Modification of Temporary Liquidity Guarantee Program, 9522-9525 [E9-4586]

Download as PDF 9522 Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Rules and Regulations Protection, (202) 898–8633 or larquette@fdic.gov or Donna Saulnier, Manager, Assessment Policy Section, Division of Finance, (703) 562–6167 or dsaulnier@fdic.gov. SUPPLEMENTARY INFORMATION: FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 370 RIN 3064–AD37 Modification of Temporary Liquidity Guarantee Program AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Interim rule with request for comments. SUMMARY: The FDIC is issuing this Interim Rule to make a minor modification to the Temporary Liquidity Guarantee Program (TLGP) to include certain issuances of mandatory convertible debt (MCD) under the TLGP debt guarantee program. DATES: The Interim Rule becomes effective February 27, 2009. Comments on the Interim Rule must be received by March 19, 2009. ADDRESSES: You may submit comments on the Interim Rule, by any of the following methods: • Agency Web Site: http:// www.FDIC.gov/regulations/laws/ federal/notices.html. Follow instructions for submitting comments on the Agency Web site. • E-mail: Comments@FDIC.gov. Include RIN # 3064–AD37 on the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. Instructions: All comments received will be posted generally without change to http://www.fdic.gov/regulations/laws/ federal/propose.html, including any personal information provided. FOR FURTHER INFORMATION CONTACT: Munsell St. Clair, Chief, Bank and Regulatory Policy Section, Division of Insurance and Research, (202) 898–8967 or mstclair@fdic.gov; Robert C. Fick, Counsel, Legal Division, (202) 898–8962 or rfick@fdic.gov; A. Ann Johnson, Counsel, Legal Division (202) 898–3573 or aajohnson@fdic.gov; Mark L. Handzlik, Attorney, Legal Division, (202) 898–3990 or mhandzlik@fdic.gov; Gail Patelunas, Deputy Director, Division of Resolutions and Receiverships, (202) 898–6779 or gpatelunas@fdic.gov; (for questions or comments related to MCD applications): Lisa D. Arquette, Associate Director, Division of Supervision and Consumer VerDate Nov<24>2008 18:51 Mar 03, 2009 Jkt 217001 I. Background In October 2008 the FDIC adopted the TLGP as part of a coordinated effort by the FDIC, the U.S. Department of the Treasury, and the Board of Governors of the Federal Reserve System (Federal Reserve) to address unprecedented disruptions in credit markets and the resultant effects on the ability of financial institutions to fund themselves and to make loans to creditworthy borrowers. The TLGP and other programs have had favorable effects, but experience has indicated that further improvements to the TLGP can be made. In this Interim Rule, the FDIC is making a very narrow targeted improvement to the TLGP. By extending its guarantee to certain new issues of mandatory convertible debt, the FDIC will offer more flexibility for entities currently participating in the debt guarantee program. Specifically, the FDIC’s guarantee of certain mandatory convertible debt will give issuing entities more flexibility to obtain funding from investors that may have a longer-term investment horizon. At the same time, including certain mandatory convertible debt under the TLGP program will reduce the amount of FDIC-guaranteed debt likely to require rollover in mid-2012 by providing a built-in ‘‘exit strategy’’ of having the debt convert to common stock rather than being rolled over.1 II. The Interim Rule Amendment To Allow FDIC Guarantees of Mandatory Convertible Debt As currently written, the TLGP regulation, at Section 370.2(e)(5), precludes an FDIC guarantee for any ‘‘convertible debt.’’ The FDIC has decided to amend the regulation to allow eligible entities to apply to have the FDIC guarantee newly issued senior unsecured debt with a feature that mandates conversion of the debt into common shares of the issuing entity at a specified date no later than the expiration date of the FDIC’s guarantee. 1 This extension of the TLGP is supported by the rationale for establishing the existing TLGP and is consistent with the determination of systemic risk made on October 14, 2008, pursuant to 12 U.S.C. section 1823(c)(4)(G), by the Secretary of the Treasury (after consultation with the President) following receipt of the written recommendation dated October 13, 2008, of the FDIC’s Board of Directors (Board) and the similar written recommendation of the Federal Reserve. PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 No FDIC-guaranteed mandatory convertible debt may be issued without the FDIC’s prior written approval. The intent of the mandatory convertible debt amendment to the TLGP is to give eligible entities additional flexibility to obtain funding from investors with longer-term investment horizons. Further, MCD issuances could reduce the concentration of FDIC-guaranteed debt maturing in mid-2012, which debt might otherwise have to be rolled into new debt. To be eligible for the FDIC’s guarantee, MCD must meet the definition of senior unsecured debt in Section 370.2(e) of the final rule; must be newly issued on or after February 27, 2009; and must provide in the debt instrument for the mandatory conversion of the debt into common shares of the issuing entity on a specified date that is on or before June 30, 2012 (unless the issuing entity fails to timely make any payment required under the debt instrument, or merges or consolidates with any other entity and is not the surviving or resulting entity.) In addition, the proposed Interim Rule provides for a number of disclosures relative to the MCD aspect of the TLGP. This amendment will not result in a change to an eligible entity’s existing debt guarantee cap. The Interim Rule requires a participating entity to file a written application with the FDIC and its appropriate Federal banking agency, and to obtain the FDIC’s prior written approval, before issuing MCD. Like other applications described in the TLGP, an eligible entity that wishes to issue MCD must include the details of the request, a summary of the applicant’s strategic operating plan, and a description of the proposed use of the debt proceeds. In addition, an application to issue FDIC-guaranteed MCD must include the proposed date of issuance, the amount of MCD to be issued, the mandatory conversion date, and the conversion rate (as described in Section 370.3(h)). Finally, since the issuance of debt that will convert into stock could raise control issues, an applicant seeking to issue FDICguaranteed MCD must provide confirmation that the applicant has submitted to its appropriate Federal banking agency all applications and all notices required under the Bank Holding Company Act of 1956, as amended, the Home Owners’ Loan Act, as amended, or the Change in Bank Control Act, as amended in order to issue the debt. The amount of the assessment fee for the FDIC’s guarantee of MCD will be E:\FR\FM\04MRR2.SGM 04MRR2 Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Rules and Regulations based on the time period from issuance of the MCD until its mandatory conversion date. III. Request for Comments The FDIC invites comments on all aspects of the MCD feature of the TLGP as described in the Interim Rule and seeks suggestions for its implementation. IV. Regulatory Analysis and Procedure A. Administrative Procedure Act The process of amending Part 370 by means of this Interim Rule is governed by the Administrative Procedure Act (APA). Pursuant to Section 553(b)(B) of the APA, general notice and opportunity for public comment are not required with respect to a rule making when an agency for good cause finds that ‘‘notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ Similarly, Section 553(d)(3) of the APA provides that the publication of a rule shall be made not less than 30 days before its effective date, except ‘‘* * * (3) as otherwise provided by the agency for good cause found and published with the rule.’’ Consistent with Section 553(b)(B) of the APA, the FDIC finds that good cause exists for a finding that general notice and opportunity for public comment are impracticable and contrary to the public interest. The TLGP was announced by the FDIC on October 14, 2008 as an initiative to counter the system-wide crisis in the nation’s financial sector, and was preceded by a determination of systemic risk by the Secretary of the Treasury after consultation with the President. The systemic risk determination allowed the FDIC to take certain actions to avoid or mitigate serious adverse effects on economic conditions and financial stability. The purpose of the TLGP is to promote financial stability by preserving confidence in the banking system and encouraging liquidity in order to ease lending to creditworthy businesses and consumers, favorably impacting both the availability and cost of credit. This Interim Rule is a modification of the TLGP and permits the FDIC to guarantee senior debt that converts into common stock. Immediate issuance of this Interim Rule furthers the public interest by addressing unprecedented disruption in credit markets. For these same reasons, the FDIC finds good cause to publish this Interim Rule with an immediate effective date. See 5 U.S.C. 553(d)(3). Although general notice and opportunity for public comment are not VerDate Nov<24>2008 18:51 Mar 03, 2009 Jkt 217001 required prior to the effective date, the FDIC invites comments on all aspects of the Interim Rule, which the FDIC may revise if necessary or appropriate in light of the comments received. B. Riegle Community Development and Regulatory Improvement Act The Riegle Community Development and Regulatory Improvement Act (RCDRIA) provides that any new regulations or amendments to regulations prescribed by a Federal banking agency that impose additional reporting, disclosures, or other new requirements on insured depository institutions shall take effect on the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form, unless the agency determines, for good cause published with the rule, that the rule should become effective before such time.2 For the same reasons discussed above, the FDIC finds that good cause exists for an immediate effective date for the Interim Rule. C. Small Business Regulatory Enforcement Fairness Act The Office of Management and Budget has previously determined that the Interim Rule is not a ‘‘major rule’’ within the meaning of the relevant sections of the Small Business Regulatory Enforcement Act of 1996 (SBREFA), 5 U.S.C. 801 et seq. As required by SBREFA, the FDIC will file the appropriate reports with Congress and the Government Accountability Office so that the Interim Rule may be reviewed. D. Regulatory Flexibility Act The Regulatory Flexibility Act (Pub. L. 96–354, Sept. 19, 1980) (RFA) applies only to rules for which an agency publishes a general notice of proposed rule making pursuant to 5 U.S.C. 553(b). As discussed above, consistent with Section 553(b)(B) of the APA, the FDIC has determined for good cause that general notice and opportunity for public comment would be impracticable and contrary to the public interest. Therefore, the RFA, pursuant to 5 U.S.C. 601(2), does not apply. E. Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid Office of Management and Budget (OMB) control number. This Interim 2 12 PO 00000 U.S.C. 4802. Frm 00003 Fmt 4701 Sfmt 4700 9523 Rule establishes an application requirement for institutions wishing to issue FDIC-guaranteed mandatory convertible debt. This new collection of information would modify the FDIC’s existing collection of information entitled, ‘‘Temporary Liquidity Guarantee Program’’ (OMB Control No. 3064–0166). Specifically, sections 370.3(h)(1)(v) and 370.3(h)(2) contain the new collection of information that was submitted to OMB under emergency clearance procedures, with a request for clearance by February 27, 2009. The use of emergency clearance procedures is necessary because of the sudden, unanticipated systemic risks posed to the nation’s financial system by recent economic conditions and because public harm is reasonably likely to result if liquidity is not restored to financial markets. This new collection of information is necessary for implementation of the FDIC guarantee of mandatory convertible debt under the Debt Guarantee component of the TLG program. The proposed burden estimate for the application to issue FDIC-guaranteed mandatory convertible debt is as follows: Title: Temporary Liquidity Guarantee Program. OMB Number: 3064–0166. Frequency of Response: 5. Estimated Number of Respondents: 25. Average Time for Response: 1 hour. Estimated Annual Burden: 125 hours Previous Annual Burden: 2,201,500 hours Total New Burden: 2,201,625 hours If the FDIC obtains OMB approval of its emergency clearance request, it will be followed by a request for clearance under normal procedures in accordance with the provisions of OMB regulation 5 CFR 1320.10. In accordance with normal clearance procedures, public comment will be invited for an initial 60-day comment period and a subsequent 30-day comment period on: (1) Whether this collection of information is necessary for the proper performance of the FDIC’s functions, including whether the information has practical utility; (2) the accuracy of the estimates of the burden of the information collection, including the validity of the methodologies and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and (5) estimates of capital or start up costs, and E:\FR\FM\04MRR2.SGM 04MRR2 9524 Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Rules and Regulations costs of operation, maintenance and purchase of services to provide the information. In the interim, interested parties are invited to submit written comments by any of the following methods. All comments should refer to the name and number of the collection: • http://www.FDIC.gov/regulations/ laws/federal/propose.html. • E-mail: comments@fdic.gov. Include the name and number of the collection in the subject line of the message. • Mail: Leneta Gregorie (202–898– 3719), Counsel, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivery: Comments may be hand-delivered to the guard station at the rear of the 550 17th Street Building (located on F Street), on business days between 7 a.m. and 5 p.m. A copy of the comment may also be submitted to the OMB Desk Officer for the FDIC, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 3208, Washington, DC 20503. List of Subjects in 12 CFR Part 370 Banks, Banking, Bank deposit insurance, Holding companies, National banks, Reporting and recordkeeping requirements, Savings associations. ■ For the reasons stated in the preamble, the Federal Deposit Insurance Corporation amends part 370 of chapter III of Title 12 of the Code of Federal Regulations to read as follows: PART 370—TEMPORARY LIQUIDITY GUARANTEE PROGRAM 1. The authority citation for part 370 shall continue to read as follows: ■ Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818, 1819(a)(Tenth), 1820(f), 1821(a), 1821(c), 1821(d), 1823(c)(4). 2. In part 370, amend § 370.2 as follows: ■ a. Add a new paragraph (e)(1)(iii); ■ b. Revise the first sentence of paragraph (e)(3) and the first sentence of paragraph (e)(5); and ■ c. Add new paragraph (m), as follows: ■ § 370.2 Definitions. * * * * * (e) * * * (1) * * * (iii) After February 27, 2009, unsecured borrowing that satisfies the criteria listed in paragraphs (e)(1)(i)(A) through (e)(1)(i)(D) of this section, that has a stated maturity of more than 30 VerDate Nov<24>2008 19:57 Mar 03, 2009 Jkt 217001 days, and that includes, without limitation, mandatory convertible debt. * * * * * (3) Senior unsecured debt may include, for example, the following debt, provided it meets the requirements of paragraph (e)(1) of this section: mandatory convertible debt as described in paragraph (m) of this section, federal funds purchased, promissory notes, commercial paper, unsubordinated unsecured notes, including zero-coupon bonds, U.S. dollar denominated certificates of deposit owed to an insured depository institution, an insured credit union as defined in the Federal Credit Union Act, or a foreign bank, U.S. dollar denominated deposits in an international banking facility (IBF) of an insured depository institution owed to an insured depository institution or a foreign bank, and U.S. dollar denominated deposits on the books and records of foreign branches of U.S. insured depository institutions that are owed to an insured depository institution or a foreign bank. * * * * * * * (5) Senior unsecured debt excludes, for example, any obligation that has a stated maturity of ‘‘one month’’ 1 obligations from guarantees or other contingent liabilities, derivatives, derivative-linked products, debts that are paired or bundled with other securities, convertible debt other than mandatory convertible debt described in paragraph (m) of this section, capital notes, the unsecured portion of otherwise secured debt, negotiable certificates of deposit, deposits denominated in a foreign currency or other foreign deposits (except as allowed under paragraph (e)(3) of this section), revolving credit agreements, structured notes, instruments that are used for trade credit, retail debt securities, and any funds regardless of form that are swept from individual, partnership, or corporate accounts held at depository institutions. * * * * * * * * (m) Mandatory convertible debt. The term ‘‘mandatory convertible debt’’ means senior unsecured debt that is required by the terms of the debt instrument to convert into common shares of the issuing entity on a fixed and specified date, on or before June 30, 2012, unless the issuing entity (1) Fails to timely make any payment required under the debt instrument, or 1 This recognizes that certain instruments have stated maturities of ‘‘one month,’’ but have a term of up to 35 days because of weekends, holidays, and calendar issues. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 (2) Merges or consolidates with any other entity and is not the surviving or resulting entity. ■ 3. In part 370, amend § 370.3 as follows: ■ a. Revise paragraph (b)(1) and (d); ■ b. In paragraph (h): ■ i. Revise the heading for paragraph (h) ■ ii. Add new paragraph (h)(1)(v), ■ iv. Revise paragraph (h)(2); ■ v. Revise the first sentence of paragraph (h)(3); and ■ vi. Add a new sentence at the end of paragraph (h)(4); as follows: § 370.3 Debt Guarantee Program. * * * * * (b) * * * (1) Except as provided in paragraphs (b)(2) through (b)(6) of this section, the maximum amount of outstanding debt that is guaranteed under the debt guarantee program for each participating entity at any time is limited to 125 percent of the par value of the participating entity’s senior unsecured debt, as that term is defined in § 370.2(e)(1)(i) (excluding mandatory convertible debt), that was outstanding as of the close of business September 30, 2008 and that was scheduled to mature on or before June 30, 2009. * * * * * (d) Duration of Guarantee. For guaranteed debt issued on or before June 30, 2009, the guarantee expires on the earliest of the date of the entity’s opt-out, if any, the mandatory conversion date for mandatory convertible debt, the maturity of the debt, or June 30, 2012. * * * * * (h) Applications for exceptions, eligibility, and issuance of certain debt. (1) * * * (v) A request by a participating entity to issue FDIC-guaranteed mandatory convertible debt. (2) Each letter application must describe the details of the request, provide a summary of the applicant’s strategic operating plan, describe the proposed use of the debt proceeds, and in the case of an application for approval of the issuance of (i) Mandatory convertible debt, must also include: (A) the proposed date of issuance; (B) the total amount of the mandatory convertible debt to be issued; (C) the mandatory conversion date, (D) the conversion rate (i.e., the total number of shares of common stock that will result from the conversion divided by the total dollar amount of the mandatory convertible debt to be issued), (E) confirmation that all applications and all notices required under the Bank E:\FR\FM\04MRR2.SGM 04MRR2 Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Rules and Regulations Holding Company Act of 1956, as amended, the Home Owners’ Loan Act, as amended, or the Change in Bank Control Act, as amended, have been submitted to the applicant’s appropriate Federal banking agency in connection with the proposed issuance; and (F) any other relevant information that the FDIC deems appropriate. (3) The factors to be considered by the FDIC in evaluating applications filed pursuant to paragraphs (h)(1)(i) through (h)(1)(iii) and (h)(1)(v) of this section include: the financial condition and supervisory history of the eligible/ surviving entity. * * * (4) * * * Applications made pursuant to paragraph (h)(1)(v) of this section must be filed with the FDIC no later than June 30, 2009. * * * * * ■ 4. In part 370, amend § 370.5 as follows: ■ a. At the end of paragraph (h)(2), remove the last italicized sentence and add in its place two new sentences; and ■ b. Add new paragraph (j) as follows: § 370.5 Participation. * * * * * (h) * * * (2) * * * [If the debt being issued is mandatory convertible debt, add: The expiration date of the FDIC’s guarantee is the earlier of the mandatory conversion date or June 30, 2012]. [If the debt being issued is any other senior unsecured debt, add: The expiration date of the FDIC’s guarantee is the earlier of the maturity date of the debt or June 30, 2012.] * * * * * (j) No mandatory convertible debt may be issued without obtaining the FDIC’s prior written approval. ■ 5. In part 370, amend § 370.6 as follows: ■ a. Revise paragraphs (d)(1). ■ b. Revise the first sentence of (d)(3). ■ c. Revise (d)(5) as follows: § 370.6 Assessments under the Debt Guarantee Program. For debt with a maturity or time period to conversion date of— SUMMARY: The FDIC is amending our regulation to alter the way in which it differentiates for risk in the risk-based assessment system; revise deposit insurance assessment rates, including base assessment rates; and make 50 technical and other changes to the rules 75 governing the risk-based assessment 100 system. The annualized assessment rate (in basis points) is— 180 days or less (excluding overnight debt) .................. 181–364 days ....................... 365 days or greater .............. * * * * * (3) The amount of assessment for an eligible entity, other than an insured depository institution, that controls, directly or indirectly, or is otherwise affiliated with, at least one insured depository institution will be determined by multiplying the amount of FDIC-guaranteed debt times the term of the debt or, in the case of mandatory convertible debt, the time period from issuance to the mandatory conversion date, times an annualized assessment rate determined in accordance with the rates set forth in the table in paragraph (d)(1) of this section, except that each such rate shall be increased by 10 basis points, if the combined assets of all insured depository institutions affiliated with such entity constitute less than 50 percent of consolidated holding company assets. * * * * * * * * (5) No assessment reduction for early retirement of guaranteed debt. A participating entity’s assessment shall not be reduced if guaranteed debt is retired prior to its scheduled maturity date or conversion date. * * * * * ■ 6. In part 370, amend § 370.12 to add a new sentence immediately after the first sentence in paragraph (b)(2); as follows: § 370.12 Payment on the guarantee. * * * * * (b) * * * (2) * * * For purposes of mandatory convertible debt, principal payment shall be limited to amounts paid by holders under the issuance. * * * * * * * * [FR Doc. E9–4586 Filed 2–27–09; 4:15 pm] BILLING CODE 6714–01–P * * * * (d) * * * (1) Calculation of assessment. Except as provided in paragraph (d)(3) of this section, the amount of assessment will be determined by multiplying the amount of FDIC-guaranteed debt times the term of the debt or, in the case of mandatory convertible debt, the time period from issuance to the mandatory conversion date, times an annualized assessment rate determined in accordance with the following table. * VerDate Nov<24>2008 20:35 Mar 03, 2009 Jkt 217001 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 327 RIN 3064–AD35 Assessments AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Final rule. PO 00000 Frm 00005 Fmt 4701 9525 Sfmt 4700 DATES: Effective Date: April 1, 2009. FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Chief, Banking and Regulatory Policy Section, Division of Insurance and Research, (202) 898– 8967; and Christopher Bellotto, Counsel, Legal Division, (202) 898–3801. SUPPLEMENTARY INFORMATION: I. Background The Reform Act On February 8, 2006, the President signed the Federal Deposit Insurance Reform Act of 2005 into law; on February 15, 2006, he signed the Federal Deposit Insurance Reform Conforming Amendments Act of 2005 (collectively, the Reform Act).1 The Reform Act enacted the bulk of the reform recommendations made by the FDIC in 2001.2 The Reform Act, among other things, required that the FDIC, ‘‘prescribe final regulations, after notice and opportunity for comment * * * providing for assessments under section 7(b) of the Federal Deposit Insurance Act, as amended * * *,’’ thus giving the FDIC, through its rulemaking authority, the opportunity to better price deposit insurance for risk.3 The Federal Deposit Insurance Act, as amended by the Reform Act, continues to require that the assessment system be risk-based and allows the FDIC to define risk broadly. It defines a risk-based system as one based on an institution’s probability of causing a loss to the deposit insurance fund due to the composition and concentration of the institution’s assets and liabilities, the amount of loss given failure, and revenue needs of the Deposit Insurance Fund (the fund or DIF).4 1 Federal Deposit Insurance Reform Act of 2005, Public Law 109–171, 120 Stat. 9; Federal Deposit Insurance Conforming Amendments Act of 2005, Public Law 109–173, 119 Stat. 3601. 2 After a year long review of the deposit insurance system, the FDIC made several recommendations to Congress to reform the deposit insurance system. See http://www.fdic.gov/deposit/insurance/ initiative/direcommendations.html for details. 3 Section 2109(a)(5) of the Reform Act. Section 7(b) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)). 4 12 Section 7(b)(1)(C) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(1)(C)). The Reform Act merged the former Bank Insurance Fund and Savings Association Insurance Fund into the Deposit Insurance Fund. E:\FR\FM\04MRR2.SGM 04MRR2

Agencies

[Federal Register Volume 74, Number 41 (Wednesday, March 4, 2009)]
[Rules and Regulations]
[Pages 9522-9525]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-4586]



[[Page 9521]]

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Part III





Federal Deposit Insurance Corporation





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12 CFR Parts 327 and 370



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 Federal Deposit Insurance Corporation Amended Restoration Plan; 
Assessments; Modification of Temporary Liquidity Guarantee Program; 
Notice, Interim Final Rule, and Final Rule

Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Rules 
and Regulations

[[Page 9522]]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 370

RIN 3064-AD37


Modification of Temporary Liquidity Guarantee Program

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comments.

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SUMMARY: The FDIC is issuing this Interim Rule to make a minor 
modification to the Temporary Liquidity Guarantee Program (TLGP) to 
include certain issuances of mandatory convertible debt (MCD) under the 
TLGP debt guarantee program.

DATES: The Interim Rule becomes effective February 27, 2009. Comments 
on the Interim Rule must be received by March 19, 2009.

ADDRESSES: You may submit comments on the Interim Rule, by any of the 
following methods:
     Agency Web Site: http://www.FDIC.gov/regulations/laws/federal/notices.html. Follow instructions for submitting comments on 
the Agency Web site.
     E-mail: Comments@FDIC.gov. Include RIN  3064-AD37 
on the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7 a.m. and 5 p.m.
    Instructions: All comments received will be posted generally 
without change to http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Munsell St. Clair, Chief, Bank and 
Regulatory Policy Section, Division of Insurance and Research, (202) 
898-8967 or fdic.gov">mstclair@fdic.gov; Robert C. Fick, Counsel, Legal Division, 
(202) 898-8962 or rfick@fdic.gov; A. Ann Johnson, Counsel, Legal 
Division (202) 898-3573 or fdic.gov">aajohnson@fdic.gov; Mark L. Handzlik, 
Attorney, Legal Division, (202) 898-3990 or mhandzlik@fdic.gov; Gail 
Patelunas, Deputy Director, Division of Resolutions and Receiverships, 
(202) 898-6779 or fdic.gov">gpatelunas@fdic.gov; (for questions or comments 
related to MCD applications): Lisa D. Arquette, Associate Director, 
Division of Supervision and Consumer Protection, (202) 898-8633 or 
fdic.gov">larquette@fdic.gov or Donna Saulnier, Manager, Assessment Policy 
Section, Division of Finance, (703) 562-6167 or fdic.gov">dsaulnier@fdic.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    In October 2008 the FDIC adopted the TLGP as part of a coordinated 
effort by the FDIC, the U.S. Department of the Treasury, and the Board 
of Governors of the Federal Reserve System (Federal Reserve) to address 
unprecedented disruptions in credit markets and the resultant effects 
on the ability of financial institutions to fund themselves and to make 
loans to creditworthy borrowers. The TLGP and other programs have had 
favorable effects, but experience has indicated that further 
improvements to the TLGP can be made. In this Interim Rule, the FDIC is 
making a very narrow targeted improvement to the TLGP.
    By extending its guarantee to certain new issues of mandatory 
convertible debt, the FDIC will offer more flexibility for entities 
currently participating in the debt guarantee program. Specifically, 
the FDIC's guarantee of certain mandatory convertible debt will give 
issuing entities more flexibility to obtain funding from investors that 
may have a longer-term investment horizon. At the same time, including 
certain mandatory convertible debt under the TLGP program will reduce 
the amount of FDIC-guaranteed debt likely to require rollover in mid-
2012 by providing a built-in ``exit strategy'' of having the debt 
convert to common stock rather than being rolled over.\1\
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    \1\ This extension of the TLGP is supported by the rationale for 
establishing the existing TLGP and is consistent with the 
determination of systemic risk made on October 14, 2008, pursuant to 
12 U.S.C. section 1823(c)(4)(G), by the Secretary of the Treasury 
(after consultation with the President) following receipt of the 
written recommendation dated October 13, 2008, of the FDIC's Board 
of Directors (Board) and the similar written recommendation of the 
Federal Reserve.
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II. The Interim Rule

Amendment To Allow FDIC Guarantees of Mandatory Convertible Debt

    As currently written, the TLGP regulation, at Section 370.2(e)(5), 
precludes an FDIC guarantee for any ``convertible debt.'' The FDIC has 
decided to amend the regulation to allow eligible entities to apply to 
have the FDIC guarantee newly issued senior unsecured debt with a 
feature that mandates conversion of the debt into common shares of the 
issuing entity at a specified date no later than the expiration date of 
the FDIC's guarantee. No FDIC-guaranteed mandatory convertible debt may 
be issued without the FDIC's prior written approval.
    The intent of the mandatory convertible debt amendment to the TLGP 
is to give eligible entities additional flexibility to obtain funding 
from investors with longer-term investment horizons. Further, MCD 
issuances could reduce the concentration of FDIC-guaranteed debt 
maturing in mid-2012, which debt might otherwise have to be rolled into 
new debt.
    To be eligible for the FDIC's guarantee, MCD must meet the 
definition of senior unsecured debt in Section 370.2(e) of the final 
rule; must be newly issued on or after February 27, 2009; and must 
provide in the debt instrument for the mandatory conversion of the debt 
into common shares of the issuing entity on a specified date that is on 
or before June 30, 2012 (unless the issuing entity fails to timely make 
any payment required under the debt instrument, or merges or 
consolidates with any other entity and is not the surviving or 
resulting entity.) In addition, the proposed Interim Rule provides for 
a number of disclosures relative to the MCD aspect of the TLGP.
    This amendment will not result in a change to an eligible entity's 
existing debt guarantee cap.
    The Interim Rule requires a participating entity to file a written 
application with the FDIC and its appropriate Federal banking agency, 
and to obtain the FDIC's prior written approval, before issuing MCD.
    Like other applications described in the TLGP, an eligible entity 
that wishes to issue MCD must include the details of the request, a 
summary of the applicant's strategic operating plan, and a description 
of the proposed use of the debt proceeds. In addition, an application 
to issue FDIC-guaranteed MCD must include the proposed date of 
issuance, the amount of MCD to be issued, the mandatory conversion 
date, and the conversion rate (as described in Section 370.3(h)). 
Finally, since the issuance of debt that will convert into stock could 
raise control issues, an applicant seeking to issue FDIC-guaranteed MCD 
must provide confirmation that the applicant has submitted to its 
appropriate Federal banking agency all applications and all notices 
required under the Bank Holding Company Act of 1956, as amended, the 
Home Owners' Loan Act, as amended, or the Change in Bank Control Act, 
as amended in order to issue the debt.
    The amount of the assessment fee for the FDIC's guarantee of MCD 
will be

[[Page 9523]]

based on the time period from issuance of the MCD until its mandatory 
conversion date.

III. Request for Comments

    The FDIC invites comments on all aspects of the MCD feature of the 
TLGP as described in the Interim Rule and seeks suggestions for its 
implementation.

IV. Regulatory Analysis and Procedure

A. Administrative Procedure Act

    The process of amending Part 370 by means of this Interim Rule is 
governed by the Administrative Procedure Act (APA). Pursuant to Section 
553(b)(B) of the APA, general notice and opportunity for public comment 
are not required with respect to a rule making when an agency for good 
cause finds that ``notice and public procedure thereon are 
impracticable, unnecessary, or contrary to the public interest.'' 
Similarly, Section 553(d)(3) of the APA provides that the publication 
of a rule shall be made not less than 30 days before its effective 
date, except ``* * * (3) as otherwise provided by the agency for good 
cause found and published with the rule.''
    Consistent with Section 553(b)(B) of the APA, the FDIC finds that 
good cause exists for a finding that general notice and opportunity for 
public comment are impracticable and contrary to the public interest. 
The TLGP was announced by the FDIC on October 14, 2008 as an initiative 
to counter the system-wide crisis in the nation's financial sector, and 
was preceded by a determination of systemic risk by the Secretary of 
the Treasury after consultation with the President. The systemic risk 
determination allowed the FDIC to take certain actions to avoid or 
mitigate serious adverse effects on economic conditions and financial 
stability. The purpose of the TLGP is to promote financial stability by 
preserving confidence in the banking system and encouraging liquidity 
in order to ease lending to creditworthy businesses and consumers, 
favorably impacting both the availability and cost of credit. This 
Interim Rule is a modification of the TLGP and permits the FDIC to 
guarantee senior debt that converts into common stock. Immediate 
issuance of this Interim Rule furthers the public interest by 
addressing unprecedented disruption in credit markets. For these same 
reasons, the FDIC finds good cause to publish this Interim Rule with an 
immediate effective date. See 5 U.S.C. 553(d)(3).
    Although general notice and opportunity for public comment are not 
required prior to the effective date, the FDIC invites comments on all 
aspects of the Interim Rule, which the FDIC may revise if necessary or 
appropriate in light of the comments received.

B. Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
(RCDRIA) provides that any new regulations or amendments to regulations 
prescribed by a Federal banking agency that impose additional 
reporting, disclosures, or other new requirements on insured depository 
institutions shall take effect on the first day of a calendar quarter 
which begins on or after the date on which the regulations are 
published in final form, unless the agency determines, for good cause 
published with the rule, that the rule should become effective before 
such time.\2\ For the same reasons discussed above, the FDIC finds that 
good cause exists for an immediate effective date for the Interim Rule.
---------------------------------------------------------------------------

    \2\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

C. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has previously determined that 
the Interim Rule is not a ``major rule'' within the meaning of the 
relevant sections of the Small Business Regulatory Enforcement Act of 
1996 (SBREFA), 5 U.S.C. 801 et seq. As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the Government 
Accountability Office so that the Interim Rule may be reviewed.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (Pub. L. 96-354, Sept. 19, 1980) 
(RFA) applies only to rules for which an agency publishes a general 
notice of proposed rule making pursuant to 5 U.S.C. 553(b). As 
discussed above, consistent with Section 553(b)(B) of the APA, the FDIC 
has determined for good cause that general notice and opportunity for 
public comment would be impracticable and contrary to the public 
interest. Therefore, the RFA, pursuant to 5 U.S.C. 601(2), does not 
apply.

E. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501 et seq.), an agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. This Interim Rule establishes an application 
requirement for institutions wishing to issue FDIC-guaranteed mandatory 
convertible debt. This new collection of information would modify the 
FDIC's existing collection of information entitled, ``Temporary 
Liquidity Guarantee Program'' (OMB Control No. 3064-0166). 
Specifically, sections 370.3(h)(1)(v) and 370.3(h)(2) contain the new 
collection of information that was submitted to OMB under emergency 
clearance procedures, with a request for clearance by February 27, 
2009. The use of emergency clearance procedures is necessary because of 
the sudden, unanticipated systemic risks posed to the nation's 
financial system by recent economic conditions and because public harm 
is reasonably likely to result if liquidity is not restored to 
financial markets. This new collection of information is necessary for 
implementation of the FDIC guarantee of mandatory convertible debt 
under the Debt Guarantee component of the TLG program.
    The proposed burden estimate for the application to issue FDIC-
guaranteed mandatory convertible debt is as follows:
    Title: Temporary Liquidity Guarantee Program.
    OMB Number: 3064-0166.
    Frequency of Response: 5.
    Estimated Number of Respondents: 25.
    Average Time for Response: 1 hour.
    Estimated Annual Burden: 125 hours
    Previous Annual Burden: 2,201,500 hours
    Total New Burden: 2,201,625 hours
    If the FDIC obtains OMB approval of its emergency clearance 
request, it will be followed by a request for clearance under normal 
procedures in accordance with the provisions of OMB regulation 5 CFR 
1320.10. In accordance with normal clearance procedures, public comment 
will be invited for an initial 60-day comment period and a subsequent 
30-day comment period on: (1) Whether this collection of information is 
necessary for the proper performance of the FDIC's functions, including 
whether the information has practical utility; (2) the accuracy of the 
estimates of the burden of the information collection, including the 
validity of the methodologies and assumptions used; (3) ways to enhance 
the quality, utility, and clarity of the information to be collected; 
and (4) ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and (5) estimates 
of capital or start up costs, and

[[Page 9524]]

costs of operation, maintenance and purchase of services to provide the 
information. In the interim, interested parties are invited to submit 
written comments by any of the following methods.
    All comments should refer to the name and number of the collection:
     http://www.FDIC.gov/regulations/laws/federal/propose.html.
     E-mail: comments@fdic.gov. Include the name and number of 
the collection in the subject line of the message.
     Mail: Leneta Gregorie (202-898-3719), Counsel, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street), on business days between 7 a.m. and 5 p.m.

A copy of the comment may also be submitted to the OMB Desk Officer for 
the FDIC, Office of Information and Regulatory Affairs, Office of 
Management and Budget, New Executive Office Building, Room 3208, 
Washington, DC 20503.

List of Subjects in 12 CFR Part 370

    Banks, Banking, Bank deposit insurance, Holding companies, National 
banks, Reporting and recordkeeping requirements, Savings associations.

0
For the reasons stated in the preamble, the Federal Deposit Insurance 
Corporation amends part 370 of chapter III of Title 12 of the Code of 
Federal Regulations to read as follows:

PART 370--TEMPORARY LIQUIDITY GUARANTEE PROGRAM

0
1. The authority citation for part 370 shall continue to read as 
follows:

    Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818, 
1819(a)(Tenth), 1820(f), 1821(a), 1821(c), 1821(d), 1823(c)(4).


0
2. In part 370, amend Sec.  370.2 as follows:
0
a. Add a new paragraph (e)(1)(iii);
0
b. Revise the first sentence of paragraph (e)(3) and the first sentence 
of paragraph (e)(5); and
0
c. Add new paragraph (m), as follows:


Sec.  370.2  Definitions.

* * * * *
    (e) * * *
    (1) * * *
    (iii) After February 27, 2009, unsecured borrowing that satisfies 
the criteria listed in paragraphs (e)(1)(i)(A) through (e)(1)(i)(D) of 
this section, that has a stated maturity of more than 30 days, and that 
includes, without limitation, mandatory convertible debt.
* * * * *
    (3) Senior unsecured debt may include, for example, the following 
debt, provided it meets the requirements of paragraph (e)(1) of this 
section: mandatory convertible debt as described in paragraph (m) of 
this section, federal funds purchased, promissory notes, commercial 
paper, unsubordinated unsecured notes, including zero-coupon bonds, 
U.S. dollar denominated certificates of deposit owed to an insured 
depository institution, an insured credit union as defined in the 
Federal Credit Union Act, or a foreign bank, U.S. dollar denominated 
deposits in an international banking facility (IBF) of an insured 
depository institution owed to an insured depository institution or a 
foreign bank, and U.S. dollar denominated deposits on the books and 
records of foreign branches of U.S. insured depository institutions 
that are owed to an insured depository institution or a foreign bank. * 
*
* * * * *
    (5) Senior unsecured debt excludes, for example, any obligation 
that has a stated maturity of ``one month'' \1\ obligations from 
guarantees or other contingent liabilities, derivatives, derivative-
linked products, debts that are paired or bundled with other 
securities, convertible debt other than mandatory convertible debt 
described in paragraph (m) of this section, capital notes, the 
unsecured portion of otherwise secured debt, negotiable certificates of 
deposit, deposits denominated in a foreign currency or other foreign 
deposits (except as allowed under paragraph (e)(3) of this section), 
revolving credit agreements, structured notes, instruments that are 
used for trade credit, retail debt securities, and any funds regardless 
of form that are swept from individual, partnership, or corporate 
accounts held at depository institutions.
---------------------------------------------------------------------------

    \1\ This recognizes that certain instruments have stated 
maturities of ``one month,'' but have a term of up to 35 days 
because of weekends, holidays, and calendar issues.
---------------------------------------------------------------------------

    * * *
* * * * *
    (m) Mandatory convertible debt. The term ``mandatory convertible 
debt'' means senior unsecured debt that is required by the terms of the 
debt instrument to convert into common shares of the issuing entity on 
a fixed and specified date, on or before June 30, 2012, unless the 
issuing entity
    (1) Fails to timely make any payment required under the debt 
instrument, or
    (2) Merges or consolidates with any other entity and is not the 
surviving or resulting entity.

0
3. In part 370, amend Sec.  370.3 as follows:
0
a. Revise paragraph (b)(1) and (d);
0
b. In paragraph (h):
0
i. Revise the heading for paragraph (h)
0
ii. Add new paragraph (h)(1)(v),
0
iv. Revise paragraph (h)(2);
0
v. Revise the first sentence of paragraph (h)(3); and
0
vi. Add a new sentence at the end of paragraph (h)(4); as follows:


Sec.  370.3  Debt Guarantee Program.

* * * * *
    (b) * * *
    (1) Except as provided in paragraphs (b)(2) through (b)(6) of this 
section, the maximum amount of outstanding debt that is guaranteed 
under the debt guarantee program for each participating entity at any 
time is limited to 125 percent of the par value of the participating 
entity's senior unsecured debt, as that term is defined in Sec.  
370.2(e)(1)(i) (excluding mandatory convertible debt), that was 
outstanding as of the close of business September 30, 2008 and that was 
scheduled to mature on or before June 30, 2009.
* * * * *
    (d) Duration of Guarantee.
    For guaranteed debt issued on or before June 30, 2009, the 
guarantee expires on the earliest of the date of the entity's opt-out, 
if any, the mandatory conversion date for mandatory convertible debt, 
the maturity of the debt, or June 30, 2012.
* * * * *
    (h) Applications for exceptions, eligibility, and issuance of 
certain debt.
    (1) * * *
    (v) A request by a participating entity to issue FDIC-guaranteed 
mandatory convertible debt.
    (2) Each letter application must describe the details of the 
request, provide a summary of the applicant's strategic operating plan, 
describe the proposed use of the debt proceeds, and in the case of an 
application for approval of the issuance of
    (i) Mandatory convertible debt, must also include:
    (A) the proposed date of issuance;
    (B) the total amount of the mandatory convertible debt to be 
issued;
    (C) the mandatory conversion date,
    (D) the conversion rate (i.e., the total number of shares of common 
stock that will result from the conversion divided by the total dollar 
amount of the mandatory convertible debt to be issued),
    (E) confirmation that all applications and all notices required 
under the Bank

[[Page 9525]]

Holding Company Act of 1956, as amended, the Home Owners' Loan Act, as 
amended, or the Change in Bank Control Act, as amended, have been 
submitted to the applicant's appropriate Federal banking agency in 
connection with the proposed issuance; and
    (F) any other relevant information that the FDIC deems appropriate.
    (3) The factors to be considered by the FDIC in evaluating 
applications filed pursuant to paragraphs (h)(1)(i) through (h)(1)(iii) 
and (h)(1)(v) of this section include: the financial condition and 
supervisory history of the eligible/surviving entity. * * *
    (4) * * * Applications made pursuant to paragraph (h)(1)(v) of this 
section must be filed with the FDIC no later than June 30, 2009.
* * * * *

0
4. In part 370, amend Sec.  370.5 as follows:
0
a. At the end of paragraph (h)(2), remove the last italicized sentence 
and add in its place two new sentences; and
0
b. Add new paragraph (j) as follows:


Sec.  370.5  Participation.

* * * * *
    (h) * * *
    (2) * * * [If the debt being issued is mandatory convertible debt, 
add: The expiration date of the FDIC's guarantee is the earlier of the 
mandatory conversion date or June 30, 2012]. [If the debt being issued 
is any other senior unsecured debt, add: The expiration date of the 
FDIC's guarantee is the earlier of the maturity date of the debt or 
June 30, 2012.]
* * * * *
    (j) No mandatory convertible debt may be issued without obtaining 
the FDIC's prior written approval.

0
5. In part 370, amend Sec.  370.6 as follows:
0
a. Revise paragraphs (d)(1).
0
b. Revise the first sentence of (d)(3).
0
c. Revise (d)(5) as follows:


Sec.  370.6  Assessments under the Debt Guarantee Program.

* * * * *
    (d) * * *
    (1) Calculation of assessment. Except as provided in paragraph 
(d)(3) of this section, the amount of assessment will be determined by 
multiplying the amount of FDIC-guaranteed debt times the term of the 
debt or, in the case of mandatory convertible debt, the time period 
from issuance to the mandatory conversion date, times an annualized 
assessment rate determined in accordance with the following table.

------------------------------------------------------------------------
                                                                The
                                                            annualized
  For debt with a maturity or time period to conversion     assessment
                        date of--                         rate (in basis
                                                            points) is--
------------------------------------------------------------------------
180 days or less (excluding overnight debt).............              50
181-364 days............................................              75
365 days or greater.....................................             100
------------------------------------------------------------------------

* * * * *
    (3) The amount of assessment for an eligible entity, other than an 
insured depository institution, that controls, directly or indirectly, 
or is otherwise affiliated with, at least one insured depository 
institution will be determined by multiplying the amount of FDIC-
guaranteed debt times the term of the debt or, in the case of mandatory 
convertible debt, the time period from issuance to the mandatory 
conversion date, times an annualized assessment rate determined in 
accordance with the rates set forth in the table in paragraph (d)(1) of 
this section, except that each such rate shall be increased by 10 basis 
points, if the combined assets of all insured depository institutions 
affiliated with such entity constitute less than 50 percent of 
consolidated holding company assets. * * *
* * * * *
    (5) No assessment reduction for early retirement of guaranteed 
debt. A participating entity's assessment shall not be reduced if 
guaranteed debt is retired prior to its scheduled maturity date or 
conversion date.
* * * * *

0
6. In part 370, amend Sec.  370.12 to add a new sentence immediately 
after the first sentence in paragraph (b)(2); as follows:


Sec.  370.12  Payment on the guarantee.

* * * * *
    (b) * * *
    (2) * * * For purposes of mandatory convertible debt, principal 
payment shall be limited to amounts paid by holders under the issuance. 
* * *
* * * * *
 [FR Doc. E9-4586 Filed 2-27-09; 4:15 pm]
BILLING CODE 6714-01-P