Alternatives to the Use of External Credit Ratings in the Regulations of the OCC, 76905-76906 [2011-31574]

Agencies

• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 237 (Friday, December 9, 2011)]
[Proposed Rules]
[Pages 76905-76906]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31574]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket ID OCC-2011-0019]
RIN 1557-AD36


Alternatives to the Use of External Credit Ratings in the 
Regulations of the OCC

AGENCY: Office of the Comptroller of the Currency, Department of the 
Treasury.

ACTION: Notice of proposed rulemaking; correcting amendment.

-----------------------------------------------------------------------

SUMMARY: This notice of proposed rulemaking makes technical corrections 
to the notice of proposed rulemaking concerning alternatives to the use 
of external credit ratings that was published on November 29, 2011 to 
correct a mischaracterization of section 939(d) of the Dodd-Frank Act.

FOR FURTHER INFORMATION CONTACT: Carl Kaminski, Senior Attorney, 
Legislative and Regulatory Activities Division, (202) 874-5090, Office 
of the Comptroller of the Currency, 250 E Street SW., Washington, DC 
20219.

SUPPLEMENTARY INFORMATION: 
    On November 29, 2011, the Office of the Comptroller of the Currency 
(OCC) published a notice of proposed rulemaking (NPRM) seeking comment 
on a proposal to revise its regulations pertaining to investment 
securities, securities offerings, and foreign bank capital equivalency 
deposits to replace references to credit ratings with alternative 
standards of creditworthiness.\1\ The OCC also sought comment on 
proposed amendments to its regulations pertaining to financial 
subsidiaries of national banks to better reflect the language of the 
underlying statute, as amended by section 939(d) of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \1\ 76 FR 73626 (November 29, 2011).
---------------------------------------------------------------------------

    The National Bank Act currently permits a national bank that is one 
of the 100 largest insured banks to control a financial subsidiary, 
directly or indirectly, or to hold an interest in a financial 
subsidiary only if the bank has at least one issue of outstanding debt 
rated in one of the top three investment grade categories by a 
nationally recognized statistical rating organization (NRSRO).\2\ A 
national bank that is one of the second 50 largest insured banks may 
either satisfy this requirement or may satisfy such other criteria as 
the Secretary of the Treasury and the Federal Reserve Board may 
establish jointly by regulation. This creditworthiness requirement does 
not apply to national banks that are not among the largest 100 insured 
banks.
---------------------------------------------------------------------------

    \2\ 12 U.S.C. 24a.
---------------------------------------------------------------------------

    Section 939(d) of the Dodd-Frank Act amended the creditworthiness 
requirement to remove the reference to nationally recognized 
statistical rating organization (NRSRO) ratings and to

[[Page 76906]]

make other revisions to the provision. Thus, effective on July 21, 
2012, a national bank that is one of the 100 largest insured banks may 
control a financial subsidiary, directly or indirectly, or hold an 
interest in a financial subsidiary only if the bank has not fewer than 
one issue of outstanding debt that meets such standards of 
creditworthiness or other criteria as the Secretary of the Treasury and 
the Federal Reserve Board may jointly establish.
    The proposed revisions to the OCC's rules at 12 CFR 5.39 in the 
November 29 NPRM inaccurately characterized the creditworthiness 
requirement, leaving the erroneous impression that only a national bank 
that is among the 100 largest insured banks could control or hold an 
interest in financial subsidiary. This notice makes a technical 
correction to the regulatory text in the NPRM so that the 
characterization of the Dodd-Frank Act amendment is accurate. As is the 
case under current law, the creditworthiness requirement does not apply 
to an insured depository institution that is not among the largest 100 
insured depository institutions and therefore does not affect the 
ability of such an institution to control or hold an interest in a 
financial subsidiary. The technical correction made in this notice also 
does not affect the content or substance of the alternative standards 
of creditworthiness in the November 29 NPRM or in the supervisory 
guidance that was published at the same time.

Regulatory Analysis

A. Paperwork Reduction Act

    The November 29 notice of proposed rulemaking would amend several 
regulations for which the OCC currently has approved collections of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3520) 
(OMB Control Nos. 1557-0014; 1557-0190; 1557-0120; 1557-0205). Neither 
the amendments in the November 29 proposal, nor this revision to it, 
introduce any new collections of information into the rules, nor do 
they amend the rules in a way that substantively modifies the 
collections of information that OMB has previously approved. Therefore, 
no additional OMB PRA approval is required at this time.

B. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act,\3\ 
(RFA), the regulatory flexibility analysis otherwise required under 
section 604 of the RFA is not required if an agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities (defined for purposes of the RFA to include 
banks with assets less than or equal to $175 million) and publishes its 
certification and a short, explanatory statement in the Federal 
Register along with its rule.
---------------------------------------------------------------------------

    \3\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    The November 29 proposal would affect all 578 small national banks 
and all 288 small federally chartered savings associations.\4\ However, 
because banks have long been expected to maintain a risk management 
process to ensure that credit risk is effectively identified, measured, 
monitored, and controlled, most if not all of the institutions affected 
by the proposed rule already engage in appropriate risk management 
activity. Although the proposed rule will affect a substantial number 
of small banks and federally chartered savings associations, it will 
not have a significant effect on a substantial number of those 
institutions. Therefore, the OCC certifies that the proposed rule would 
not have a significant impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \4\ All totals are as of June 30, 2011.
---------------------------------------------------------------------------

C. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (UMRA) requires that an agency prepare a budgetary impact 
statement before promulgating a rule that includes 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 (adjusted annually for inflation) in any one year. If a 
budgetary impact statement is required, section 205 of the UMRA also 
requires an agency to identify and consider a reasonable number of 
regulatory alternatives before promulgating a rule.
    The OCC has determined that its proposed rule would not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $100 million or more. Accordingly, the OCC has not prepared 
a budgetary impact statement or specifically addressed the regulatory 
alternatives considered.

List of Subjects in 12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

Authority and Issuance

    For the reasons stated in the preamble, the Office of the 
Comptroller of the Currency is proposing to amend Part 5 of chapter I 
of Title 12, Code of Federal Regulations as follows:

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

    2. The authority citation for part 5 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 93a, 215a-2, 215a-3, 481, and 
section 5136A of the Revised Statutes (12 U.S.C. 24a).

    3. In section 5.39, revise paragraphs (g)(3) through (4) and (j)(2) 
to read as follows:


Sec.  5.39  Financial subsidiaries.

* * * * *
    (g) * * *
    (3) If the national bank is one of the 100 largest insured banks, 
determined on the basis of the bank's consolidated total assets at the 
end of the calendar year, the bank has not fewer than one issue of 
outstanding debt that meets such standards of creditworthiness or other 
criteria as the Secretary of the Treasury and the Federal Reserve Board 
may jointly establish pursuant to Section 5136A of title LXII of the 
Revised Statutes (12 U.S.C. 24a).
    (4) Paragraph (g)(3) does not apply if the financial subsidiary is 
engaged solely in activities in an agency capacity.
* * * * *
    (j) * * *
    (2) Eligible debt requirement. A national bank that does not 
continue to meet the qualification requirement set forth in paragraph 
(g)(3) of this section, applicable where the bank's financial 
subsidiary is engaged in activities other than solely in an agency 
capacity, may not directly or through a subsidiary, purchase or acquire 
any additional equity capital of any such financial subsidiary until 
the bank meets the requirement in paragraph (g)(3) of this section. For 
purposes of this paragraph (j)(2), the term ``equity capital'' 
includes, in addition to any equity investment, any debt instrument 
issued by the financial subsidiary if the instrument qualifies as 
capital of the subsidiary under Federal or state law, regulation, or 
interpretation applicable to the subsidiary.
* * * * *

    Dated: December 2, 2011.

    By the Office of the Comptroller of the Currency.
Julie L. Williams,
First Senior Deputy Comptroller and Chief Counsel.
[FR Doc. 2011-31574 Filed 12-8-11; 8:45 am]
BILLING CODE 4810-33-P