Recommendations Regarding Modifications to the Concentration Limit on Large Financial Companies, 6756-6757 [2011-2717]

Agencies

• Financial Stability Oversight Council

[Federal Register Volume 76, Number 26 (Tuesday, February 8, 2011)]
[Notices]
[Pages 6756-6757]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2717]


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Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / 
Notices

[[Page 6756]]



FINANCIAL STABILITY OVERSIGHT COUNCIL


Recommendations Regarding Modifications to the Concentration 
Limit on Large Financial Companies

AGENCY: Financial Stability Oversight Council.

ACTION: Notice and request for comment.

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SUMMARY: Section 622 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Act'' or ``Dodd-Frank Act'') establishes a 
financial sector concentration limit that generally prohibits a 
financial company \1\ from merging or consolidating with, acquiring all 
or substantially all of the assets of, or otherwise acquiring control 
of, another company if the resulting company's consolidated liabilities 
would exceed 10 percent of the aggregate consolidated liabilities of 
all financial companies.\2\ This concentration limit is intended, along 
with a number of other provisions in the Dodd-Frank Act, to promote 
financial stability and address the perception that large financial 
institutions are ``too big to fail.'' Section 622 of the Act also 
requires the Financial Stability Oversight Council (the ``Council'') 
to: (i) Complete a study of the extent to which the concentration limit 
would affect financial stability, moral hazard in the financial system, 
the efficiency and competitiveness of United States financial firms and 
financial markets, and the cost and availability of credit and other 
financial services to households and businesses in the United States; 
and (ii) make recommendations regarding any modifications to the 
concentration limit that the Council determines would more effectively 
implement section 622.\3\ On January 18, 2011, the Council approved and 
issued its concentration limit study and the recommendations on how to 
effectively implement section 622. The Council seeks public comment on 
the Council recommendations described below. The Council will review 
and, if appropriate, revise its recommendations in response to the 
public comments it receives.
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    \1\ Section 622's concentration limit applies only to a 
``financial company,'' which is defined as: (i) An insured 
depository institution; (ii) a bank holding company; (iii) a savings 
and loan holding company; (iv) a company that controls an insured 
depository institution; (v) a nonbank financial company supervised 
by the Board of Governors of the Federal Reserve System under title 
I of the Dodd-Frank Act; and (vi) a foreign bank or company that is 
treated as a bank holding company for purposes of the Bank Holding 
Company Act.
    \2\ Public Law 111-203, 124 Stat. 1376 (2010). We refer to the 
limit established by section 622 generally as the ``concentration 
limit.'' This concentration limit was adopted as a new section 14 to 
the Bank Holding Company Act of 1956 (the ``BHC Act'') (to be 
codified at 12 U.S.C. 1852).
    \3\ See 12 U.S.C. 1852(e).

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DATES: Comments must be received on or before March 10, 2011.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice according to the instructions below. All submissions must 
refer to the document title. The Council encourages the early 
submission of comments.
    Electronic Submission of Comments. Interested persons must submit 
comments electronically through the Federal eRulemaking Portal at 
https://www.regulations.gov. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the Council to make them available to the 
public. Comments submitted electronically through the https://www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    Mail: Send comments to Financial Stability Oversight Council, Attn: 
Amias Gerety, 1500 Pennsylvania Avenue, NW., Washington DC 20220.

    Note:  To receive consideration as public comments, comments 
must be submitted through the methods specified above. Again, all 
submissions must refer to the title of the notice.

    Public Inspection of Public Comments. All properly submitted 
comments will be available for inspection and downloading at https://www.regulations.gov.
    Additional Instructions. In general comments received, including 
attachments and other supporting materials, are part of the public 
record and are immediately available to the public. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: For further information regarding this 
Notice and Request for Comment contact Amias Gerety, Office of Domestic 
Finance, Treasury, at (202) 622-8716 or Jeff King, Office of the 
General Counsel, Treasury, at (202) 622-1978. All responses to this 
Notice and Request for Comment should be submitted via https://www.regulations.gov to ensure consideration.

SUPPLEMENTARY INFORMATION: 

I. Background

    Pursuant to section 622 of the Dodd-Frank Act, on January 18, 2011, 
the Council approved and issued the concentration limit study including 
recommendations on how to effectively implement section 622. The full 
text of the concentration limit study and recommendations can be viewed 
at https://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdf.
    The Council believes that the concentration limit will have a 
positive impact on U.S. financial stability. Specifically, the Council 
believes that the concentration limit will reduce the risks to U.S. 
financial stability created by increased concentration arising from 
mergers, consolidations or acquisitions involving the largest U.S. 
financial companies. In addition, restrictions on future growth through 
acquisition by the largest financial companies ultimately will prevent 
acquisitions that could make these firms harder for their officers and 
directors to manage, for the financial markets to understand and 
discipline, and for regulators to supervise. The concentration limit, 
as structured, could also have the beneficial effect of causing the 
largest financial companies to either shed risk or raise capital to 
reduce their liabilities so as to permit additional acquisitions under 
the concentration limit. Such actions, other things equal, would tend

[[Page 6757]]

to reduce the chance that the firm would fail. Moreover, the 
concentration limit should provide a more comprehensive limitation on 
growth through acquisition than the 10 percent nationwide deposit cap 
imposed by the Riegle-Neal Interstate Banking and Branching Efficiency 
Act of 1994 \4\ because it also takes into account non-deposit 
liabilities and off-balance sheet exposures, limiting incentives to 
shift liabilities from deposits to potentially more volatile on and 
off-balance-sheet liabilities.
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    \4\ Public Law 103-328, 108 Stat. 2338 (1994). Currently, the 
Riegle-Neal Act deposit cap prohibits a depository institution, bank 
holding company or savings and loan holding company from acquiring 
or merging with an insured depository institution in another state 
if, after consummation of the acquisition, the applicant would 
control more than 10 percent of the total amount of deposits of 
insured depository institutions in the United States. See 12 U.S.C. 
1828(c), 1843(i), and 1467a(e)(2).
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    Although the Council expects the impact of the concentration limit 
on moral hazard, competition, and the availability of credit in the 
U.S. financial system to be generally neutral over the short- to 
medium-term, over the long term the Council expects the concentration 
limit to enhance the competitiveness of U.S. financial markets by 
preventing an increased dominance of those markets by a very small 
number of firms.
    The Act specifically provides that the concentration limit set 
forth in section 622 is ``subject to,'' and thus may be modified by, 
the recommendations made by the Council.\5\ The Board of Governors of 
the Federal Reserve System (the ``Board'') is thus required to adopt 
regulations that reflect and are in accordance with the Council's 
recommendations to implement section 622.\6\ The Board must prescribe 
these rules no later than 9 months after completion of the Council's 
study. The Board also is authorized to issue interpretations or 
guidance regarding application of the concentration limit to an 
individual financial company or financial companies generally.
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    \5\ See 12 U.S.C. 1852(b).
    \6\ See 12 U.S.C. 1852(d).
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    To more effectively implement section 622, the Council has 
recommended: (i) Modifying the statutory definition of ``liabilities'' 
for certain companies that do not currently calculate or report risk-
weighted assets; (ii) modifying the calculation of aggregate financial 
sector liabilities to use a two-year rolling average instead of a 
single year for purposes of calculating the denominator of the limit 
and requiring the Board to publicly report, on an annual basis and no 
later than July 1 of any calendar year, a final calculation of the 
aggregate consolidated liabilities of all financial companies as of the 
end of the preceding calendar year; and (iii) extending the exception 
provided in the statute for the acquisition of failing banks to other 
failing insured depository institutions. The specific recommendations 
made by the Council are set forth below. For further information on the 
recommendations, please see the full text of the concentration limit 
study and recommendations at https://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdf. As noted above, the Council will review and, if appropriate, 
revise its recommendations in response to the public comments it 
receives.

II. Solicitation for Public Comments on the Concentration Limit 
Recommendations

    The Council seeks public comment on the Council recommendations as 
follows:

1. Definition of ``Liabilities'' for Certain Companies

    Council Recommendation: The concentration limit under Section 622 
should be modified so that the liabilities of any financial company 
(other than an insurance company, a nonbank financial company 
supervised by the Board, or a foreign bank or a foreign-based financial 
company that is or is treated as a bank holding company) that is not 
subject to consolidated risk-based capital rules that are substantially 
similar to those applicable to bank holding companies shall be 
calculated for purposes of the concentration limit pursuant to GAAP or 
other appropriate accounting standards applicable to such company, 
until such time that these companies may be subject to risk-based 
capital rules or are required to report risk-weighted assets and 
regulatory capital.

2. Collection, Aggregation and Public Dissemination of Concentration 
Limit Data

    Council Recommendation: The concentration limit under Section 622 
should be modified to provide that a transaction covered by section 622 
shall be considered to have violated the concentration limit if the 
total consolidated liabilities of the acquiring financial company upon 
consummation of the transaction would exceed 10 percent of the average 
amount of aggregate consolidated liabilities of all financial companies 
as reported by the Board as of the end of the two most recent calendar 
years. For this purpose, rules issued under section 622 shall provide 
for the Board to publicly report, on an annual basis and no later than 
July 1 of any calendar year, a final calculation of the aggregate 
consolidated liabilities of all financial companies as of the end of 
the preceding calendar year.

3. Acquisition of Failing Insured Depository Institutions

    Council Recommendation: The concentration limit under section 622 
should be modified to provide that, with the prior written consent of 
the Board, the concentration limit shall not apply to an acquisition of 
any type of insured depository institution in default or in danger of 
default.

    Dated: January 31, 2011.
Alastair Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the 
Treasury.
[FR Doc. 2011-2717 Filed 2-7-11; 8:45 am]
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