent obligation under derivative
clearinghouse rules to advance funds to a clearinghouse guaranty fund.
Please comment on whether and to what extent part 32 should to apply to
these obligations and if applicable, how the credit exposure of these
obligations should be measured.
Question16: Should the lending limit calculation rules set forth at
Sec. 32.4 or the combination rules set forth at Sec. 32.5 be adjusted
or changed in any way given the addition of credit exposures arising
from derivative and securities financing transactions to part 32 as new
categories of extensions of credit?
4. Explanatory Table
The table below is provided to aid in understanding the interim
final rule. It is not a substitute for the interim final rule itself.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transaction type What happens? Credit risk Transaction purpose Credit exposure Example
--------------------------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap................. Banks execute interest If the bank receives a Banks do interest Banks that have an Non-modeled bank:
rate and other swaps fixed rate, it has a rate swaps to approved model can Bank A without an
by signing a mark-to-market (MTM) convert cash flows choose to use the approved model
transaction gain if interest from fixed to model to determine executes a $10
confirmation, which rates fall. That floating, or vice the attributable million, 5-year,
becomes part of an represents a current versa. credit exposure. interest rate swap.
ISDA Master Agreement. credit exposure (CCE). Institutions can lock- It receives a fixed
If the bank pays a in, or fix, rate and pays
fixed rate, it has a attributable credit floating. The PFE
MTM gain if rates exposure at the factor for this swap
rise. A MTM gain is potential future is 1.5%. Bank A
CCE. exposure (PFE) on ``locks-in''
Beyond current day 1 by simply attributable
exposure, the bank multiplying notional exposure of $150,000
has a risk of principal amount by ($10 million x
potential future a conversion factor 1.5%), the day-one
exposure (PFE), i.e., provided in table. PFE amount Under
the amount the CCE No requirement to remaining maturity
might become over calculate daily mark- method: Bank A
time. to-market or re- enters a 5-year
calculate PFE. interest rate swap
with notional value
of $100,000 and MTM
of zero at
execution. At
execution, Bank A's
exposure is $7,500
($0 + ($100,000 x 5
x 1.5%)). In year 2,
Bank A makes loan to
counterparty of
interest rate swap.
At this time, MTM of
swap is $1,000. Bank
A's lending limit
exposure is $5,500
($1,000 + ($100,000
x 3 x 1.5%)). If the
MTM of the swap in
year 2 is negative
$1,000, Bank A's
lending limit
exposure for the
swap is $3,500 (-
$1,000 + ($100,000 x
3 x 1.5%)). If the
MTM of the swap in
year 2 is negative
$10,000. Bank A's
lending limit
exposure for the
swap is zero (-
$10,000 + ($100,000
x 3 x 1.5%) =
negative $5,500
which is less than
zero; zero is the
floor for the
calculated
exposure).
[[Page 37272]]
Credit Derivative.................. Banks buy or sell The protection seller Transactions such as To Counterparty: Modeled bank with
protection on a is exposed to default credit default swaps Banks that model effective margining
reference entity and/or credit allow institutions derivatives arrangement: Bank A
(RE). Protection deterioration of the to sell credit exposures (see buys and sells
buyers are hedging RE. It will make a protection (i.e., above) determine the credit protection
risk; protection payment upon default assume credit risk) attributable from and to Bank B
sellers are taking on of the RE. against loss on a exposure based on on Firms X, Y and Z.
risk (e.g., using the The protection buyer third-party the model provided There is an
CDS exposure as a is exposed to the reference entity. there is an effective margining
loan substitute). counterparty risk of Protection sellers effective margining arrangement between
the dealer; the buyer often use CDS as arrangement. Banks the banks. Banks A
expects payment from loan substitutes. that use the and B use their
the dealer if there Protection buyers conversion factor models to determine
is a default. typically use credit approach (see above) their counterparty
derivatives to hedge or that model but do credit exposures
credit exposures in not have an Non-modeled bank or
their loan effective margining bank without
portfolios. arrangement effective margining
calculate the arrangement: Bank A
attributable buys and sells
exposure as the sum credit protection
of all net notional from and to Bank B
protection purchased on Firms X, Y and Z.
amounts across Bank A's net
reference entities notional protection
To Reference purchased from Bank
Entities: Banks B is $50 for Firm X
calculate the and $100 for Firm Y.
exposure as the net Bank A's net
notional protection protection sold to
sold amount. The Bank B is $35 for
bank may reduce this Firm Z. The lending
amount by the amount limit exposure of
of any eligible Bank A to Bank B is
credit derivative $150.
purchased on that Bank C buys and sells
reference entity credit protection on
from an eligible Firms 1, 2, and 3.
protection provider. Bank C's notional
protection sold is
$100 for Firm 1,
$200 for Firm 2 and
$300 for Firm 3. The
lending limit
exposure of Bank C
to Firm 1 is $100,
to Firm 2 is $200
and to Firm 3 is
$300. If Bank C
purchases protection
on Firm 3 from an
eligible protection
provider in the
amount of $25 via an
eligible credit
derivative, Bank C
can reduce its $300
lending limit
exposure to Firm 3
to $275.
Reverse Repo (bank asset).......... Lend cash against Collateral value falls Provide secured Attributable credit Non-modeled bank:
collateral. financing; invest exposure for lending Lend $100 secured by
funds; run a dealer limit purposes is securities worth
matched book. the product of the $102 that have
haircut associated haircut of 5%. LLL
with the collateral exposure is $5 ($100
received and the x 5%).
amount of cash
transferred.
Repo (bank liability).............. Borrow cash against Collateral value rises Finance inventory; Attributable credit Non-modeled bank:
collateral. run a dealer matched exposure for lending Bank executes a repo
book. limit purposes is in which it borrows
the difference $100, pledging
between the market securities worth
value of securities $102. Attributable
transferred less exposure is $2, the
cash received (i.e., amount of net
the net current current credit
credit exposure). exposure.
[[Page 37273]]
Securities Borrowed (bank asset)... Lend cash against Collateral value falls Obtain collateral to If cash is Non-modeled bank,
collateral. cover a short collateral, treat cash as collateral:
position. the same as reverse Bank borrows a $100
repo: Attributable par value security
credit exposure for that has a fair
lending purposes is value of $102. The
the product of the bank pledges $100 in
haircut associated cash. The haircut
with the collateral associated with the
received and the security is 5%. The
amount of cash attributable
transferred. exposure is $5 ($100
If collateral is x 5%).
securities: Non-modeled bank,
Attributable credit securities as
exposure for lending collateral.
limit purposes is Bank borrows a $100
the product of the par value security
higher of the two (with fair value
haircuts associated $101) and pledges a
with the two security with a par
securities and the value of $100. The
higher of the two fair value of the
par values of the security pledged is
securities. $102. The haircut on
the borrowed
security is 2% and
the haircut on the
pledged security is
5%. The attributable
exposure is $5 ($100
x 5%), based upon
the higher of the
two security
haircuts and the
higher of the two
par values (here the
par values were the
same).
Securities Loaned (bank liability). Borrow cash against Collateral value rises Generate income...... If collateral Non-modeled bank,
collateral. received is cash, cash as collateral:
treat the same as a Bank lends a $102
repo: The security (par value
attributable credit of $100) and
exposure for lending receives $100 in
limit purposes is cash collateral.
the net current Attributable
credit exposure. exposure is $2, the
If the collateral net current credit
received is other exposure
securities: The Non-modeled bank,
attributable credit securities as
exposure for lending collateral: Bank
limit purposes is lends a $100 par
the product of the value security (fair
higher of the two value $101) and
haircuts associated receives another
with the two security as
securities and the collateral. The
higher of the two collateral has a
par values of the $100 par value (and
securities. $102 fair value).
The haircut on the
loaned and borrowed
securities are 2%
and 5% respectively.
Attributable
exposure is $5,
based upon the
higher of the two
security haircuts
and the higher of
the two par values
(here the par values
were the same).
--------------------------------------------------------------------------------------------------------------------------------------------------------
III. Effective and Compliance Dates
This interim final rule is effective on July 21, 2012. Pursuant to
the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice
and comment are not required prior to the issuance of a final rule if
an agency, for good cause, finds that ``notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public
interest.''
The amendments made by section 610 of the Dodd-Frank Act are
effective on July 21, 2012.\12\ These amendments are not self-
executing, however, in that they do not provide national banks and
savings associations with the methodology necessary to comply with the
new requirements they impose.
---------------------------------------------------------------------------
\12\ Dodd-Frank Act, section 610(c).
---------------------------------------------------------------------------
The OCC's approach to implementation of these standards is related
to, and our rulemaking in this respect has been informed by, proposals
made by other agencies to implement provisions of the Dodd-Frank Act
raising similar issues and the comments received by other agencies in
connection with such rulemakings.\13\ Consideration of this information
was appropriate in connection with the OCC's implementation of the
amendments made by section 610 of the Dodd-Frank Act.
---------------------------------------------------------------------------
\13\ E.g., the Federal Reserve Board's rulemaking implementing
section 165(e) of the Dodd Frank Act (single counterparty credit
exposures of large bank holding companies and certain nonbank
financial companies (covered companies)), 77 FR 594 (Jan. 5, 2012).
---------------------------------------------------------------------------
[[Page 37274]]
Based on consideration of the information thereby available, this
interim final rule provides clarity regarding the OCC's application of
the requirements of section 610. The OCC finds that, under these
circumstances, prior notice and comment are impracticable and that the
public interest is best served by making the rule effective on the same
day as the amendments made by section 610 of the Dodd-Frank Act are
effective. Otherwise, national banks and savings associations would be
subject to unpredictable assertions of interpretations of the scope and
application of the new requirements of section 610 that could result in
applications of section 610 contrary to the OCC's interpretation of
that section.
For these same reasons, with respect to the amendments implementing
section 610 of the Dodd-Frank Act, the OCC finds good cause to dispense
with the delayed effective date otherwise required by section 302 of
the Riegle Community Development and Regulatory Improvement Act of 1994
(RCDRIA), 12 U.S.C. 4802.\14\
---------------------------------------------------------------------------
\14\ The RCDRIA requires that, subject to certain exceptions,
regulations imposing additional reporting, disclosure, or other
requirements on insured depository institutions take effect on the
first day of the calendar quarter after publication of the final
rule. This effective date requirement does not apply if the agency
finds for good cause that the regulation should become effective
before such time.
---------------------------------------------------------------------------
The OCC recognizes, however, that national banks and savings
associations will need time to conform their operations to the
amendments implementing section 610 as applied by the OCC. The interim
final rule, therefore, includes at Sec. 32.1(d) a temporary exception
from the lending limit rules for extensions of credit arising from
derivative transactions or securities financing transactions, until
January 1, 2013. This exception is issued pursuant to section
5200(d)(1) of the Revised Statutes, 12 U.S.C. 84(d)(1), which
authorizes the OCC to prescribe rules to administer and carry out the
purposes of the lending limit statute, including rules to establish
limits or requirements other than those specified in the statute for
particular classes or categories of loans or extensions of credit. As a
result of this exception, institutions will not be required to comply
with amendments in the interim final rule implementing section 610 of
the Dodd Frank Act until January 1, 2013. As a practical matter, the
temporary exception afforded by the interim final rule fulfills the
same objectives as a delayed effective date, that is, providing
affected institutions with time to adjust their systems and procedures
to come into compliance with new requirements. Notwithstanding this
exception to the particular new lending limits provisions, the OCC
retains full authority to address credit exposures that present undue
concentrations on a case-by-case basis through our existing safety and
soundness authorities.
In addition to the amendments required to implement section 610,
this rulemaking also contains amendments that are necessary to
consolidate the lending limit rules applicable to national banks and
savings associations. As indicated previously, the integration
amendments included in this interim final rule do not impose any new
reporting, disclosure, or other requirements on national banks or
savings associations. To the extent that the interim final rule differs
from the current lending limit rules, these differences reduce
compliance requirements. Accordingly, good cause exists to make these
amendments effective without prior notice and comment. For the same
reasons, the RCDRIA does not apply to the integration-related
amendments made by this interim final rule.
We note that after the 45-day comment period, the OCC may amend
this interim final rule based on comments received. If any such
amendments are required, we will issue a final rule as expeditiously as
possible, and will adjust the compliance date if, and as, necessary.
IV. Solicitation of Comments
In addition to the specific requests for comment outlined in this
SUPPLEMENTARY INFORMATION section, the OCC is interested in receiving
comments on all aspects of this interim final rule. In particular, we
request suggestions on ways to streamline this rule and reduce
regulatory burden while still accomplishing the objectives that the
rule seeks to achieve.
V. Regulatory Analysis
Regulatory Flexibility Act Analysis
Pursuant to the Regulatory Flexibility Act (RFA),\15\ 5 U.S.C. 603,
an agency must prepare a regulatory flexibility analysis for all
proposed and final rules that describe the impact of the rule on small
entities, unless the head of an agency certifies that the rule will not
have ``a significant economic impact on a substantial number of small
entities.'' However, the RFA applies only to rules for which an agency
publishes a general notice of proposed rulemaking pursuant to 5 U.S.C.
553(b).\16\ Pursuant to the APA at 5 U.S.C. 553(b)(B), general notice
and an opportunity for public comment are not required prior to the
issuance of a final rule when an agency, for good cause, finds that
``notice and public procedure thereon are impracticable, unnecessary,
or contrary to the public interest.'' As discussed above, the OCC has
determined for good cause that the APA does not require general notice
and public comment on this interim final rule and, therefore, we are
not publishing a general notice of proposed rulemaking. Thus, the RFA
does not apply to this interim final rule.
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\15\ Public Law 96-354, Sept. 19, 1980.
\16\ 5 U.S.C. 603(a), 604(a).
---------------------------------------------------------------------------
Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency
prepare a budgetary impact statement before promulgating any rule
likely to result in a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year. If a
budgetary impact statement is required, Sec. 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC has determined that there is no Federal mandate imposed
by this rulemaking that may result in the expenditure by state, local,
and tribal governments, in the aggregate, or by the private sector, of
$100 million or more in any one year. Accordingly, final rule is not
subject to Sec. 202 of the Unfunded Mandates Act.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
(PRA) of 1995 (44 U.S.C. 3501-3521), the OCC 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. This rule contains information
collection requirements under the PRA, which have been previously
approved by OMB under OMB Control No. 1557-0221. The requirements under
this collection remain unchanged except for the addition of savings
associations as respondents. This information collection will be
amended through a non-substantive change to include the burden for
savings associations.
[[Page 37275]]
List of Subjects
12 CFR Part 32
National banks, Reporting and recordkeeping requirements.
12 CFR Part 159
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 160
Consumer protection, Investments Mortgages, Reporting and
recordkeeping requirements, Savings associations, Securities.
For the reasons set forth in the preamble, chapter I of title 12 of
the Code of Federal Regulations is amended as follows:
PART 32--LENDING LIMITS
0
1. The authority citation for part 32 is revised to read as follows:
Authority: 12 U.S.C. 1 et seq., 84, 93a, 1462a, 1463, 1464(u),
and 5412(b)(2)(B).
0
2. Section 32.1 is amended by:
0
a. Revising paragraphs (a) and (c)(1) through (c)(3);
0
b. In paragraph (b), adding the phrase ``and savings associations''
after the word ``banks'';
0
c. In paragraph (c)(4), adding the phrase ``, savings associations,''
after the word ``banks''; and
0
d. Adding new paragraph (d).
The revisions and addition read as follows:
Sec. 32.1 Authority, purpose and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 1 et seq.,
12 U.S.C. 84, 93a, 1462a, 1463, 1464(u), and 5412(b)(2)(B).
* * * * *
(c) Scope. (1) Except as provided by paragraph (d) of this section,
this part applies to all loans and extensions of credit made by
national banks, savings associations, and their domestic operating
subsidiaries. For purposes of this part, the term ``savings
association'' includes Federal savings associations and state savings
associations, as those terms are defined in 12 U.S.C. 1813(b). This
part does not apply to loans or extensions of credit made by a national
bank, a savings association, and their domestic operating subsidiaries
to the bank's or savings association's:
(i) Affiliates, as that term is defined in 12 U.S.C. 371c(b)(1) and
(e), as implemented by 12 CFR 223.2(a) (Regulation W);
(ii) The bank's or savings association's operating subsidiaries;
(iii) Edge Act or Agreement Corporation subsidiaries; or
(iv) Any other subsidiary consolidated with the bank or savings
association under Generally Accepted Accounting Principles (GAAP).
(2) The lending limits in this part are separate and independent
from the investment limits prescribed by 12 U.S.C. 24 (Seventh) or 12
U.S.C. 1464(c), as applicable, and 12 CFR parts 1 and 160.30, and a
national bank or savings association may make loans or extensions of
credit to one borrower up to the full amount permitted by this part and
also hold eligible securities of the same obligor up to the full amount
permitted under 12 U.S.C. 24 (Seventh) or 12 U.S.C. 1464(c), as
applicable, and 12 CFR part 1 and 12 CFR 160.30.
(3) Loans and extensions of credit to executive officers, directors
and principal shareholders of national banks, savings associations, and
their related interests are subject to limits prescribed by 12 U.S.C.
375a and 375b in addition to the lending limits established by 12
U.S.C. 84 or 12 U.S.C. 1464(u) as applicable, and this part.
* * * * *
(d) Temporary exception. The requirements of this part shall not
apply to the credit exposure arising from a derivative transaction or
securities financing transaction until January 1, 2013.
0
3. Section 32.2 is amended by:
0
a. Redesignating paragraphs (a) through (t) as follows:
------------------------------------------------------------------------
Old paragraph(s) New paragraph(s)
------------------------------------------------------------------------
(a) through (g) (b) through (h)
(h) (j)
(i) (n)
(j) through (l) (p) through (r)
(m) (t)
(n) and (o) (v) and (w)
(p) and (q) (y) and (z)
(r) through (t) (bb) through (dd)
------------------------------------------------------------------------
0
b. Adding new paragraphs (a), (i), (k), (l), (m), (o), (s), (u), (x),
and (aa) to read as follows;
0
c. Revising newly designated paragraphs (b), (c), (n) introductory
text, (n)(1), and (q) to read as set forth below;
0
d. In newly designated paragraphs (d) and (f) removing the word
``bank'' and adding in its place the phrase ``national bank or savings
association'';
0
e. In newly designated paragraph (g):
0
i. In the introductory text, removing the word ``bank's'' and adding in
its place the phrase ``national bank's or savings association's'';
0
ii. In paragraphs (g)(1)(i) and (g)(2), adding the phrase ``or savings
association'' after the word ``bank''; and
0
iii. In paragraphs (g)(1)(iii) and (g)(1)(iv), removing the phrases
``paragraph (m)'' and ``paragraph (s)'' and adding in its place the
phrases ``paragraph (t)'' and ``paragraph (cc)'', respectively;
0
f. In newly designated paragraph (n)(2), removing the word ``bank's''
and adding in its place the phrase ``national bank's or savings
association's'';
0
g. In newly designated paragraph (p), removing the word ``banks'' and
adding in its place the phrase ``national banks or savings
associations''; and
0
h. In newly designated paragraph (t):
0
i. In the introductory text and paragraph (t)(1), remove the phrase
``within the bank's'' and adding in its place the phrase ``within the
national bank's or savings association's'', wherever it appears;
0
ii. In paragraph (t)(1), removing the phrase ``made, the bank'' and
adding in its place the phrase ``made, the bank or savings
association'';
0
iii. In paragraphs (t)(1) and (2), adding after the word ``bank's'' the
phrase ``or savings association's'', wherever it appears;
0
iv. In paragraph (t)(1), removing the phrase ``paragraph (k)(2)(vi)''
and adding in its place the phrase ``paragraph (q)(2)(vi); and
0
v. In the first sentence of paragraph (t)(2), removing the word
``bank'' and adding in its place the phrase ``national bank or savings
association''.
The additions and revisions read as follows.
Sec. 32.2 Definitions.
(a) Appropriate Federal banking agency has the same meaning as in
12 U.S.C. 1813(q).
(b) Borrower means a person who is named as a borrower or debtor in
a loan or extension of credit; a person to whom a national bank or
savings association has credit exposure arising from a derivative
transaction or a securities financing transaction, entered by the bank
or savings association; or any other person, including a drawer,
endorser, or guarantor, who is deemed to be a borrower under the
``direct benefit'' or the ``common enterprise'' tests set forth in
Sec. 32.5.
(c) Capital and surplus means--
(1) A national bank's or savings association's Tier 1 and Tier 2
capital calculated under the risk-based capital standards applicable to
the institution as reported in the bank's or savings association's
Consolidated Reports of Condition and Income (Call Report); plus
(2) The balance of a national bank's or savings association's
allowance for loan and lease losses not included in the bank's or
savings association's Tier 2 capital, for purposes of the calculation
[[Page 37276]]
of risk-based capital described in paragraph (c)(1) of this section, as
reported in the bank's or savings association's Call Report.
* * * * *
(i) Credit derivative has the same meaning as this term has in 12
CFR Part 3, Appendix C, Section 2.
* * * * *
(k) Derivative transaction includes any transaction that is a
contract, agreement, swap, warrant, note, or option that is based, in
whole or in part, on the value of, any interest in, or any quantitative
measure or the occurrence of any event relating to, one or more
commodities, securities, currencies, interest or other rates, indices,
or other assets.
(l) Effective margining arrangement means a master legal agreement
governing derivative transactions between a bank or savings association
and a counterparty that requires the counterparty to post, on a daily
basis, variation margin to fully collateralize that amount of the
bank's net credit exposure to the counterparty that exceeds $1 million
created by the derivative transactions covered by the agreement.
(m) Eligible credit derivative means a single-name credit
derivative or a standard, non-tranched index credit derivative provided
that:
(1) The derivative contract meets the requirements of an eligible
guarantee, as defined in 12 CFR part 3, Appendix C, and has been
confirmed by the protection purchaser and the protection provider;
(2) Any assignment of the derivative contract has been confirmed by
all relevant parties;
(3) If the credit derivative is a credit default swap, the
derivative contract includes the following credit events:
(i) Failure to pay any amount due under the terms of the reference
exposure, subject to any applicable minimal payment threshold that is
consistent with standard market practice and with a grace period that
is closely in line with the grace period of the reference exposure; and
(ii) Bankruptcy, insolvency, or inability of the obligor on the
reference exposure to pay its debts, or its failure or admission in
writing of its inability generally to pay its debts as they become due
and similar events;
(4) The terms and conditions dictating the manner in which the
derivative contract is to be settled are incorporated into the
contract;
(5) If the derivative contract allows for cash settlement, the
contract incorporates a robust valuation process to estimate loss with
respect to the derivative reliably and specifies a reasonable period
for obtaining post-credit event valuations of the reference exposure;
(6) If the derivative contract requires the protection purchaser to
transfer an exposure to the protection provider at settlement, the
terms of at least one of the exposures that is permitted to be
transferred under the contract provides that any required consent to
transfer may not be unreasonably withheld; and
(7) If the credit derivative is a credit default swap, the
derivative contract clearly identifies the parties responsible for
determining whether a credit event has occurred, specifies that this
determination is not the sole responsibility of the protection
provider, and gives the protection purchaser the right to notify the
protection provider of the occurrence of a credit event.
(n) Eligible national bank or eligible savings association means a
national bank or saving association that:
(1) Is well capitalized as defined in the prompt corrective action
rules applicable to the institution; and
* * * * *
(o) Eligible protection provider means:
(1) A sovereign entity (a central government, including the U.S.
government; an agency; department; ministry; or central bank);
(2) The Bank for International Settlements, the International
Monetary Fund, the European Central Bank, the European Commission, or a
multilateral development bank;
(3) A Federal Home Loan Bank;
(4) The Federal Agricultural Mortgage Corporation;
(5) A depository institution, as defined in section 3 of the
Federal Deposit Insurance Act, 12 U.S.C. 1813(c);
(6) A bank holding company, as defined in section 2 of the Bank
Holding Company Act, as amended, 12 U.S.C. 1841;
(7) A savings and loan holding company, as defined in section 10 of
the Home Owners' Loan Act, 12 U.S.C. 1467a;
(8) A securities broker or dealer registered with the SEC under the
Securities Exchange Act of 1934, 15 U.S.C. 78o et seq.;s
(9) An insurance company that is subject to the supervision of a
State insurance regulator;
(10) A foreign banking organization;
(11) A non-U.S.-based securities firm or a non-U.S.-based insurance
company that is subject to consolidated supervision and regulation
comparable to that imposed on U.S. depository institutions, securities
broker-dealers, or insurance companies; and
(12) A qualifying central counterparty;
* * * * *
(q) Loans and extensions of credit means a national bank's or
savings association's direct or indirect advance of funds to or on
behalf of a borrower based on an obligation of the borrower to repay
the funds or repayable from specific property pledged by or on behalf
of the borrower; and any credit exposure, as determined pursuant to
Sec. 32.9, arising from a derivative transaction or a securities
financing transaction.
(1) Loans or extensions of credit for purposes of 12 U.S.C. 84 or
12 U.S.C. 1464(u), as applicable, and this part include--
(i) A contractual commitment to advance funds, as defined in
paragraph (g) of this section;
(ii) A maker or endorser's obligation arising from a national
bank's or savings association's discount of commercial paper;
(iii) A national bank's or savings association's purchase of third-
party paper subject to an agreement that the seller will repurchase the
paper upon default or at the end of a stated period. The amount of the
bank's or savings association's loan is the total unpaid balance of the
paper owned by the bank or savings association less any applicable
dealer reserves retained by the bank or savings association and held by
the bank or savings association as collateral security. Where the
seller's obligation to repurchase is limited, the bank's or savings
association's loan is measured by the total amount of the paper the
seller may ultimately be obligated to repurchase. A national bank's or
savings association's purchase of third party paper without direct or
indirect recourse to the seller is not a loan or extension of credit to
the seller;
(iv) An overdraft, whether or not prearranged, but not an intra-day
overdraft for which payment is received before the close of business of
the national bank or savings association that makes the funds
available;
(v) The sale of Federal funds with a maturity of more than one
business day, but not Federal funds with a maturity of one day or less
or Federal funds sold under a continuing contract;
(vi) Loans or extensions of credit that have been charged off on
the books of the national bank or savings association in whole or in
part, unless the loan or extension of credit--
(A) Is unenforceable by reason of discharge in bankruptcy;
[[Page 37277]]
(B) Is no longer legally enforceable because of expiration of the
statute of limitations or a judicial decision; or
(C) Is no longer legally enforceable for other reasons, provided
that the bank or savings association maintains sufficient records to
demonstrate that the loan is unenforceable; and
(vii) A national bank's or savings association's purchase of
securities subject to an agreement that the seller will repurchase the
securities at the end of a stated period, but not including a national
bank's or savings association's purchase of Type I securities, as
defined in part 1 of this chapter, subject to a repurchase agreement,
where the purchasing bank or savings association has assured control
over or has established its rights to the Type I securities as
collateral.
(2) The following items do not constitute loans or extensions of
credit for purposes of 12 U.S.C. 84 or 12 U.S.C. 1464(u), as
applicable, and this part--
(i) Additional funds advanced for the benefit of a borrower by a
national bank or savings association for payment of taxes, insurance,
utilities, security, and maintenance and operating expenses necessary
to preserve the value of real property securing the loan, consistent
with safe and sound banking practices, but only if the advance is for
the protection of the bank's or savings association's interest in the
collateral, and provided that such amounts must be treated as an
extension of credit if a new loan or extension of credit is made to the
borrower;
(ii) Accrued and discounted interest on an existing loan or
extension of credit, including interest that has been capitalized from
prior notes and interest that has been advanced under terms and
conditions of a loan agreement;
(iii) Financed sales of a national bank's or savings association's
own assets, including Other Real Estate Owned, if the financing does
not put the bank or savings association in a worse position than when
the bank or savings association held title to the assets;
(iv) A renewal or restructuring of a loan as a new ``loan or
extension of credit,'' following the exercise by a national bank or
savings association of reasonable efforts, consistent with safe and
sound banking practices, to bring the loan into conformance with the
lending limit, unless new funds are advanced by the national bank or
savings association to the borrower (except as permitted by Sec.
32.3(b)(5)), or a new borrower replaces the original borrower, or
unless the appropriate Federal banking agency determines that a renewal
or restructuring was undertaken as a means to evade the bank's or
savings association's lending limit;
(v) Amounts paid against uncollected funds in the normal process of
collection; and
(vi)(A) That portion of a loan or extension of credit sold as a
participation by a national bank or savings association on a
nonrecourse basis, provided that the participation results in a pro
rata sharing of credit risk proportionate to the respective interests
of the originating and participating lenders. Where a participation
agreement provides that repayment must be applied first to the portions
sold, a pro rata sharing will be deemed to exist only if the agreement
also provides that, in the event of a default or comparable event
defined in the agreement, participants must share in all subsequent
repayments and collections in proportion to their percentage
participation at the time of the occurrence of the event.
(B) When an originating national bank or savings association funds
the entire loan, it must receive funding from the participants before
the close of business of its next business day. If the participating
portions are not received within that period, then the portions funded
will be treated as a loan by the originating bank or savings
association to the borrower. If the portions so attributed to the
borrower exceed the originating bank's or savings association's lending
limit, the loan may be treated as nonconforming subject to Sec. 32.6,
rather than a violation, if:
(1) The originating national bank or savings association had a
valid and unconditional participation agreement with a participant or
participants that was sufficient to reduce the loan to within the
originating bank's or savings association's lending limit;
(2) The participant reconfirmed its participation and the
originating national bank or savings association had no knowledge of
any information that would permit the participant to withhold its
participation; and
(3) The participation was to be funded by close of business of the
originating national bank's or savings association's next business day.
* * * * *
(s) Qualifying central counterparty has the same meaning as this
term has in 12 CFR Part 3, Appendix C, Section 2.
* * * * *
(u) Qualifying master netting agreement has the same meaning as
this term has in 12 CFR part 3, Appendix C, Section 2.
* * * * *
(x) Residential housing units mean:
(1) Homes (including a dwelling unit in a multi-family residential
property such as a condominium or a cooperative);
(2) Combinations of homes and business property (i.e., a home used
in part for business);
(3) Other real estate used for primarily residential purposes other
than a home (but which may include homes);
(4) Combinations of such real estate and business property
involving only minor business use (i.e., where no more than 20 percent
of the total appraised value of the real estate is attributable to the
business use);
(5) Farm residences and combinations of farm residences and
commercial farm real estate;
(6) Property to be improved by the construction of such structures;
or
(7) Leasehold interests in the above real estate.
* * * * *
(aa) Securities financing transaction means a repurchase agreement,
reverse repurchase agreement, securities lending transaction, or
securities borrowing transaction.
* * * * **COM019*
0
3a. Effective January 1, 2013, Sec. 32.2 is amended by removing newly
redesignated paragraph (q)(1)(vii), removing the semicolon and the word
``and'' at the end of newly redesignated paragraph (q)(1)(vi) and
adding in its place a period, and adding the word ``and'' at the end of
newly redesignated paragraph (q)(1)(v).
0
4. Section 32.3 is amended by:
0
a. In paragraphs (a) and (b) adding the phrase ``or savings
association's'' after the word ``bank's'', wherever it appears;
0
b. In paragraphs (a) and (b), adding the phrase ``or savings
association'' after the word ``bank'', wherever it appears;
0
c. In the first sentence of paragraph (a), removing the phrase ``in
Sec. 32.2(n)'' and adding in its place the phrase ``in Sec.
32.2(v)'';
0
d. In paragraph (b)(1)(i), removing the phrase ``in Sec. 32.2(o)'' and
replacing it with the phrase ``in Sec. 32.2(w)'';
0
e. In paragraph (b)(2)(i), removing the phrase ``at Sec. 32.2(e)'' and
replacing it with the phrase ``at Sec. 32.2(f)'';
0
g. In paragraph (b)(5) introductory text, removing the phrase ``by
Sec. 32.2(m)'' and replacing it with the phrase ``by Sec. 32.2(t);
0
h. In paragraph (c) introductory text, adding the phrase ``, or 12
U.S.C. 1464(u), as applicable,'' after the phrase ``12 U.S.C. 84'';
0
i. In paragraph (c)(1)(ii), by adding the phrase ``or 12 U.S.C.
1464(u), as applicable,'' after the phrase ``12 U.S.C. 84'';
[[Page 37278]]
0
j. Revising paragraphs (c)(2) and (c)(3)(ii) to read as set forth
below;
0
k. In the first sentence of paragraph (c)(4)(ii)(B), paragraphs
(c)(5)(i), (c)(6) introductory text, (c)(9)(i), and (c)(10)(i),
removing the word ``bank'', whenever it appears, and adding in its
place with the phrase ``national bank or savings association'';
0
l. In paragraphs (c)(4)(ii)(B) and (c)(6)(i), adding the phrase ``or
savings association's'' after the word ``bank's'';
0
m. In the second sentence of paragraph (c)(4)(ii)(B), and paragraphs
(c)(5)(ii), (c)(6)(i) and (c)(6)(ii)(B), the first sentence of
paragraph (c)(7), and paragraphs (c)(9)(iii) and (iv) and (c)(10)(iii)
through (vi), adding the phrase ``or savings association'' after the
word ``bank'' whenever it appears;
0
n. In paragraph (c)(7), removing the word ``Comptroller'', wherever it
appears, and adding in its place the phrase ``appropriate Federal
banking agency''; and
0
o. Adding paragraphs (c)(11). (c)(12) and (d).
The addition and revisions read as follows.
Sec. 32.3 Lending limits.
* * * * *
(c) * * *
(2) Bankers' acceptances. A national bank's or savings
association's acceptance of drafts eligible for rediscount under 12
U.S.C. 372 and 373 or 12 U.S.C. 1464(c)(1)(M), as applicable, or a
national bank's or savings association's purchase of acceptances
created by other banks or savings associations that are eligible for
rediscount under those sections; but not including--
(i) A national bank's or savings association's acceptance of drafts
ineligible for rediscount (which constitutes a loan by the bank or
savings association to the customer for whom the acceptance was made,
in the amount of the draft);
(ii) A national bank's or savings association's purchase of
ineligible acceptances created by other banks or savings associations
(which constitutes a loan from the purchasing bank or savings
association to the accepting bank or savings association, in the amount
of the purchase price); and
(iii) A national bank's or savings association's purchase of its
own acceptances (which constitutes a loan to the bank's or savings
association's customer for whom the acceptance was made, in the amount
of the purchase price).
(3) * * *
(ii) To qualify a loan or extension of credit under paragraph
(c)(3)(i) of this section, the national bank or savings association
must perfect a security interest in the collateral under applicable
law.
* * * * *
(11) Credit Exposures arising from transactions financing certain
government securities. Credit exposures arising from securities
financing transactions in which the securities financed are Type I
securities, as defined in 12 CFR 1.2(j), in the case of national banks,
or securities listed in section 5(c)(1)(C), (D), (E), and (F) of HOLA
and general obligations of a state or subdivision as listed in section
5(c)(1)(H) of HOLA, 12 U.S.C. 1464(c)(1)(C), (D), (E), (F), and (H), in
the case of savings associations.
(12) Intraday credit exposures. Intraday credit exposures arising
from a derivative transaction or securities financing transaction.
(d) Special lending limits for savings associations. (1) $500,000
exception for savings associations. If a savings association's
aggregate lending limitation calculated under paragraph (a) of this
section is less than $500,000, notwithstanding this limitation in
paragraph (a) of this section, such savings association may have total
loans and extensions of credit, for any purpose, to one borrower
outstanding at one time not to exceed $500,000.
(2) Loans by savings associations to develop domestic residential
housing units. (i) Subject to paragraph (d)(2)(ii) of this section, a
savings association may make loans to one borrower to develop domestic
residential housing units, not to exceed the lesser of $30,000,000 or
30 percent of the savings association's unimpaired capital and
unimpaired surplus, including all loans and extensions of credit
subject to paragraph (a) of this section, provided that:
(A) The savings association is, and continues to be, in compliance
with its capital requirements under part 167 of this chapter.
(B) The appropriate Federal banking agency permits, subject to
conditions it may impose, the savings association to use the higher
limit set forth under this paragraph (d)(2)(i). A savings association
that meets the requirements of paragraphs (d)(2)(i)(A), (C), and (D) of
this section and that meets the requirements for ``expedited
treatment'' under 12 CFR 116.5 or 12 CFR 390.101 may use the higher
limit set forth under paragraph (d)(2)(i) if the savings association
has filed a notice with the appropriate Federal banking agency that it
intends to use the higher limit at least 30 days prior to the proposed
use. A savings association that meets the requirements of paragraphs
(d)(2)(i)(A), (C), and (D) of this section and that meets the
requirements for ``standard treatment'' under 12 CFR 116.5 or 12 CFR
390.101 may use the higher limit set forth under this paragraph
(d)(2)(i) if the savings association has filed an application with the
appropriate Federal banking agency and the agency has approved the use
the higher limit;
(C) The loans and extensions of credit made under this paragraph
(d)(2)(i) of this section to all borrowers do not, in aggregate, exceed
150 percent of the savings association's unimpaired capital and
unimpaired surplus;
(D) The loans and extensions of credit made under paragraph
(d)(2)(i) of this section comply with the applicable loan-to-value
requirements.
(ii) The authority of a savings association to make a loan or
extension of credit under the exception in paragraph (d)(2)(i) of this
section ceases immediately upon the association's failure to comply
with any one of the requirements set forth in paragraph (d)(2)(i) of
this section or any condition(s) set forth in an order issued by the
appropriate Federal banking agency under paragraph (d)(2)(i)(B) of this
section.
(iii) As used in this section, the term ``to develop'' includes
each of the various phases necessary to produce housing units as an end
product, such as acquisition, development and construction; development
and construction; construction; rehabilitation; and conversion; and the
term ``domestic'' includes units within the fifty states, the District
of Columbia, Puerto Rico, the Virgin Islands, Guam, and the Pacific
Islands.
(3) Commercial paper and corporate debt securities. In addition to
the amount allowed under the savings association's combined general
limit, a savings association may invest up to 10 percent of unimpaired
capital and unimpaired surplus in the obligations of one issuer
evidenced by commercial paper or corporate debt securities that are, as
of the date of purchase, investment grade.
0
5. Section 32.4 is amended by:
0
a. Revising paragraphs (a) introductory text, (a)(2), and (c) to read
as set forth below;
0
b. In paragraphs (b)(1) introductory text and (b)(2), removing the word
``bank's'' and adding in its place the phrase ``national bank's or
savings association's'';
0
c. In paragraphs (b)(1)(i) and (ii), adding the phrase ``or savings
association's'' after the word ``bank's''.
[[Page 37279]]
The revisions read as follows:
Sec. 32.4 Calculation of lending limits.
(a) Calculation date. For purposes of determining compliance with
12 U.S.C. 84, and 12 U.S.C. 1464(u), as applicable, and this part, a
national bank or savings association shall determine its lending limit
as of the most recent of the following dates:
* * * * *
(2) The date on which there is a change in the bank's or savings
association's capital category for purposes of 12 U.S.C. 1831o and 12
CFR 6.3 or 12 CFR 165.3, as applicable.
* * * * *
(c) More frequent calculations. If the appropriate Federal banking
agency determines for safety and soundness reasons that a national bank
or savings association should calculate its lending limit more
frequently than required by paragraph (a) of this section, the
appropriate Federal banking agency may provide written notice to the
national bank or savings association directing it to calculate its
lending limit at a more frequent interval, and the national bank or
savings association shall thereafter calculate its lending limit at
that interval until further notice.
0
6. Section 32.5 is amended by:
0
a. In paragraphs (c)(3), (d)(1), (f)(2) introductory text, and
(f)(2)(v), removing the word ``bank'', wherever it appears, and adding
in its place the phrase ``national bank or savings association'';
0
b. In paragraphs (d)(1) and (f)(3)(iii), adding the phrase ``or savings
association's'' after the word ``bank's'', wherever it appears;
0
c. In paragraph (c)(4), removing the word ``OCC'' and adding in its
place the phrase ``appropriate Federal banking agency'';
0
d. In paragraph (f)(2)(iv), removing the phrase ``bank's'' and adding
in its place the phrase ``national bank's or savings association's'';
and
0
e. Revising paragraph (f)(3)(ii) introductory text.
The revision reads as follows.
Sec. 32.5 Combination rules.
* * * * *
(f) * * *
(3) * * *
(ii) Qualifying restructuring. Loans and other extensions of credit
to a foreign government, its agencies, and instrumentalities will
qualify for the non-combination process under paragraph (f)(3)(i) of
this section only if they are restructured in a sovereign debt
restructuring approved by the appropriate Federal banking agency, upon
request by a national bank or savings association for application of
the non combination rule. The factors that the appropriate Federal
banking agency will use in making this determination include, but are
not limited to, the following:
* * * * *
0
7. Section 32.6 is revised to read as follows:
Sec. 32.6 Nonconforming loans and extensions of credit.
(a) A loan or extension of credit, within a national bank's or
savings association's legal lending limit when made, will not be deemed
a violation but will be treated as nonconforming if the loan or
extension of credit is no longer in conformity with the bank's or
savings association's lending limit because--
(1) The bank's or savings association's capital has declined,
borrowers have subsequently merged or formed a common enterprise,
lenders have merged, or the lending limit or capital rules have
changed;
(2) Collateral securing the loan to satisfy the requirements of a
lending limit exception has declined in value; or
(3) In the case of a credit exposure arising from a transaction
identified in Sec. 32.9(a) and measured by the Internal Model Method
specified in Sec. 32.9(b)(1)(i) or Sec. 32.9 (c)(1)(i), the credit
exposure subject to the lending limits of 12 U.S.C. 84 or 12 U.S.C.
1464(u), as applicable, or this part increases after execution of the
transaction.
(b) A national bank or savings association must use reasonable
efforts to bring a loan or extension of credit that is nonconforming as
a result of paragraph (a)(1) or (a)(3) of this section into conformity
with the bank's or savings association's lending limit unless to do so
would be inconsistent with safe and sound banking practices.
(c) A national bank or savings association must bring a loan that
is nonconforming as a result of circumstances described in paragraph
(a)(2) of this section into conformity with the bank's or savings
association's lending limit within 30 calendar days, except when
judicial proceedings, regulatory actions or other extraordinary
circumstances beyond the bank's or savings association's control
prevent it from taking action.
0
8. Section 32.7 is amended by:
0
a. Revising the paragraph heading;
0
b. Removing the phrase ``special lending limits'' in paragraphs (a)(5),
(b) introductory text, and (e), and adding in its place the phrase
``supplemental lending limits''.
0
b. In paragraphs (a)(1), (a)(3), and (e), adding the phrase ``or
savings association'' after the phrases ``a national bank'', ``a
bank'', and ``the national bank'', wherever they appear;
0
c. In paragraphs (a)(1) and (a)(3), add the phrase ``or eligible
savings association'' after the phrase ``eligible national bank'';
0
d. Revise paragraphs (a)(2), (b)(1), (c), and (d) to read as follows;
0
e. In paragraphs (a)(4), (a)(5), and (b)(3), adding the phrase ``or
savings association's'' after the word ``bank's'', wherever it appears;
0
f. In paragraph (b) introductory text, add the phrase ``or eligible
savings association'' after the word ``bank'' in the first sentence.
The revisions read as follows.
Sec. 32.7 Residential real estate loans, small business loans, and
small farm loans (``Supplemental Lending Limits Program'').
(a) * * *
(2) In addition to the amount that a national bank or savings
association may lend to one borrower under Sec. 32.3, an eligible
national bank or eligible savings association may make small business
loans or extensions of credit to one borrower in the lesser of the
following two amounts: 10 percent of its capital and surplus; or the
percent of its capital and surplus, in excess of 15 percent, that a
state bank is permitted to lend under the state lending limit that is
available for small business loans or unsecured loans in the state
where the main office of the national bank or home office of the
savings association is located.
* * * * *
(b) * * *
(1) Certification that the bank or savings association is an
``eligible bank'' or ``eligible savings association'';
* * * * *
(c) Duration of approval. Except as provided in paragraph (d) of
this section, a bank or savings association that has received
appropriate Federal banking agency approval may continue to make loans
and extensions of credit under the supplemental lending limits in
paragraphs (a)(1), (2), and (3) of this section, provided the bank or
savings association remains an ``eligible bank'' or ``eligible savings
association.''
(d) Discretionary termination of authority. The appropriate Federal
banking agency may rescind a bank's or savings association's authority
to use the supplemental lending limits in paragraphs (a)(1), (2), and
(3) of this section based upon concerns about credit quality, undue
concentrations in the bank's or savings association's portfolio of
residential real estate, small
[[Page 37280]]
business, or small farm loans, or concerns about the bank's or savings
association's overall credit risk management systems and controls. The
bank or savings association must cease making new loans or extensions
of credit in reliance on the supplemental lending limits upon receipt
of written notice from the appropriate Federal banking agency that its
authority has been rescinded.
* * * * *
Sec. 32.8 [Amended]
0
9. Section 32.8 is amended by:
0
a. Adding the phrase ``or savings association'' after the phrase
``national bank'' and the phrase ``or eligible savings association''
after the phrase ``eligible bank''; and
0
b. Removing the word ``OCC'', wherever it appears, and adding in its
place the phrase ``appropriate Federal banking agency''.
0
10. Section 32.9 is added to read as follows:
Sec. 32.9 Credit exposure arising from derivative and securities
financing transactions.
(a) Scope. This section sets forth the rules for calculating the
credit exposure arising from a derivative transaction or a securities
financing transaction entered into by a national bank or savings
association for purposes of determining the bank's or savings
association's lending limit pursuant to 12 U.S.C. 84 or 12 U.S.C.
1464(u), as applicable, and this part.
(b) Derivative transactions. (1) Non-credit derivatives. Subject to
paragraphs (b)(2) and (b)(3) of this section, a national bank or
savings association shall calculate the credit exposure to a
counterparty arising from a derivative transaction by one of the
following methods. Subject to paragraph (b)(3) of this section, a
national bank or savings association shall use the same method for
calculating counterparty credit exposure arising from all of its
derivative transactions.
(i) Internal Model Method. (A) Credit exposure. The credit exposure
of a derivative transaction under the Internal Model Method shall equal
the sum of the current credit exposure of the derivative transaction
and the potential future credit exposure of the derivative transaction.
(B) Calculation of current credit exposure. A bank or savings
association shall determine its current credit exposure by the mark-to-
market value of the derivative contract. If the mark-to-market value is
positive, then the current credit exposure equals that mark-to-market
value. If the mark to market value is zero or negative, than the
current credit exposure is zero.
(C) Calculation of potential future credit exposure. A bank or
savings association shall calculate its potential future credit
exposure by using an internal model that has been approved for purposes
of 12 CFR part 3, Appendix C, Section 53, 12 CFR part 167, Appendix C,
Section 53, or 12 CFR part 390, subpart Z, Appendix A, Section 53, as
appropriate, or any other appropriate model approved by the appropriate
Federal banking agency.
(D) Net credit exposure. A bank or savings association that
calculates its credit exposure by using the Internal Model Method
pursuant to this paragraph (b)(1)(i) may net credit exposures of
derivative transactions arising under the same qualifying master
netting agreement.
(ii) Conversion Factor Matrix Method. The credit exposure arising
from a derivative transaction under the Conversion Factor Matrix Method
shall equal and remain fixed at the potential future credit exposure of
the derivative transaction as determined at the execution of the
transaction by reference to Table 1 of this section.
Table 1--Conversion Factor Matrix for Calculating Potential Future Credit Exposure \1\
----------------------------------------------------------------------------------------------------------------
Other \3\
(includes
Original maturity \2\ Interest rate Foreign exchange Equity commodities and
rate and gold precious metals
except gold)
----------------------------------------------------------------------------------------------------------------
1 year or less................... .015 .015 .20 .06
Over 1 to 3 years................ .03 .03 .20 .18
Over 3 to 5 years................ .06 .06 0.20 0.30
Over 5 to 10 years............... .12 .12 0.20 .60
Over ten years................... .30 .30 .20 1.0
----------------------------------------------------------------------------------------------------------------
\1\ For an OTC derivative contract with multiple exchanges of principal, the conversion factor is multiplied by
the number of remaining payments in the derivative contract.
\2\ For an OTC derivative contract that is structured such that on specified dates any outstanding exposure is
settled and the terms are reset so that the market value of the contract is zero, the remaining maturity
equals the time until the next reset date. For an interest rate derivative contract with a remaining maturity
of greater than one year that meets these criteria, the minimum conversion factor is 0.005.
\3\ Transactions not explicitly covered by any other column in the Table are to be treated as ``Other.''
(iii) Remaining Maturity Method. The credit exposure arising from a
derivative transaction under the Remaining Maturity Method shall equal
the greater of zero or the sum of the current mark-to-market value of
the derivative transaction added to the product of the notional amount
of the transaction, the remaining maturity in years of the transaction,
and a fixed multiplicative factor determined by reference to Table 2 of
this section.
Table 2--Remaining Maturity Factor for Calculating Credit Exposure
----------------------------------------------------------------------------------------------------------------
Other \1\
(includes
Interest rate Foreign exchange Equity commodities and
rate and gold precious metals
except gold)
----------------------------------------------------------------------------------------------------------------
Multiplicative Factor........... 1.5% 1.5% 6% 6%
----------------------------------------------------------------------------------------------------------------
\1\ Transactions not explicitly covered by any other column in the Table are to be treated as ``Other.''
[[Page 37281]]
(2) Credit Derivatives. (i) Notwithstanding paragraph (b)(1) of
this section, a national bank or savings association that uses the
Conversion Factor Matrix Method or Remaining Maturity Method, or that
uses the Internal Model Method without entering an effective margining
arrangement as defined in Sec. 32.2(l), shall calculate the
counterparty credit exposure arising from credit derivatives entered by
the bank or savings association by adding the net notional value of all
protection purchased from the counterparty on each reference entity.
(ii) A national bank or savings association shall calculate the
credit exposure to a reference entity arising from credit derivatives
entered by the bank or savings association by adding the notional value
of all protection sold on the reference entity. However, the bank or
savings association may reduce its exposure to a reference entity by
the amount of any eligible credit derivative purchased on that
reference entity from an eligible protection provider.
(3) Mandatory use of Internal Model Method. The appropriate Federal
banking agency may require a national bank or savings association to
use the Internal Model Method set forth in paragraph (b)(1)(i) of this
section, the Conversion Factor Matrix Method set forth in paragraph
(b)(1)(ii) of this section, or the Remaining Maturity Method set forth
in paragraph (b)(1)(iii) of this section to calculate the credit
exposure of derivative transactions if it finds that such method is
necessary to promote the safety and soundness of the bank or savings
association.
(c) Securities financing transactions. (1) In general. Except as
provided by paragraph (c)(2) of this section, a national bank or
savings association shall calculate the credit exposure arising from a
securities financing transaction by one of the following methods. A
national bank or savings association shall use the same method for
calculating credit exposure arising from all of its securities
financing transactions.
(i) Internal Model Method. A national bank or savings association
may calculate the credit exposure of a securities financing transaction
by using an internal model approved by the appropriate Federal banking
agency for purposes of 12 CFR part 3, Appendix C, Section 32(d), 12 CFR
part 167, Appendix C, Section 32(d), or 12 CFR part 390, subpart Z,
Appendix A, Section 32(d), as appropriate, or any other appropriate
model approved by the appropriate Federal banking agency.
(ii) Non-Model Method. A national bank or savings association may
calculate the credit exposure of a securities financing transaction as
follows:
(A) Repurchase agreement. The credit exposure arising from a
repurchase agreement shall equal and remain fixed at the market value
at execution of the transaction of the securities transferred to the
other party less cash received.
(B) Securities lending. (1) Cash collateral transactions. The
credit exposure arising from a securities lending transaction where the
collateral is cash shall equal and remain fixed at the market value at
execution of the transaction of securities transferred less cash
received.
(2) Non-cash collateral transactions. The credit exposure arising
from a securities lending transaction where the collateral is other
securities shall equal and remain fixed as the product of the higher of
the two haircuts associated with the two securities, as determined in
Table 3 of this section, and the higher of the two par values of the
securities.
(C) Reverse repurchase agreements. The credit exposure arising from
a reverse repurchase agreement shall equal and remain fixed as the
product of the haircut associated with the collateral received, as
determined in Table 3 of this section, and the amount of cash
transferred.
(D) Securities borrowing. (1) Cash collateral transactions. The
credit exposure arising from a securities borrowed transaction where
the collateral is cash shall equal and remain fixed as the product of
the haircut on the collateral received, as determined in Table 3 of
this section, and the amount of cash transferred to the other party.
(2) Non-cash collateral transactions. The credit exposure arising
from a securities borrowed transaction where the collateral is other
securities shall equal and remain fixed as the product of the higher of
the two haircuts associated with the two securities, as determined in
Table 3 of this section, and the higher of the two par values of the
securities.
Table 3--Collateral Haircuts
------------------------------------------------------------------------
Haircut without
Residual maturity currency
mismatch \1\
------------------------------------------------------------------------
SOVEREIGN ENTITIES
------------------------------------------------------------------------
OECD Country Risk <= 1 year............ 0.005
Classification \2\ 0-1.
>1 year, <= 5 years.. 0.02
5 years.............. 0.04
OECD Country Risk <= 1 year............ 0.01
Classification 2-3.
>1 year, <= 5 years.. 0.03
5 years.............. 0.06
------------------------------------------------------------------------
CORPORATE AND MUNICIPAL BONDS THAT ARE BANK-ELIGIBLE INVESTMENTS
------------------------------------------------------------------------
Residual maturity for Haircut without
debt securities currency mismatch
------------------------------------------------------------------------
All........................... <= 1 year............ 0.02
All........................... >1 year, <= 5 years.. 0.06
All........................... > 5 years............ 0.12
------------------------------------------------------------------------
------------------------------------------------------------------------
OTHER ELIGIBLE COLLATERAL
------------------------------------------------------------------------
Main index \3\ equities (including 0.15
convertible bonds).
Other publicly traded equities 0.25
(including convertible bonds).
[[Page 37282]]
Mutual funds........................... Highest haircut applicable to
any security in which the fund
can invest
Cash collateral held................... 0
------------------------------------------------------------------------
\1\ In cases where the currency denomination of the collateral differs
from the currency denomination of the credit transaction, an addition
8 percent haircut will apply.
\2\ OECD Country Risk Classification means the country risk
classification as defined in Article 25 of the OECD's February 2011
Arrangement on Officially Supported Export Credits Arrangement.
\3\ Main index means the Standard & Poor's 500 Index, the FTSE All-World
Index, and any other index for which the covered company can
demonstrate to the satisfaction of the Federal Reserve that the
equities represented in the index have comparable liquidity, depth of
market, and size of bid-ask spreads as equities in the Standard &
Poor's 500 Index and FTSE All-World Index.
(2) Mandatory use of Internal Model Method. The appropriate Federal
banking agency may require a national bank or savings association to
use either the Internal Model Method set forth in paragraph (c)(1)(i)
of this section or the Non-Model Method set forth in paragraph
(c)(1)(ii) of this section to calculate the credit exposure of
securities financing transactions if the appropriate Federal banking
agency finds that such method is necessary to promote the safety and
soundness of the bank or savings association.
0
11. Appendix A to part 32 is added to read as follows:
Appendix A To Part 32--Interpretations
Section 1. Interrelation of General Limitation With Exception for
Loans To Develop Domestic Residential Housing Units
1. The Sec. 32.3(d)(2) exception for loans to one borrower to
develop domestic residential housing units is characterized in the
regulation as an ``alternative'' limit. This exceptional $30,000,000
or 30 percent limitation does not operate in addition to the 15
percent General Limitation or the 10 percent additional amount a
savings association may loan to one borrower secured by readily
marketable collateral, but serves as the uppermost limitation on a
savings association's lending to any one person once a savings
association employs this exception.
Example: Savings Association A's lending limitation as
calculated under the 15 percent General Limitation is $800, 000. If
Savings Association A lends Y $800,000 for commercial purposes,
Savings Association A cannot lend Y an additional $1,600,000, or 30
percent of capital and surplus, to develop residential housing units
under the paragraph Sec. 32.3(d)(2) exception. The Sec. 32.3(d)(2)
exception operates as the uppermost limitation on all lending to one
borrower (for savings associations that may employ this exception)
and includes any amounts loaned to the same borrower under the
General Limitation. Savings Association A, therefore, may lend only
an additional $800,000 to Y, provided Sec. 32.3(d)(2) prerequisites
have been met. The amount loaned under the authority of the General
Limitation ($800,000), when added to the amount loaned under the
exception ($800,000), yields a sum that does not exceed the 30
percent uppermost limitation ($1,600,000).
2. a. This result does not change even if the facts are altered
to assume that some or all of the $800,000 amount of lending
permissible under the General Limitation's 15 percent basket is not
used, or is devoted to the development of domestic residential
housing units.
b. In other words, using the above example, if Savings
Association A lends Y $400,000 for commercial purposes and $300,000
for residential purposes--both of which would be permitted under its
$800,000 General Limitation--Savings Association A's remaining
permissible lending to Y would be: first, an additional $100,000
under the General Limitation, and then another $800,000 to develop
domestic residential housing units if the savings association meets
the paragraph Sec. 32.3(d)(2) prerequisites. (The latter is
$800,000 because in no event may the total lending to Y exceed 30
percent of unimpaired capital and unimpaired surplus). If Savings
Association A did not lend Y the remaining $100,000 permissible
under the General Limitation, its permissible loans to develop
domestic residential housing units under Sec. 32.3(d)(2) would be
$900,000 instead of $800,000 (the total loans to Y would still equal
$1,600,000).
3. In short, under the Sec. 32.3(d)(2) exception, the 30
percent or $30,000,000 limit will always operate as the uppermost
limitation, unless the savings association does not avail itself of
the exception and merely relies upon its General Limitation.
Section 2. Interrelationship Between the General Limitation and the
150 Percent Aggregate Limit on Loans to All Borrowers To Develop
Domestic Residential Housing Units
Numerous questions have been received regarding the allocation
of loans between the different lending limit ``baskets,'' i.e., the
15 percent General Limitation basket and the 30 percent Residential
Development basket. In general, the inquiries concern the manner in
which a savings association may ``move'' a loan from the General
Limitation basket to the Residential Development basket. The
following example is intended to provide guidance:
Example: Savings Association A's General Limitation under Sec.
32.3(a) is $15 million. In January, Savings Association A makes a
$10 million loan to Borrower to develop domestic residential housing
units. At the time the loan was made, Savings Association A had not
received approval under an order issued by the appropriate Federal
banking agency to avail itself of the residential development
exception to lending limits. Therefore, the $10 million loan is made
under Savings Association A's General Limitation.
2. In June, Savings Association A receives authorization to lend
under the Residential Development exception. In July, Savings
Association A lends $3 million to Borrower to develop domestic
residential housing units. In August, Borrower seeks an additional
$12 million commercial loan from Savings Association A. Savings
Association A cannot make the loan to Borrower, however, because it
already has an outstanding $10 million loan to Borrower that counts
against Savings Association A's General Limitation of $15 million.
Thus, Savings Association A may lend only up to an additional $5
million to Borrower under the General Limitation.
3. However, Savings Association A may be able to reallocate the
$10 million loan it made to Borrower in January to its Residential
Development basket provided that: (1) Savings Association A has
obtained authority under an order issued by the appropriate Federal
banking agency to avail itself of the additional lending authority
for residential development and maintains compliance with all
prerequisites to such lending authority; (2) the original $10
million loan made in January constitutes a loan to develop domestic
residential housing units as defined; and (3) the housing unit(s)
constructed with the funds from the January loan remain in a stage
of ``development'' at the time Savings Association A reallocates the
loan to the domestic residential housing basket. The project must be
in a stage of acquisition, development, construction,
rehabilitation, or conversion in order for the loan to be
reallocated.
4. If Savings Association A is able to reallocate the $10
million loan made to Borrower in January to its Residential
Development basket, it may make the $12 million commercial loan
requested by Borrower in August. Once the January loan is
reallocated to the Residential Development basket, however, the $10
million loan counts towards Savings Association A's 150 percent
aggregate limitation on loans to all borrowers under the residential
development basket (Sec. 32.3(d)(2)).
5. If Savings Association A reallocates the January loan to its
domestic residential housing basket and makes an additional $12
million commercial loan to Borrower, Savings Association A's totals
under the respective limitations would be: $12 million under the
General Limitation; and $13 million under the Residential
Development limitation. The full $13 million residential development
loan counts toward Savings Association A's aggregate 150 percent
limitation.
PART 159--SUBORDINATE ORGANIZATIONS
0
12. The authority citation for part 159 continues to read as follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828,
5412(b)(2)(B).
[[Page 37283]]
Sec. 159.3 [Amended]
0
13. Section 159.3 is amended, in paragraph (k) introductory text, by
removing ``Sec. 160.93 of this chapter'' and adding in its place the
phrase ``12 CFR part 32''.
PART 160--LENDING AND INVESTMENTS
0
14. The authority citation for part 160 continues to read as follows:
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1701j-3,
1828, 3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.
Sec. 160.40 [Amended]
0
15. Section 160.40 is amended, in paragraph (a)(3), by removing ``Sec.
160.93(c) of this part'' and adding in its place the phrase ``Sec.
32.3(a) of this chapter''.
Sec. 160.60 [Amended]
0
16. Section 160.60 is amended, in paragraph (b)(3), by removing
``Sec. Sec. 160.93 and 163.43 of this chapter'' and adding in its
place the phrase ``12 CFR part 32 and Sec. 163.43 of this chapter''.
Sec. 160.93 [Amended]
0
17. Section 160.93 is removed.
Dated: June 14, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2012-15004 Filed 6-20-12; 8:45 am]
BILLING CODE 4810-33-P