E8-22701. Transactions Between Member Banks and Their Affiliates: Exemption for Certain Purchases of Asset-Backed Commercial Paper by a Member Bank From an Affiliate  

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    AGENCY:

    Board of Governors of the Federal Reserve System.

    ACTION:

    Interim final rule with request for public comment.

    SUMMARY:

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

    DATES:

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

    ADDRESSES:

    You may submit comments, identified by Docket No. R-1331, by any of the following methods:

    All public comments are available from the Board's Web site at http://www.federalreserve.gov/​generalinfo/​foia/​ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room MP-500 of the Board's Martin Building (20th and C Street, NW) between 9 a.m. and 5 p.m. on weekdays.

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    FOR FURTHER INFORMATION CONTACT:

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

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    SUPPLEMENTARY INFORMATION:

    In light of the ongoing dislocations in the financial markets, and the impact of such dislocations on the functioning of the ABCP markets and on the operations of money market mutual funds, the Board adopted the ABCP Lending Facility on September 19, 2008. Under the facility, depository institutions and bank holding companies (banking organizations) are able to borrow from the Federal Reserve Bank of Boston on a non-recourse basis on condition that the organizations use the proceeds of the Federal Reserve credit to purchase, at amortized cost, certain highly rated U.S. dollar-denominated ABCP from money market mutual funds. The ABCP purchased must be used to secure the borrowing from the Reserve Bank. The purpose of the ABCP Lending Facility is to assist money market mutual funds to obtain liquidity by enabling them to sell some of their high-credit-quality secured assets at amortized cost. The Start Printed Page 55709ABCP Lending Facility will expire on January 30, 2009 (unless extended by the Board).

    To facilitate usage of the ABCP Lending Facility, the Board has adopted on an interim basis exemptions from sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371c-1) and the Board's Regulation W (12 CFR part 223). The exemptions increase the capacity of a member bank to purchase ABCP from an affiliated money market mutual fund in connection with the ABCP Lending Facility. In addition, a member bank may use the exemptions only if the bank has not been specifically informed by the Board, after consultation with the bank's appropriate Federal banking agency, that the bank may not use these exemptions. If the Board believes, after such consultation, that use of the exemptions would not be appropriate for the member bank, the Board may withdraw the exemptions for the bank or may impose supplemental conditions on the bank's use of the exemptions.

    The Board has determined that these exemptions are in the public interest and consistent with the purposes of sections 23A and 23B. The substantial protections provided to intermediaries by the Federal Reserve in connection with the ABCP Lending Facility largely mitigate the safety-and-soundness concerns that sections 23A and 23B were designed to address. Because Federal Reserve extensions of credit to a member bank under the ABCP Lending Facility are on a non-recourse basis, the bank should bear no risk of loss from purchases of ABCP under the facility. Therefore, the Board believes that it is appropriate to exempt a member bank that serves as an intermediary in the ABCP Lending Facility from the requirements of sections 23A and 23B and Regulation W.

    Consistent with its purpose to mitigate temporary stresses faced by money market mutual funds, the interim final rule will expire on January 30, 2009, unless extended by the Board.

    Administrative Procedure Act

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

    Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a final rule to prepare and make available a regulatory flexibility analysis that describes the impact of the final rule on small entities. 5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b).

    Pursuant to section 605(b), the Board certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities. The rule reduces regulatory burden on large and small insured depository institutions by granting exemptions from the Federal transactions with affiliates regime for insured depository institutions that purchase ABCP from affiliated money market mutual funds pursuant to the ABCP Lending Facility.

    Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board has reviewed the interim final rule under authority delegated to the Board by the Office of Management and Budget. The rule contains no collections of information pursuant to the Paperwork Reduction Act.

    Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Board to use “plain language” in all proposed and final rules. In light of this requirement, the Board has sought to present the interim final rule in a simple and straightforward manner. The Board invites comment on whether it could take additional steps to make the rule easier to understand.

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    List of Subjects in 12 CFR Part 223

    • Banks
    • Banking
    • Federal Reserve System
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    Authority and Issuance

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    For the reasons set forth in the preamble, the Board amends Chapter II of Title 12 of the Code of Federal Regulations as follows:

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    PART 223—TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W)

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    1. The authority citation for part 223 continues to read as follows:

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    Authority: 12 U.S.C. 371c and 371c-1.

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    2. In § 223.42, add paragraph (o) to read as follows:

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    What covered transactions are exempt from the quantitative limits, collateral requirements, and low-quality asset prohibition?
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    (o) Purchases of certain asset-backed commercial paper. Purchases of asset-backed commercial paper from an affiliated SEC-registered open-end investment company that holds itself out as a money market mutual fund under SEC Rule 2a-7 (17 CFR 270.2a-7), if the member bank:

    (1) Purchases the asset-backed commercial paper between September 19, 2008, and January 30, 2009 (unless extended by the Board), pursuant to the asset-backed commercial paper lending facility established by the Board on September 19, 2008; and

    (2) Has not been specifically informed by the Board, after consultation with the member bank's appropriate Federal banking agency, that the member bank may not use this exemption.

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

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

    The following transactions are exempt from the market-terms requirement of § 223.51.

    (a) Purchases of certain asset-backed commercial paper. Purchases of asset-backed commercial paper from an affiliated SEC-registered open-end investment company that holds itself out as a money market mutual fund under SEC Rule 2a-7 (17 CFR 270.2a-7), if the member bank:

    (1) Purchases the asset-backed commercial paper between September 19, 2008, and January 30, 2009 (unless extended by the Board), pursuant to the asset-backed commercial paper lending facility established by the Board on September 19, 2008; and

    (2) Has not been specifically informed by the Board, after consultation with the member bank's appropriate Federal banking agency, that the member bank may not use this exemption.

    (b) [Reserved]

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    Start Printed Page 55710

    By order of the Board of Governors of the Federal Reserve System, September 19, 2008.

    Jennifer J. Johnson,

    Secretary of the Board.

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    [FR Doc. E8-22701 Filed 9-25-08; 8:45 am]

    BILLING CODE 6210-01-P

Document Information

Comments Received:
0 Comments
Effective Date:
9/19/2008
Published:
09/26/2008
Department:
Federal Reserve System
Entry Type:
Rule
Action:
Interim final rule with request for public comment.
Document Number:
E8-22701
Dates:
The exemption became effective on September 19, 2008. Comments must be received on or before October 31, 2008.
Pages:
55708-55710 (3 pages)
Docket Numbers:
Regulation W, Docket No. R-1331
Topics:
Banks, banking, Banks, banking, Banks, banking, Banks, banking, Federal Reserve System
PDF File:
e8-22701.pdf
CFR: (2)
12 CFR 223.42
12 CFR 223.56