Short-Term Investment Funds, 61229-61238 [2012-24375]

Agencies

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

[Federal Register Volume 77, Number 195 (Tuesday, October 9, 2012)]
[Rules and Regulations]
[Pages 61229-61238]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-24375]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 9

[Docket No. OCC-2011-0023]
RIN 1557-AD37


Short-Term Investment Funds

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC).

ACTION: Final rule.

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SUMMARY: This final rule revises the requirements imposed on national 
banks pursuant to the OCC's short-term investment fund (STIF) rule 
(STIF Rule). Regulations governing Federal savings associations (FSAs) 
require compliance with the national bank STIF Rule. The final rule 
adds safeguards designed to address the risk of loss to a STIF's 
principal, including measures governing the nature of a STIF's 
investments, ongoing monitoring of its mark-to-market value and 
forecasting of potential changes in its mark-to-market value under 
adverse market conditions, greater transparency and regulatory 
reporting about a STIF's holdings, and procedures to protect fiduciary 
accounts from undue dilution of their participating interests in the 
event that the STIF loses the ability to maintain a stable net asset 
value (NAV).

DATES: The final rule is effective on July 1, 2013. Comments are 
solicited only on the Paperwork Reduction Act aspects of this final 
rule and must be submitted by November 8, 2012.

ADDRESSES: Comments on the Paperwork Reduction Act aspects of this 
final rule should be directed to: Communications Division, Office of 
the Comptroller of the Currency, Mailstop 2-3, Attention: 1557-NEW, 250 
E Street SW., Washington, DC 20219. In addition, comments may be sent 
by fax to (202) 874-5274 or by electronic mail to 
regs.comments@occ.treas.gov.

FOR FURTHER INFORMATION CONTACT: Joel Miller, Group Leader, Asset 
Management (202) 874-4493, David Barfield, National Bank Examiner, 
Market Risk (202) 874-1829, Patrick T. Tierney, Counsel, Legislative 
and Regulatory Activities Division (202) 874-5090, Suzette H. Greco, 
Assistant Director, or Adam Trost, Senior Attorney, Securities and 
Corporate Practices Division (202) 874-5210, Office of the Comptroller 
of the Currency, 250 E Street SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Short-Term Investment Funds

    A collective investment fund (CIF) is a bank-managed fund that 
holds pooled fiduciary assets that meet specific criteria established 
by the OCC fiduciary activities regulation at 12 CFR 9.18. Each CIF is 
established under a ``Plan'' that details the terms under which the 
bank manages and administers the fund's assets. The bank acts as a 
fiduciary for the CIF and holds legal title to the fund's assets. 
Participants in a CIF are the beneficial owners of the fund's assets. 
Each participant owns an undivided interest in the aggregate assets of 
a CIF; a participant does not directly own any specific asset held by a 
CIF.\1\
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    \1\ 12 CFR 9.18.
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    A fiduciary account's investment in a CIF is called a 
``participating interest.'' Participating interests in a CIF are not 
insured by the Federal Deposit Insurance Corporation and are not 
subject to potential claims by a bank's creditors. In addition, a 
participating interest in a CIF cannot be pledged or otherwise 
encumbered in favor of a third party.
    The general rule for valuation of a CIF's assets specifies that a 
CIF admitting a fiduciary account (that is, allowing the fiduciary 
account, in effect, to purchase its proportionate interest in the 
assets of the CIF) or withdrawing the fiduciary account (that is, 
allowing the fiduciary account, in effect, to redeem the value of its 
proportionate interest in the CIF) may only do so on the basis of a 
valuation of the CIF's assets, as of the admission or withdrawal date, 
based on the mark-to-market value of the CIF's

[[Page 61230]]

assets.\2\ This general valuation rule is designed to protect all 
fiduciary accounts participating in the CIF from the risk that other 
accounts will be admitted or withdrawn at valuations that dilute the 
value of existing participating interests in the CIF.
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    \2\ 12 CFR 9.18(b)(5)(i). If the bank cannot readily ascertain 
market value as of the valuation date, the bank generally must use a 
fair value for the asset, determined in good faith. 12 CFR 
9.18(b)(4)(ii)(A).
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    A STIF is a type of CIF that permits a bank to value the STIF's 
assets on an amortized cost basis, rather than at mark-to-market value, 
for purposes of admissions and withdrawals. This is an exception to the 
general rule of market valuation. In order to qualify for this 
exception under the OCC's current Part 9 fiduciary activities 
regulation, a STIF's Plan must require the bank to: (1) Maintain a 
dollar-weighted average portfolio maturity of 90 days or less; (2) 
accrue on a straight-line or amortized basis the difference between the 
cost and anticipated principal receipt on maturity; and (3) hold the 
fund's assets until maturity under usual circumstances.\3\ Because a 
STIF's investments are limited to shorter-term assets and those assets 
generally are required to be held to maturity, differences between the 
amortized cost and mark-to-market value of the assets will be rare, 
absent atypical market conditions or an impaired asset.
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    \3\ 12 CFR 9.18(b)(4)(ii)(B).
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    The OCC's STIF Rule governs STIFs managed by national banks. In 
addition, regulations adopted by the Office of Thrift Supervision, now 
recodified as OCC rules pursuant to Title III of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act,\4\ have long required FSAs 
to comply with the requirements of the OCC's STIF Rule.\5\ Thus, the 
proposed revisions to the national bank STIFs Rule would apply to a FSA 
that establishes and administers a STIF. As of June 30, 2012, there was 
approximately $118 billion invested in STIFs administered by national 
banks and there were no STIFs administered by FSAs reported.\6\
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    \4\ 76 FR 48950 (2011).
    \5\ 12 CFR 150.260.
    \6\ Fifteen national banks collectively reported STIF 
investments that they administer. Other types of institutions 
managing certain types of CIFs may also follow the requirements of 
the OCC's STIF Rule. For example, New York state law provides that 
all investments in short-term investment common trust funds may be 
valued at cost, if the plan of operation requires that: (i) The type 
or category of investments of the fund shall comply with the rules 
and regulations of the Comptroller of the Currency pertaining to 
short-term investment funds and (ii) in computing income, the 
difference between cost of investment and anticipated receipt on 
maturity of investment shall be accrued on a straight-line basis. 
See N.Y. Comp. Codes R. & Regs. Tit. 3, Sec.  22.23 (2010). 
Additionally, in order to retain their tax-exempt status, common 
trust funds must operate in compliance with Sec.  9.18 as well as 
the federal tax laws. See 26 U.S.C. 584. The OCC does not have 
access to comprehensive data quantifying investments held by STIFs 
administered by other types of institutions pursuant to legal 
requirements incorporating the OCC's STIF Rule. Although the direct 
scope of the STIF Rule provisions in Sec.  9.18 of the OCC's 
regulations is national banks and Federal branches and agencies of 
foreign banks acting in a fiduciary capacity (12 CFR 9.1(c)), the 
nomenclature of the STIF Rule refers simply to ``banks.'' For the 
sake of convenience, the OCC continues this approach and also 
applies the same convention to the discussion of the STIF final 
rule.
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    This final rule enhances protections provided to STIF participants 
and reduces risks to banks that administer STIFs. The final rule does 
not affect the obligation that STIFs meet the CIF requirements 
described in 12 CFR Part 9, which allows national banks to maintain and 
invest fiduciary assets, consistent with applicable law.\7\ Also, 
national banks managing CIFs are required to adopt and follow written 
policies and procedures that are adequate to maintain their fiduciary 
activities in compliance with applicable law.\8\ Additionally, 12 CFR 
Part 9 will continue to require a STIF's bank manager, at least once 
during each calendar year, to conduct a review of all assets of each 
fiduciary account for which the bank has investment discretion to 
evaluate whether they are appropriate, individually and collectively, 
for the account.\9\ These examples of CIF requirements applicable to 
STIFs are not exclusive. Other requirements apply, and a bank must 
comply with all applicable requirements of 12 CFR Part 9 when acting as 
a fiduciary for a CIF.
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    \7\ 12 CFR 9.2(b).
    \8\ 12 CFR 9.5.
    \9\ 12 CFR 9.6(c).
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    In light of the issuance of this final rule, a bank administering a 
STIF must revise the written Plan required by 12 CFR 9.18(b)(1).

B. Comparison to Other Products That Seek To Maintain a Stable NAV

    There are other types of funds that seek to maintain a stable NAV. 
The most significant of these from a financial market presence 
standpoint are ``money market mutual funds'' (MMMFs). These funds are 
organized as open-ended management investment companies and are 
regulated by the U.S. Securities and Exchange Commission (``SEC'') 
pursuant to the Investment Company Act of 1940, particularly pursuant 
to the provisions of SEC Rule 2a-7 thereunder (``Rule 2a-7'').\10\ 
MMMFs seek to maintain a stable share price, typically $1.00 a share. 
In this regard, they are similar to STIFs.
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    \10\ 15 U.S.C. 80a; 17 CFR 270.2a-7. Because STIFs are a form of 
CIF, they are generally exempt from the SEC's rules under the 
Investment Company Act. STIFs used exclusively for (1) the 
collective investment of money by a bank in its fiduciary capacity 
as trustee, executor, administrator, or guardian and (2) the 
collective investment of assets of certain employee benefit plans 
are exempt from the Investment Company Act under 15 U.S.C. 80a-
3(c)(3) and (c)(11), respectively. MMMFs are not subject to 
comparable restrictions as to the type of participant who may invest 
in the fund or the purpose of such investment.
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    There are a number of important differences between MMMFs and 
STIFs; most significantly, MMMFs are open to retail investors, whereas, 
STIFs only are available to authorized fiduciary accounts. MMMFs may be 
offered to the investing public and have become a popular product with 
retail investors, corporate money managers, and institutional investors 
seeking returns equivalent to current short-term interest rates in 
exchange for high liquidity and the prospect of protection against the 
loss of principal. In contrast to the approximately $118 billion 
currently held in STIFs administered by national banks, MMMFs, as of 
July 2012, held approximately $2.5 trillion dollars of investor 
assets.\11\
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    \11\ See https://www.ici.org/research/stats/mmf.
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    During the recent period of financial market stress, beginning in 
2007 and stretching into 2009, certain types of short-term debt 
securities frequently held by MMMFs experienced unusually high 
volatility. Concerns by investors that their MMMFs could not maintain a 
stable NAV eventually led to investor redemptions out of those funds, 
and some funds needed to liquidate sizeable portions of their 
securities to meet investor redemption requests. The volume of 
redemption requests depressed market prices for short-term debt 
instruments, exacerbating the problem for all types of stable NAV 
funds.
    The President's Working Group on Financial Markets (``PWG''),\12\ 
after reviewing the market turmoil during the period 2007 through 2009, 
recommended that the SEC strengthen the regulation and monitoring of 
MMMFs and also recommended that bank regulators consider strengthening 
the regulation and monitoring of other types of products that seek to 
maintain a stable NAV.\13\
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    \12\ The PWG is comprised of the Secretary of the Treasury, the 
Chairman of the Board of Governors of the Federal Reserve System, 
the Chairman of the Securities and Exchange Commission, and the 
Chairman of the Commodity Futures Trading Commission.
    \13\ Report of the President's Working Group on Financial 
Markets, Money Market Fund Reform Options, p. 35 (Oct. 2010), see 
https://www.treasury.gov/press-center/press-releases/Documents/10.21%20PWG%20Report%20Final.pdf. See also Financial Stability 
Oversight Council 2012 Annual Report, pp. 11-12 (July 2012) 
available at https://www.treasury.gov/initiatives/fsoc/Documents/2012%20Annual%20Report.pdf.

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[[Page 61231]]

    The SEC subsequently adopted amendments to Rule 2a-7 to strengthen 
the resilience of MMMFs.\14\ The OCC's changes to the STIF Rule issued 
today are informed by the SEC's revisions to Rule 2a-7.\15\ In light of 
the differences between the MMMF as an investment product and the 
STIF--e.g., a bank's fiduciary responsibility to a STIF and 
requirements limiting STIF participation to eligible accounts under the 
OCC's fiduciary account regulation at 12 CFR part 9--the OCC's rules 
differ from the SEC's in certain respects.
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    \14\ See Money Market Fund Reform, 75 FR 10060 (Mar. 4, 2010).
    \15\ The OCC will continue to evaluate the requirements of 12 
CFR Part 9 in light of future policy assessments and initiatives 
concerning stable NAV funds, and will take such additional actions 
as are appropriate.
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II. Overview of the Proposed Rule

    On April 9, 2012, the OCC published proposed amendments to its Part 
9 STIF Rule \16\ to add safeguards designed to address participating 
interests' risk of loss to a STIF's principal, including measures 
governing the nature of a STIF's investments; ongoing monitoring of the 
STIF's mark-to-market value and assessment of potential changes in its 
mark-to-market value under adverse market conditions; greater 
transparency and regulatory reporting about the STIF's holdings; and 
procedures to protect fiduciary accounts from undue dilution of their 
participating interests in the event that the STIF loses the ability to 
maintain a stable NAV. The proposal is described in detail in the 
Section-by-Section Analysis section of this SUPPLEMENTARY INFORMATION.
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    \16\ 77 FR 21057 (Apr. 9, 2012).
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III. Comments on the Proposed Rule

    The comment period for the proposed rule ended on June 8, 2012. The 
OCC received a total of nine comments: Three from individuals, three 
from trade associations, two from non-bank financial services firms, 
and one from a national bank.
    In general, commenters supported the proposed rule; however, two 
commenters asserted that the proposal should more closely follow the 
SEC's 2a-7 MMMF rule. The OCC's proposal, and the final rule issued 
today, differs from the SEC's 2a-7 MMMF rule, which reflects the 
differences between MMMFs and STIFs--MMMFs are a retail investment 
offering, while STIF participation is limited to eligible accounts 
under the OCC's fiduciary account regulation at 12 CFR Part 9 and the 
exemptions from the Investment Company Act of 1940 relied upon by banks 
organizing STIFs.\17\
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    \17\ See footnote 10, supra, and accompanying text.
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    One commenter noted that a significant portion of STIF assets are 
managed by state chartered banks that are not required to comply with 
the OCC's STIF Rules and that implementation of the OCC's proposed 
changes may thus place national bank STIF administrators at a 
competitive disadvantage to state-regulated STIFs and their bank 
administrators. The OCC acknowledges this concern, but notes that some 
states' laws may require state banks administering certain comparable 
funds to comply with the standards the OCC applies to STIFs. In any 
case, the OCC has concluded that, on balance, the benefits of the final 
rule issued today that enhance protections provided to STIF 
participants and reduce risks to banks that administer STIFs outweigh 
the competitive issue raised by the commenter.
    Additional comments are addressed in the Section-by-Section 
Analysis section of this SUPPLEMENTARY INFORMATION.

IV. Section-by-Section Analysis

Effective Date

    Some commenters requested that the final rule have a compliance 
date in the range of 12 to 16 months after the date of issuance. The 
final rule's effective date, which will be same date upon which the OCC 
will expect compliance with the rule, is July 1, 2013. This effective 
date will provide affected banks with sufficient time to make the 
systems, process, and investment changes necessary to implement the 
rule. The OCC believes that the implementation period is adequate given 
that most affected institutions already are complying with many aspects 
of the final rule.

Section 9.18(b)(4)(iii)(A)

    STIFs typically maintain stable NAVs in order to meet the 
expectations of the fund's bank managers and participating fiduciary 
accounts.\18\ To the extent a bank fiduciary offers a STIF with a fund 
objective of maintaining a stable NAV, participating accounts and the 
OCC expect those STIFs to maintain a stable NAV using amortized cost. 
The proposal would require a Plan to have as a primary objective that 
the STIF operate with a stable NAV of $1.00 per participating 
interest.\19\ The OCC received no comment on the proposed stable $1.00 
NAV Plan requirement and adopts it as proposed.
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    \18\ For example, many STIF plan participants (e.g., pensions) 
have policies, procedures, and operational systems that presume a 
stable NAV.
    \19\ The OCC expects banks to normalize and treat stable NAVs 
operating at a multiple of a $1.00 (e.g., $10 NAV) or fraction of 
$1.00 (e.g., $0.5) as operating with a NAV of $1.00 per 
participating interest.
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Section 9.18(b)(4)(iii)(B)

    The current STIF Rule requires the bank managing a STIF \20\ to 
maintain a dollar-weighted average portfolio maturity of 90 days or 
less. The current STIF Rule restricts the weighted average maturity of 
the STIF's portfolio in order to limit the exposure of participating 
fiduciary accounts to certain risks, including interest rate risk. The 
proposed rule would change the maturity limits to further reduce such 
risks. First, the proposal would reduce the maximum weighted average 
portfolio maturity permitted by the rule from 90 days or less to 60 
days or less. Second, it would establish a new maturity test that would 
limit the portion of a STIF's portfolio that could be held in longer 
term variable- or floating-rate securities.
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    \20\ The current STIF Rule incorporates this and other measures 
through requirements that a bank operate a STIF in accordance with a 
written plan that, at a minimum, imposes a series of required 
provisions with respect to the STIF. The STIF revisions incorporate 
additional measures that require a STIF plan to adopt specific 
additional restrictions and procedures.
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1. Dollar-Weighted Average Portfolio Maturity
    The final rule amends the ``dollar-weighted average portfolio 
maturity'' \21\ requirement of the STIF Rule to 60 days or less. 
Currently, banks managing STIFs must maintain a dollar-weighted average 
portfolio maturity of 90 days or less.\22\ Securities that have shorter 
periods remaining until maturity generally exhibit a lower level of 
price volatility in response to interest rate and credit spread 
fluctuations and, thus, provide a greater assurance that the STIF will 
continue to maintain a stable value.
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    \21\ Generally, ``dollar-weighted average portfolio maturity'' 
means the average time it takes for securities in a portfolio to 
mature, weighted in proportion to the dollar amount that is invested 
in the portfolio. Dollar-weighted average portfolio maturity 
measures the price sensitivity of fixed-income portfolios to 
interest rate changes.
    \22\ 12 CFR 9.18(b)(4)(ii)(B)(1).
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    Having a portfolio weighted towards securities with longer 
maturities poses greater risks to participating accounts in a STIF. For 
example, a longer dollar-weighted average maturity period increases a 
STIF's exposure to interest rate risk. Additionally, longer maturity 
periods amplify the effect of widening

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credit spreads on a STIF. Finally, a STIF holding securities with 
longer maturity periods generally is exposed to greater liquidity risk 
because: (1) Fewer securities mature and return principal on a daily or 
weekly basis to be available for possible fiduciary account 
withdrawals, and (2) the fund may experience greater difficulty in 
liquidating these securities in a short period of time at a reasonable 
price.
    STIFs with a shorter portfolio maturity period would be better able 
to withstand increases in interest rates and credit spreads without 
material deviation from amortized cost. Furthermore, in the event 
distress in the short-term instrument market triggers increasing rates 
of withdrawals from STIFs, the STIFs would be better positioned to 
withstand such withdrawals as a greater portion of their portfolios 
mature and return principal on a daily or weekly basis and would have 
greater ability to liquidate a portion of their portfolio at a 
reasonable price.
    The OCC received one comment addressing the proposed change to the 
dollar-weighted average portfolio maturity from 90 to 60 days. The 
commenter asserted that a 60-day dollar-weighted average portfolio 
maturity would affect STIFs' ability to manage portfolios in a 
declining interest rate environment and increase demand for securities 
with shorter interest rate durations. The commenter also stated that 
this aspect of the proposal would limit a bank's ability to match the 
expected interest rate horizon of assets to the interest rate and 
duration of liabilities.
    The OCC recognizes the concerns expressed by the commenter; 
however, as previously discussed, STIFs with a 60-day dollar-weighted 
average portfolio maturity (1) will better withstand increases in 
interest rates and credit spreads without material deviation from 
amortized cost and (2) be better positioned to withstand withdrawals 
during distress in the short-term instrument market. For these reasons, 
the 60-day dollar-weighted average portfolio maturity is adopted as 
proposed without change.
2. Dollar-Weighted Average Portfolio Life Maturity
    The final rule, consistent with the proposal, adds a new maturity 
requirement for STIFs, which limits the dollar-weighted average 
portfolio life maturity to 120 days or less. The dollar-weighted 
average portfolio life maturity is measured without regard to a 
security's interest rate reset dates and, thus, limits the extent to 
which a STIF can invest in longer-term securities that may expose it to 
increased liquidity and credit risk.
    The dollar-weighted average portfolio maturity measurement in the 
current STIF Rule does not do as much as its name might suggest to 
restrict the introduction of certain types of longer-term instruments 
into a STIF portfolio. For example, floating rate instruments are 
generally treated according to their next reset date, while they may 
still be instruments of a longer contractual term that expose the STIF 
to higher liquidity and credit risks than an instrument of shorter 
maturity. For this reason, the final rule imposes a new dollar-weighted 
average portfolio life maturity limitation on the structure of a STIF, 
to capture certain credit and liquidity risks not encompassed by the 
dollar-weighted average portfolio maturity restriction. The rule 
requires that STIFs maintain a dollar-weighted average portfolio life 
maturity of 120 days or less, which provides a reasonable balance 
between strengthening the resilience of STIFs to credit and liquidity 
events while not unduly restricting a bank's ability to invest the 
STIF's fiduciary assets in a diversified portfolio of short-term, high 
quality debt securities.
    One commenter argued that the proposed 120-day dollar-weighted 
average portfolio life maturity standard would restrict the ability of 
STIFs to acquire high credit quality debt securities with legal final 
maturities longer than one year and would restrict STIFs' ability to 
diversify fund holdings among multiple types of high quality securities 
and issuers. To remedy these issues, the commenter suggested that a 
180-day dollar-weighted average portfolio life maturity standard would 
be more appropriate.
    The OCC believes that the short-term securities markets are 
sufficiently diverse in terms of high quality securities and issuers 
that implementation of a 120-day dollar-weighted average portfolio life 
maturity standard will not be materially detrimental to national banks 
and their sponsored STIFs. Furthermore, the OCC believes that a 120-day 
dollar-weighted average portfolio life maturity standard strengthens 
the resilience of STIFs to credit and liquidity risks, particularly in 
volatile markets, which is a systemic benefit that outweighs the 
particular concerns raised by the commenter. For these reasons, the OCC 
adopts the 120-day dollar-weighted average portfolio life maturity 
standard as proposed without change.
3. Determination of Maturity Limits
a. Calculation Method
    In determining the dollar-weighted average portfolio maturity of 
STIFs under the current rule, national banks generally apply the same 
methodology as required by the SEC for MMMFs pursuant to Rule 2a-7. 
Dollar-weighted average maturity under Rule 2a-7 is calculated, 
generally, by treating each security's maturity as the period remaining 
until the date on which, in accordance with the terms of the security, 
the principal amount must be unconditionally paid or, in the case of a 
security called for redemption, the date on which the redemption 
payment must be made. Rule 2a-7 also provides eight exceptions to this 
general rule. For example, for certain types of variable-rate 
securities, the date of maturity may be the earlier of the date of the 
next interest rate reset or the period remaining until the principal 
can be recovered through demand. For repurchase agreements, the 
maturity is the date on which the repurchase is scheduled to occur, 
unless the repurchase agreement is subject to demand for repurchase, in 
which case the maturity is the notice period applicable to demand.\23\ 
Consistent with the proposal, the final rule text specifies that banks 
are to apply the same methodology as the SEC requires under Rule 2a-7 
for determining dollar-weighted average portfolio maturity and dollar-
weighted average portfolio life maturity.\24\
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    \23\ See 17 CFR 270.2a-7(d)(1)-(8).
    \24\ The SEC's Rule 2a-7 adopting release describes the new 
weighted average life maturity calculation as being based on the 
same methodology as the weighted average maturity determination, but 
made without reference to the set of maturity exceptions the rule 
permits for certain interest rate readjustments for specified types 
of assets under the rule. 17 CFR 270.2a-7(c)(2)(iii). The OCC is 
adopting the same maturity calculation, referring to it as the 
dollar-weighted average portfolio life maturity. The calculation 
bases a security's maturity on its stated final maturity date or, 
when relevant, the date of the next demand feature when the fund may 
receive payment of principal and interest (such as a put feature). 
See 75 FR 10072 (Mar. 4, 2010) at footnote 154 and accompanying 
text.
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b. No Assets Grandfathered When Determining Maturity Limits
    Two commenters requested that the OCC not include, or 
``grandfather'', assets held by STIFs prior to the publication or 
effective date of the final rule for purposes of calculating the 
proposed 60-day dollar-weighted average portfolio maturity and 120-day 
dollar-weighted average portfolio life maturity standards. These 
commenters suggested that, if the rule did not

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provide for the grandfathering of STIF assets, national bank STIF 
administrators would be required to sell certain STIF portfolio assets 
in order to comply with the proposed standards. These commenters 
asserted that such a forced sale of STIF assets may not be in the best 
interest of STIFs or their account participants.
    The final rule does not include grandfathering provisions. OCC 
believes that it is possible that a limited number of STIFs may be 
required to sell certain portfolio holdings in order to comply with the 
revised standards, which could, potentially, decrease the book value of 
a STIF. However, allowing these assets to remain in a limited number of 
STIFs would continue to expose participants in those STIFs to the 
heightened liquidity and credit risks of these assets--risks to which 
investors in other STIFs will not be exposed. In addition, the final 
rule does not become effective until July 1, 2013, affording affected 
banks an extended period during which they can determine the most 
appropriate strategy for disposition of these assets.

Section 9.18(b)(4)(iii)(E)

    To ensure that banks managing STIFs observe standards designed to 
limit the amount of credit and liquidity risk to which participating 
accounts in STIFs are exposed, the OCC proposed to require the Plan to 
include a provision for the adoption of portfolio and issuer 
qualitative standards and concentration restrictions. No comment was 
received on this proposed Plan provision and, thus, it is adopted as 
proposed without change. The OCC expects bank fiduciaries to identify, 
monitor, and manage issuer concentrations and lower quality investment 
concentrations, and to implement procedures to perform appropriate due 
diligence on all concentration exposures, as part of the bank's risk 
management policies and procedures for each STIF. In addition to 
standards imposed by applicable law, the portfolio and issuer 
qualitative standards and concentration restrictions should take into 
consideration market events and any deterioration in an issuer's 
financial condition.

Section 9.18(b)(4)(iii)(F)

    Many banks process STIF withdrawal requests within a short time 
frame, often on the same day that the withdrawal request is received, 
which necessitates sufficient liquidity to meet such requests. By 
holding illiquid securities, a STIF exposes itself to the risk that it 
will be unable to satisfy withdrawal requests promptly without selling 
illiquid securities at a loss that, in turn, could impair its ability 
to maintain a stable NAV. Moreover, illiquid securities are generally 
subject to greater price volatility, exposing the STIF to greater risk 
that its mark-to-market value will deviate from its amortized cost 
value. To address this concern, the final rule, consistent with the 
proposal, requires adoption of liquidity standards that include 
provisions to address contingency funding needs.
    One commenter requested that the OCC clarify that the phrase 
``contingency funding needs'' in the provision refers to contingency 
funding of the assets of a STIF, rather than a requirement that the 
STIF obtain a line of credit or similar redemption funding arrangement 
with a lending institution. It is the OCC's view that the contingency 
funding aspect of this requirement does not require a STIF to obtain a 
letter of credit or similar arrangement with another party. However, 
liquidity standards should include provisions to address contingency 
funding needs, delineating policies to manage a range of stress 
environments, establishing clear lines of responsibility, and 
articulating clear implementation and escalation procedures. An 
objective of robust liquidity standards should be to ensure that the 
STIF's sources of liquidity are sufficient to fund expected operating 
requirements under a reasonable range of contingent events and 
scenarios. A STIF Plan's liquidity standards should identify 
alternative contingent liquidity resources that can be employed under 
adverse liquidity circumstances. The liquidity standards should be 
commensurate with a STIF's complexity, risk profile, and scope of 
operations. The liquidity funding needs standards should be regularly 
tested and updated to ensure they are operationally sound and, as 
macroeconomic and institution-specific conditions change, the liquidity 
standards of a STIF's Plan should be revised to reflect these changes.
    Another commenter suggested that the final rule should adopt the 
SEC's Rule 2a-7 prescriptive liquidity standards applicable to MMMFs. 
Those standards (1) require a MMMF to hold securities that are 
sufficiently liquid to meet reasonably foreseeable shareholder 
redemptions and any commitments the MMMF has made to shareholders; (2) 
prohibit the acquisition of an illiquid security if the MMMF would have 
invested more than 5% of its total assets in illiquid securities; (3) 
require the MMMF to maintain a minimum daily liquidity of 10% or more 
of total assets; and (4) require the MMMF to maintain a weekly minimum 
liquidity of 30% or more of total assets.\25\ As discussed previously, 
this final rule, including the requirement that a STIF's Plan adopt 
liquidity standards that include provisions to address contingency 
funding needs, are informed by the SEC's revisions to Rule 2a-7, but 
differ in light of the differences between the MMMF as a publicly-
offered investment product and a STIF, e.g., a bank's fiduciary 
responsibility to a STIF and requirements limiting STIF participation 
to eligible accounts under the OCC's fiduciary account regulation at 12 
CFR part 9.
---------------------------------------------------------------------------

    \25\ See 17 CFR 270.2a-7(c)(5).
---------------------------------------------------------------------------

    For these reasons, the final rule adopts the STIF Plan liquidity 
standards provision as proposed without change.

Section 9.18(b)(4)(iii)(G)

    Consistent with the proposal, the final rule requires a bank 
managing a STIF to adopt shadow pricing procedures.\26\ These 
procedures require the bank to calculate the extent of the difference, 
if any, between the mark-to-market NAV per participating interest using 
available market quotations (or an appropriate substitute that reflects 
current market conditions) from the STIF's amortized cost value per 
participating interest. In the event the difference exceeds $0.005 per 
participating interest,\27\ the bank must take action to reduce 
dilution of participating interests or other unfair results to 
participating accounts in the STIF, such as ceasing fiduciary account 
withdrawals. The shadow pricing procedures must occur at least on a 
calendar week basis and more frequently as determined by the bank when 
market conditions warrant.
---------------------------------------------------------------------------

    \26\ Shadow pricing is the process of maintaining two sets of 
valuation records--one that reflects the value of a fund's assets at 
amortized cost and the other that reflects the market value of the 
fund's assets.
    \27\ The final rule requires a STIF to operate with a stable NAV 
of $1.00 per participating interest as a primary fund objective. If 
a STIF has a stable NAV that is different than $1.00 it must adjust 
the reference value accordingly.
---------------------------------------------------------------------------

    One commenter requested that the OCC confirm that a bank 
administering a STIF is permitted to decide the most appropriate 
actions to protect participating accounts from dilution or other unfair 
results if the difference between mark-to-market and amortized cost per 
participating interest exceeds $0.005. The OCC notes that the shadow 
pricing requirement does not impose any limits or requirements on 
actions a bank administering a STIF must take to reduce dilutions of 
participating interests or other unfair results to participating 
accounts. However, any such actions taken must not impair the safety 
and soundness of the bank.

[[Page 61234]]

    Another commenter advocated that a difference of $0.005 between 
mark-to-market and amortized cost per participating interest is 
significant in a low interest rate environment and, therefore, a lower 
threshold of difference should apply. The OCC notes that, by the same 
logic, a higher threshold of deviation from $1.00 might be appropriate 
for higher interest rate environments. However, the OCC believes that 
the $0.005 trigger is widely recognized as a threshold of significance 
in this arena, and will function effectively as a risk management 
benchmark, the meaning of which will be understood by banks and STIF 
participants alike.
    For these reasons, the proposed STIF shadow pricing procedures are 
adopted as final without change.

Section 9.18(b)(4)(iii)(H)

    Consistent with the proposal, the final rule requires a bank 
managing a STIF to adopt procedures for stress testing the fund's 
ability to maintain a stable NAV for participating interests. The final 
rule requires the stress tests be conducted at such intervals as an 
independent risk manager or a committee responsible for the STIF's 
oversight determines to be appropriate and reasonable in light of 
current market conditions, but in no case shall the interval be longer 
than a calendar month-end basis. The independent risk manager or 
committee members must be independent from the STIF's investment 
management. The stress testing is to be based upon scenarios (specified 
by the bank) that include, but are not limited to, a change in short-
term interest rates; an increase in participating account withdrawals; 
a downgrade of or default on portfolio securities; and the widening or 
narrowing of spreads between yields on an appropriate benchmark the 
fund has selected for overnight interest rates and commercial paper and 
other types of securities held by the fund.
    The stress testing requirement provides a bank with flexibility to 
specify the scenarios or assumptions on which the stress tests are 
based, as appropriate to the risk exposures of each STIF. Banks 
managing STIFs should, for example, consider procedures that require 
the fund to test for the concurrence of multiple hypothetical events, 
e.g., where there is a simultaneous increase in interest rates and 
substantial withdrawals.\28\
---------------------------------------------------------------------------

    \28\ Where stress testing models are relied upon, a bank should 
validate the models consistent with the Supervisory Guidance on 
Model Risk Management issued by the OCC and the Board of Governors 
of the Federal Reserve System. See OCC Bulletin 2011-12 (Apr. 4, 
2011).
---------------------------------------------------------------------------

    The final rule also requires a stress test report be provided to 
the independent risk manager or the committee responsible for the 
STIF's oversight. The report must include: (1) The date(s) on which the 
testing was performed; (2) the magnitude of each hypothetical event 
that would cause the difference between the STIF's mark-to-market NAV 
calculated using available market quotations (or appropriate 
substitutes which reflect current market conditions) and its NAV per 
participating interest calculated using amortized cost to exceed 
$0.005; and (3) an assessment by the bank of the STIF's ability to 
withstand the events (and concurrent occurrences of those events) that 
are reasonably likely to occur within the following year.
    In addition, the final rule requires that adverse stress testing 
results be reported to the bank's senior risk management that is 
independent from the STIF's investment management.
    Two commenters asserted that the stress testing methodology should 
be left to the discretion of a bank. The requirement that the Plan 
adopt procedures for stress testing a STIF's ability to maintain a 
stable NAV per participating interest does not specify any stress 
testing methodology. However, as proposed, the stress testing provision 
requires that the stress testing be based upon hypothetical events that 
include, but are not limited to, a change in short-term interest rates, 
an increase in participant account withdrawals, a downgrade of or 
default on portfolio securities, and the widening or narrowing of 
spreads between yields on an appropriate benchmark the STIF has 
selected for overnight interest rates and commercial paper and other 
types of securities held by the STIF.
    These two commenters also suggested that the frequency of stress 
testing should be left to the discretion of a bank. The rule requires 
stress testing at least on a calendar month-end basis and at such 
frequencies as an independent risk manager or a committee responsible 
for a STIF's oversight that consists of members independent from the 
STIF's investment management determines appropriate and reasonable in 
light of current market conditions. Thus, the monthly stress testing 
requirement is a floor; independent risk managers or an oversight 
committee, consisting of independent members as described in the 
proposal, have the discretion to perform more frequent stress testing. 
The OCC believes that monthly stress testing is an appropriate, minimum 
requirement to enhance a bank's sound management of a STIF.
    Finally, one commenter requested that the OCC confirm that the term 
``independent risk manager'' used in this provision may include a 
person, group, or function designated as an independent risk manager, 
but does not need to be a third party service provider. An 
``independent risk manager'' is not required to be a third party 
service provider. However, as discussed previously, an independent risk 
manager (e.g., a person) or a committee (e.g., a group) responsible for 
the STIF's oversight must be independent from the STIF's investment 
management.
    These stress testing procedures will provide banks with a better 
understanding of the risks to which STIFs are exposed and will give 
banks additional information that can be used for managing those risks. 
For these reasons, the proposed stress testing requirement is adopted 
as final without change.

Section 9.18(b)(4)(iii)(I)

    Consistent with the proposal, the final rule requires banks 
managing STIFs to disclose information about fund level portfolio 
holdings to STIF participants and to the OCC within five business days 
after each calendar month-end. Specifically, the bank is required to 
disclose the STIF's total assets under management (securities and other 
assets including cash, minus liabilities); the fund's mark-to-market 
and amortized cost NAVs, both with and without capital support 
agreements; the dollar-weighted average portfolio maturity; and dollar-
weighted average portfolio life maturity as of the last business day of 
the prior calendar month. The current STIF Rule does not contain a 
similar disclosure requirement.
    Also, for each security held by the STIF, as of the last business 
day of the prior calendar month, the bank is required to disclose to 
STIF participants and to the OCC within five business days after each 
calendar month-end at a security level: (1) The name of the issuer; (2) 
the category of investment; (3) the Committee on Uniform Securities 
Identification Procedures (CUSIP) number or other standard identifier; 
(4) the principal amount; (5) the maturity date for purposes of 
calculating dollar-weighted average portfolio maturity; (6) the final 
legal maturity date (taking into account any maturity date extensions 
that may be effected at the option of the issuer) if different from the 
maturity date for purposes of calculating dollar-weighted average 
portfolio maturity; (7) the coupon or yield; and (8) the amortized cost 
value.

[[Page 61235]]

    Two commenters addressed the proposal's requirement that banks 
managing STIFs disclose fund and security level information to STIF 
participants and to the OCC within five business days after each 
calendar month-end. One commenter suggested that banks make the 
disclosures 30 days after each calendar month-end; the other commenter 
suggested 60 days after a calendar month-end. A reason one commenter 
cited for the 60-day disclosure delay is to be consistent with the 
SEC's MMMF rule disclosures, which were adopted in order to address 
concerns about investor confusion and alarm that could result in 
redemption requests that could increase deviations in a MMMF's price. 
While this concern may be applicable to MMMFs, which are open to retail 
investors, STIFs are only available to authorized fiduciary accounts. 
Fiduciary account participants are less likely than retail investors to 
become confused and alarmed by fund and security level disclosures five 
days after each month-end.
    One commenter raised concerns related to compiling and filing 
accurate fund and security level disclosures within five days after 
calendar month-end. However, the OCC believes the information required 
to be disclosed is factual, simple, and brief, and, furthermore, is 
easily susceptible to electronic tracking and report generation so that 
a five-day disclosure requirement will not introduce unreasonable 
burden or foster an environment prone to error.
    Two commenters suggested that the fund and security level 
disclosures should be made electronically to STIF participants and the 
OCC. The proposed regulation did not specify the form, e.g., written or 
electronic, of disclosure that must be made to STIF participants or the 
OCC. Thus, the form of banks' disclosures, including electronic 
disclosures, to STIF participants is subject to banks' discretion, 
provided that such disclosure is reasonably accessible to STIF 
participants, e.g., no less accessible than written paper disclosures 
delivered to STIF participants. In order to clarify that banks may make 
disclosures and notifications to the OCC's Asset Management Group, 
Credit and Market Division, under the final rule in an electronic 
format, the final rule removes the OCC's street mailing address from 
proposed Sec.  9.18(b)(4)(iii)(I). The OCC will provide guidance to 
banks describing the process for making electronic disclosures to the 
agency at least 90 days prior to the effective date of the final rule.
    Finally, one commenter requested that the final rule use 
alternative descriptive language, rather than the term ``STIF 
participant'' in this provision. The OCC believes that the term ``STIF 
participant'' is a widely understood term of art that banks use in the 
administration of STIFs. Furthermore, the OCC received no other 
requests from commenters seeking clarification of the term. Thus, the 
proposed use of the term ``STIF participant'' in Sec.  
9.18(b)(4)(iii)(I) is adopted in the final rule without change.
    For the reasons discussed, the OCC adopts the fund and security 
level disclosures with one change. As noted, in order to preserve the 
flexibility for banks to make electronic disclosures to the OCC, the 
final rule removes the OCC's street mailing address from Sec.  
9.18(b)(4)(iii)(I).

Section 9.18(b)(4)(iii)(J)

    Consistent with the proposal, the final rule requires a bank that 
manages a STIF to notify the OCC prior to or within one business day 
after certain events. Those events are: (1) Any difference exceeding 
$0.0025 between the NAV and the mark-to-market value of a STIF 
participating interest based on current market factors; (2) when a STIF 
has re-priced its NAV below $0.995 per participating interest; (3) any 
withdrawal distribution-in-kind of the STIF's participating interests 
or segregation of portfolio participants; (4) any delays or suspensions 
in honoring STIF participating interest withdrawal requests; (5) any 
decision to formally approve the liquidation, segregation of assets or 
portfolios, or some other liquidation of the STIF; and (6) when a 
national bank, its affiliate, or any other entity provides a STIF 
financial support, including a cash infusion, a credit extension, a 
purchase of a defaulted or illiquid asset, or any other form of 
financial support in order to maintain a stable NAV per participating 
interest.\29\ This requirement to notify the OCC prior to or within one 
business day after these limited specific events will permit the OCC to 
more effectively supervise STIFs that are experiencing liquidity or 
valuation stress.
---------------------------------------------------------------------------

    \29\ See Interagency Policy on Banks/Thrifts Providing Financial 
Support to Funds Advised by the Banking Organization or its 
Affiliates, OCC Bulletin 2004-2 Attachment (Jan. 5, 2004) 
(instructing banks that to avoid engaging in unsafe and unsound 
banking practices, banks should adopt appropriate policies and 
procedures governing routine or emergency transactions with bank 
advised investment funds).
---------------------------------------------------------------------------

    To comply with this requirement, a bank will have to calculate the 
mark-to-market value of a STIF participating interest on a daily basis.
    One commenter suggested that the rule permit at least five business 
days, rather than one business day, to notify the OCC of liquidity or 
valuation stress, in order to provide banks with sufficient time to 
gather facts, determine a course of action, and prepare a complete and 
clear notification. As previously discussed, banks' proposed 
notification prior to or within one business day after limited specific 
events will permit the OCC to more effectively supervise STIFs that are 
experiencing liquidity or valuation stress. As has been observed from 
the recent period of financial market turmoil, liquidity stress events 
occur within very short time frames thereby making a five business day 
or more lag for banks to provide the OCC with notification contrary to 
the agency's obligation to supervise the safety and soundness of banks 
that administer STIFs.
    One commenter also requested clarification that the notification 
required by Sec.  9.18(b)(4)(iii)(J) may be made to the OCC 
electronically. Consistent with the prior discussion of Sec.  
9.18(b)(4)(iii)(I), the final rule removes the OCC's street mailing 
address from proposed Sec.  9.18(b)(4)(iii)(J) and the OCC will provide 
guidance to banks describing the process for making electronic 
notifications to the agency at least 90 days prior to the effective 
date of the final rule.
    As discussed previously, the OCC included as part of the reportable 
events under the proposed rule any withdrawal distribution-in-kind of 
the STIF's participating interests or segregation of portfolio 
participants. One commenter asserted that in-kind distributions are not 
necessarily an indication that a STIF is experiencing liquidity or 
valuation stress. The commenter suggested revising Sec.  
9.18(b)(4)(iii)(J)(3) to read ``[a]ny withdrawal distribution in-kind 
of the STIF's participating interests or segregation of portfolio 
participants, where such action results from the bank's efforts to 
reduce dilution of participating interests or other unfair results to 
participating accounts in the event the difference calculated pursuant 
to paragraph (b)(4)(iii)(G)(1) exceeds $0.005 per participating 
interest.'' However, the OCC has decided to adopt the reporting 
requirement as originally proposed. While an in-kind distribution is 
not necessarily an indicator of stress to a STIF, it, nonetheless, is 
an atypical distribution that warrants regulator attention.
    For the reasons discussed, the requirement that a bank 
administering a STIF notify the OCC prior to or within one business day 
after certain specified events is adopted with one minor

[[Page 61236]]

change from the proposal. To make clear that banks may make electronic 
notifications to the OCC, the final rule removes the OCC's street 
mailing address from Sec.  9.18(b)(4)(iii)(J).

Section 9.18(b)(4)(iii)(K)

    The OCC is amending the current rule to require banks managing a 
STIF to adopt procedures that, in the event a STIF has re-priced its 
NAV below $0.995 per participating interest, the bank managing the STIF 
shall calculate, admit, and withdraw the STIF's participating interests 
at a price based on the mark-to-market NAV. Currently, the rule creates 
an incentive for withdrawal of participating interests if the mark-to-
market NAV falls below the stable NAV because the earlier withdrawals 
are more likely to receive the full stable NAV payment. The OCC 
proposed this requirement in order to remove this incentive, as once 
the NAV is priced below $0.995, all withdrawals of participating 
interests will receive the mark-to-market NAV instead of the stable 
NAV.
    One commenter highlighted language in the OCC proposal requiring 
banks to ``calculate, redeem, and sell'' STIF participating interests 
at mark-to-market NAV once participating interests in the STIF have 
been re-priced below $0.995. This commenter requested clarification 
whether the OCC intends to require the bank to begin liquidation of the 
STIF once it has re-priced its NAV below $0.995 per participating 
interest. The OCC did not intend this language to require a bank to 
begin liquidation of a STIF. To provide clarification, Sec.  
9.18(b)(4)(iii)(K) has been revised in the final rule to require banks 
managing a STIF to adopt procedures that, in the event a STIF has re-
priced its NAV below $0.995 per participating interest, the bank 
managing the STIF shall calculate, admit, and withdraw the STIF's 
participating interests at a price based on the mark-to-market NAV. Use 
of the ``calculate, admit, and withdraw'' language in this provision, 
rather than ``calculate, redeem, and sell'', is more consistent with 
STIFs' operations and Sec.  9.18 and clarifies that liquidation is not 
a required action when a STIF has re-priced its NAV below $0.995 per 
participating interest. Other than this change, the proposed provision 
is adopted as final.

Section 9.18(b)(4)(iii)(L)

    The final rule, consistent with the proposal, requires a bank 
managing a STIF to adopt procedures for suspending redemptions and 
initiating liquidation of a STIF as a result of redemptions. The OCC's 
intent in proposing this requirement was to reduce the vulnerability of 
participating accounts to the harmful effects of extraordinary levels 
of withdrawals, which can be accomplished to some degree by suspending 
withdrawals. These suspensions only will be permitted in limited 
circumstances when, as a result of redemption, the bank has: (1) 
Determined that the extent of the difference between the STIF's 
amortized cost per participating interest and its current mark-to-
market NAV per participating interest may result in material dilution 
of participating interests or other unfair results to participating 
accounts; (2) formally approved the liquidation of the STIF; and (3) 
facilitated the fair and orderly liquidation of the STIF to the benefit 
of all STIF participants.
    The OCC understands that suspending withdrawals may impose 
hardships on fiduciary accounts for which the ability to redeem 
participations is an important consideration. Accordingly, the 
requirement is limited to permitting suspension in extraordinary 
circumstances when there is significant risk of extraordinary 
withdrawal activity to the detriment of other participating accounts.
    Similar to the discussion in Sec.  9.18(b)(4)(iii)(I), one 
commenter requested that Sec.  9.18(b)(4)(iii)(L) use the phrase 
``accounts invested in a STIF'' rather than the term ``STIF 
participant''. As discussed previously, the OCC believes that the term 
``STIF participant'' is a widely understood term of art that banks use 
in the administration of STIFs. Additionally, the OCC received no other 
requests from commenters seeking clarification of the term. Thus, 
proposed Sec.  9.18(b)(4)(iii)(L) is adopted as final rule without 
change.

V. Regulatory Analysis

A. Paperwork Reduction Act Analysis

    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 the respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number. In conjunction with the 
notice of proposed rulemaking, the OCC submitted the information 
collection requirements contained therein to OMB for review. In 
accordance with 5 CFR 1320, OMB filed a comment on the PRA submission 
instructing the OCC ``* * * to examine public comment in response to 
the NPRM and include in the supporting statement of the next 
information collection request--to be submitted to OMB at the final 
rule stage--a description of how the OCC has responded to any public 
comments on the PRA submission, including comments on maximizing the 
practical utility of the collection and minimizing the burden.'' The 
OCC received no comments on the PRA submission and is resubmitting it 
with the issuance of this final rule, as instructed by OMB. The OCC has 
resubmitted the information collection requirements in the final rule 
to OMB for review and approval under 44 U.S.C. 3506 and 5 CFR part 
1320. The information collection requirements are found in Sec. Sec.  
9.18(b)(iii)(E)-(L) of the final rule.
    No comments concerning PRA were received in response to the notice 
of proposed rulemaking. Therefore, the hourly burden estimates for 
respondents noted in the proposed rule have not changed. The OCC has an 
ongoing interest in your comments.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the agency's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) 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
    (e) Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Comments should be directed to: Communications Division, Office of 
the Comptroller of the Currency, Mailstop 2-3, Attention: 1557-NEW, 250 
E Street SW., Washington, DC 20219. In addition, comments may be sent 
by fax to (202) 874-5274 or by electronic mail to 
regs.comments@occ.treas.gov. You may personally inspect and photocopy 
comments at the OCC, 250 E Street SW., Washington, DC 20219. 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.

[[Page 61237]]

    Additionally, please send a copy of your comments by mail to: OCC 
Desk Officer, 1557-NEW, U.S. Office of Management and Budget, 725 17th 
Street NW., 10235, Washington, DC 20503, or by fax to (202) 
395-6974.

B. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
that is issuing a final rule to prepare and make available a final 
regulatory flexibility analysis that describes the impact of the final 
rule on small entities. 5 U.S.C. 604. However, the RFA provides that an 
agency is not required to prepare and make available a final 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 and publishes its certification and a short, explanatory 
statement in the Federal Register along with its final rule. 5 U.S.C. 
605(b). For purposes of the RFA and OCC-regulated entities, a ``small 
entity'' includes banks, FSAs, and Federal branches and agencies with 
assets less than or equal to $175 million and trust companies with 
assets less than or equal to $7 million. 13 CFR 121.201.
    This final rule will not have a significant economic impact on any 
small national banks or Federal branches and agencies or trust 
companies, as defined by the RFA. Two small national banks, which are 
not a substantial number of the 585 small national banks, and no FSAs 
or Federal branches and agencies reported management of STIFs on their 
required regulatory reports as of June 30, 2012. Therefore, the OCC 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities.

C. OCC Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1532), requires the OCC to 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 in any one 
year (adjusted annually for inflation). The OCC has determined that 
this final rule will not result in expenditures by state, local, and 
tribal governments, or the private sector, of $100 million or more in 
any one year. Accordingly, the OCC has not prepared a budgetary impact 
statement.

List of Subjects in 12 CFR Part 9

    Estates, Investments, National banks, Reporting and recordkeeping 
requirements, Trusts and trustees.

    For the reasons set forth in the preamble, chapter I of title 12 of 
the Code of Federal Regulations is amended as follows:

PART 9--FIDUCIARY ACTIVITIES OF NATIONAL BANKS

0
1. The authority citation for part 9 continues to read as follows:

    Authority: 12 U.S.C. 24 (Seventh), 92a, and 93a; 12 U.S.C. 78q, 
78q-1, and 78w.


0
2. Section 9.18 is amended by revising paragraph (b)(4)(ii) and by 
adding paragraph (b)(4)(iii) to read as follows:


Sec.  9.18  Collective investment funds.

* * * * *
    (b) * * *
    (4) * * *
    (ii) General method of valuation. Except as provided in paragraph 
(b)(4)(iii) of this section, a bank shall value each fund asset at 
mark-to-market value as of the date set for valuation, unless the bank 
cannot readily ascertain mark-to-market value, in which case the bank 
shall use a fair value determined in good faith.
    (iii) Short-term investment funds (STIFs) method of valuation. A 
bank may value a STIF's assets on a cost basis, rather than mark-to-
market value as provided in paragraph (b)(4)(ii) of this section, for 
purposes of admissions and withdrawals, if the Plan includes 
appropriate provisions, consistent with this part, requiring the STIF 
to:
    (A) Operate with a stable net asset value of $1.00 per 
participating interest as a primary fund objective;
    (B) Maintain a dollar-weighted average portfolio maturity of 60 
days or less and a dollar-weighted average portfolio life maturity of 
120 days or less as determined in the same manner as is required by the 
Securities and Exchange Commission pursuant to Rule 2a-7 for money 
market mutual funds (17 CFR 270.2a-7);
    (C) Accrue on a straight-line or amortized basis the difference 
between the cost and anticipated principal receipt on maturity;
    (D) Hold the STIF's assets until maturity under usual 
circumstances;
    (E) Adopt portfolio and issuer qualitative standards and 
concentration restrictions;
    (F) Adopt liquidity standards that include provisions to address 
contingency funding needs;
    (G) Adopt shadow pricing procedures that:
    (1) Require the bank to calculate the extent of difference, if any, 
of the mark-to-market net asset value per participating interest using 
available market quotations (or an appropriate substitute that reflects 
current market conditions) from the STIF's amortized cost price per 
participating interest, at least on a calendar week basis and more 
frequently as determined by the bank when market conditions warrant; 
and
    (2) Require the bank, in the event the difference calculated 
pursuant to this subparagraph exceeds $0.005 per participating 
interest, to take action to reduce dilution of participating interests 
or other unfair results to participating accounts in the STIF;
    (H) Adopt procedures for stress testing the STIF's ability to 
maintain a stable net asset value per participating interest that shall 
provide for:
    (1) The periodic stress testing, at least on a calendar month basis 
and at such intervals as an independent risk manager or a committee 
responsible for the STIF's oversight that consists of members 
independent from the STIF's investment management determines 
appropriate and reasonable in light of current market conditions;
    (2) Stress testing based upon hypothetical events that include, but 
are not limited to, a change in short-term interest rates, an increase 
in participant account withdrawals, a downgrade of or default on 
portfolio securities, and the widening or narrowing of spreads between 
yields on an appropriate benchmark the STIF has selected for overnight 
interest rates and commercial paper and other types of securities held 
by the STIF;
    (3) A stress testing report on the results of such testing to be 
provided to the independent risk manager or the committee responsible 
for the STIF's oversight that consists of members independent from the 
STIF's investment management that shall include: the date(s) on which 
the testing was performed; the magnitude of each hypothetical event 
that would cause the difference between the STIF's mark-to-market net 
asset value calculated using available market quotations (or 
appropriate substitutes which reflect current market conditions) and 
its net asset value per participating interest calculated using 
amortized cost to exceed $0.005; and an assessment by the bank of the 
STIF's ability to withstand the events (and concurrent occurrences of 
those events) that are reasonably likely to occur within the following 
year; and
    (4) Reporting adverse stress testing results to the bank's senior 
risk

[[Page 61238]]

management that is independent from the STIF's investment management.
    (I) Adopt procedures that require a bank to disclose to STIF 
participants and to the OCC's Asset Management Group, Credit & Market 
Risk Division, within five business days after each calendar month-end, 
the fund's total assets under management (securities and other assets 
including cash, minus liabilities); the fund's mark-to-market and 
amortized cost net asset values both with and without capital support 
agreements; the dollar-weighted average portfolio maturity; the dollar-
weighted average portfolio life maturity of the STIF as of the last 
business day of the prior calendar month; and for each security held by 
the STIF as of the last business day of the prior calendar month:
    (1) The name of the issuer;
    (2) The category of investment;
    (3) The Committee on Uniform Securities Identification Procedures 
(CUSIP) number or other standard identifier;
    (4) The principal amount;
    (5) The maturity date for purposes of calculating dollar-weighted 
average portfolio maturity;
    (6) The final legal maturity date (taking into account any maturity 
date extensions that may be effected at the option of the issuer) if 
different from the maturity date for purposes of calculating dollar-
weighted average portfolio maturity;
    (7) The coupon or yield; and
    (8) The amortized cost value;
    (J) Adopt procedures that require a bank that administers a STIF to 
notify the OCC's Asset Management Group, Credit & Market Risk Division, 
prior to or within one business day thereafter of the following:
    (1) Any difference exceeding $0.0025 between the net asset value 
and the mark-to-market value of a STIF participating interest as 
calculated using the method set forth in paragraph (b)(4)(iii)(G)(1) of 
this section;
    (2) When a STIF has re-priced its net asset value below $0.995 per 
participating interest;
    (3) Any withdrawal distribution-in-kind of the STIF's participating 
interests or segregation of portfolio participants;
    (4) Any delays or suspensions in honoring STIF participating 
interest withdrawal requests;
    (5) Any decision to formally approve the liquidation, segregation 
of assets or portfolios, or some other liquidation of the STIF; or
    (6) In those situations when a bank, its affiliate, or any other 
entity provides a STIF financial support, including a cash infusion, a 
credit extension, a purchase of a defaulted or illiquid asset, or any 
other form of financial support in order to maintain a stable net asset 
value per participating interest;
    (K) Adopt procedures that in the event a STIF has re-priced its net 
asset value below $0.995 per participating interest, the bank 
administering the STIF shall calculate, admit, and withdraw the STIF's 
participating interests at a price based on the mark-to-market net 
asset value; and
    (L) Adopt procedures that, in the event a bank suspends or limits 
withdrawals and initiates liquidation of the STIF as a result of 
redemptions, require the bank to:
    (1) Determine that the extent of the difference between the STIF's 
amortized cost per participating interest and its mark-to-market net 
asset value per participating interest may result in material dilution 
of participating interests or other unfair results to participating 
accounts;
    (2) Formally approve the liquidation of the STIF; and
    (3) Facilitate the fair and orderly liquidation of the STIF to the 
benefit of all STIF participants.
* * * * *

    Dated: September 26, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2012-24375 Filed 10-5-12; 8:45 am]
BILLING CODE 4810-33-P