Prohibition Against Federal Assistance to Swaps Entities (Regulation KK), 34545-34550 [2013-13670]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 78, Number 111 (Monday, June 10, 2013)]
[Rules and Regulations]
[Pages 34545-34550]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13670]



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Federal Register / Vol. 78, No. 111 / Monday, June 10, 2013 / Rules 
and Regulations

[[Page 34545]]



FEDERAL RESERVE SYSTEM

12 CFR Part 237

[Docket No. R-1458]
RIN 7100-AD96


Prohibition Against Federal Assistance to Swaps Entities 
(Regulation KK)

AGENCIES: Board of Governors of the Federal Reserve System (``Board'')

ACTION: Interim final rule with request for comment.

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SUMMARY: The Board invites comment on an interim final rule that treats 
an uninsured U.S. branch or agency of a foreign bank as an insured 
depository institution for purposes of section 716 of the Dodd-Frank 
Act and establishes a process by which a state member bank or uninsured 
state branch or agency of a foreign bank may request a transition 
period to conform its swaps activities to the requirements of section 
716.

DATES: This rule is effective on June 10, 2013. Comments must be 
received on or before August 4, 2013.

ADDRESSES: You may submit comments, identified by Docket No. R-1458 and 
RIN No. 7100-AD96, by any of the following methods:
    Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: regs.comments@federalreserve.gov. Include docket number in 
the subject line of the message.
    Facsimile: (202) 452-3819 or (202) 452-3102.
    Mail: Robert deV. Frierson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.

All public comments are available from the Board's Web site at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons. Accordingly, your comments will 
not be edited to remove any identifying or contact information. Public 
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Laurie Schaffer, Associate General 
Counsel, (202) 452-2272, Christopher Paridon, Counsel, (202) 452-3264, 
Victoria Szybillo, Counsel (202) 475-6325, or Christine Graham, Senior 
Attorney, (202) 452-3005, Legal Division; or Jordan Bleicher, 
Supervisory Financial Analyst, (202) 973-6123, Division of Banking 
Supervision and Regulation, Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue NW., Washington, DC 20551. 
Users of Telecommunication Device for Deaf (TDD) only, call (202) 263-
4869.

SUPPLEMENTARY INFORMATION: Section 716 of Title VII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank Act'') 
generally prohibits the provision of ``Federal assistance'' to any 
``swaps entity'' with regard to any swap, security-based swap, or other 
activity of the swaps entity.\1\ ``Federal assistance'' is defined by 
section 716 to include ``advances from any Federal Reserve credit 
facility or discount window that is not part of a program or facility 
with broad-based eligibility under section 13(3)(A) of the Federal 
Reserve Act'' and Federal Deposit Insurance Corporation (``FDIC'') 
insurance or guarantees.\2\ For purposes of section 716, the term 
``swaps entity'' generally includes any swap dealer, security-based 
swap dealer, major swap participant, or major security-based swap 
participant that is registered under the Commodity Exchange Act or the 
Securities Exchange Act of 1934, as applicable.\3\
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    \1\ See Section 716(a) of the Dodd-Frank Act; 15 U.S.C. 8305(a).
    \2\ Id.
    \3\ See section 716(b)(2) of the Dodd-Frank Act; 15 U.S.C. 
8305(b)(2).
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    Section 716 provides a specific exclusion from the definition of 
``swaps entity'' for any insured depository institution that is a major 
swap participant or major security-based swap participant.\4\ Section 
716 also provides that its prohibition does not apply to an insured 
depository institution that limits its swaps activities to certain 
specified activities.\5\
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    \4\ Id. This exclusion is available to major swap participants 
and major security-based swap participants that are not otherwise 
swap dealers or security-based swap dealers.
    \5\ See section 716(d) of the Dodd-Frank Act; 15 U.S.C. 8305(d).
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    Section 716 provides insured depository institutions with a 
transition period to facilitate compliance with the requirements of the 
section. By its terms, the prohibitions of section 716 apply to insured 
depository institutions only with respect to swaps and security-based 
swaps entered into after the expiration of the transition period. The 
provisions of section 716 become effective on July 16, 2013.\6\
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    \6\ See Guidance on the Effective Date of Section 716 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, 77 FR 
27465 (May 10, 2012).
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    The interim final rule addresses the application of section 716 to 
swaps entities that are uninsured U.S. branches or agencies of a 
foreign bank and establishes a process by which a state member bank and 
an uninsured state branch or agency of a foreign bank may request a 
transition period to conform its swaps activities to the requirements 
of section 716. In particular, the interim final rule treats uninsured 
U.S. branches and agencies of foreign banks as insured depository 
institutions for purposes of section 716.

I. Description of Interim Final Rule

A. Treatment of Uninsured U.S. Branches and Agencies of Foreign Banks

    Section 716(d) of the Dodd-Frank Act provides that the prohibition 
on Federal assistance does not apply to the provision of Federal 
assistance to insured depository institutions that limit their swap and 
security-based swap activities to activities identified in that 
section.\7\ Those identified activities are: (i) Hedging and other 
similar risk-mitigating activities directly related to the activities 
of the insured depository

[[Page 34546]]

institution, and (ii) acting as a swaps entity for swaps or security-
based swaps involving rates or reference assets permissible for 
investment by a national bank pursuant to 12 U.S.C. 24 (Seventh), other 
than acting as a swaps entity for non-cleared credit default swaps.\8\ 
In addition, section 716(b)(2) of the Dodd-Frank Act exempts insured 
depository institutions that are major swap participants from the 
prohibition in section 716(a).
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    \7\ See section 716(d) of the Dodd-Frank Act; 15 U.S.C. 8305(d).
    \8\ See id. at 8305(d)(1)-(3).
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    Moreover, section 716 provides insured depository institutions with 
a transition period to conform their activities to those permissible 
under section 716.\9\ The appropriate Federal banking agency for an 
insured depository institution, in consultation with the Securities and 
Exchange Commission (``SEC'') and Commodities Futures Trading 
Commission (``CFTC''), as appropriate, has the authority to establish 
the length of the transition period, which can be up to 24 months, and 
to extend the transition period for a period of up to one additional 
year. For purposes of establishing a transition period, the Board is 
the appropriate Federal banking agency for state member banks and 
uninsured state branches and agencies of foreign banks.\10\ Finally, 
section 716 applies to swaps and security-based swaps entered into by 
an insured depository institution only after expiration of the 
transition period.\11\
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    \9\ See section 716(f) of the Dodd-Frank Act; 15 U.S.C. 8305(f).
    \10\ See 12 U.S.C. 1813(q)(3). The Office of the Comptroller of 
Currency (OCC) is the appropriate Federal banking agency for any 
Federal branch or agency of a foreign bank. See 12 U.S.C. 
1813(q)(1).
    \11\ See section 716(e) of the Dodd-Frank Act; 15 U.S.C. 
8305(e).
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    The structure, language, and purpose of section 716 create an 
ambiguity regarding the definition of ``insured depository 
institution'' for purposes of the various provisions of section 716, 
including, in particular, regarding the scope of the exceptions and 
transition period granted to insured depository institutions. The term 
``insured depository institution'' is not defined for purposes of these 
provisions. Section 2 of the Dodd-Frank Act provides that ``except as 
the context otherwise requires . . .,'' \12\ the definition of 
``insured depository institution'' has the same meaning as in the 
Federal Deposit Insurance Act. ``Insured depository institution'' is 
defined by section 3(c)(2) of the Federal Deposit Insurance Act to mean 
a bank or savings association the deposits of which are insured by the 
FDIC, and, for some purposes under section 3(c)(3), an uninsured U.S. 
branch or agency.\13\
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    \12\ See section 2 (chapeau) and (18)(A) of the Dodd-Frank Act; 
12 U.S.C. 5301 (chapeau) and (18)(A).
    \13\ See 12 U.S.C. 1813(c)(2), (c)(3).
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    In the context of section 716, uninsured U.S. branches and agencies 
of foreign banks would appear to be properly considered to be insured 
depository institutions. By statute, both uninsured and insured U.S. 
branches and agencies of foreign banks may receive Federal Reserve 
advances on the same terms and conditions that apply to domestic 
insured state member banks.\14\ Thus, uninsured U.S. branches and 
agencies of foreign banks are treated as insured member banks for 
purposes of the only Federal assistance that causes uninsured U.S. 
branches and agencies of foreign banks to be affected by section 716. 
Moreover, the authority vested in the Federal banking agencies to 
enforce compliance with laws such as Title VII of the Dodd-Frank Act 
against uninsured U.S. branches and agencies of foreign banks is based 
on the treatment of those branches and agencies as insured depository 
institutions.\15\ Section 716 appears therefore, to be predicated on 
treatment of uninsured U.S. branches and agencies as insured depository 
institutions.
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    \14\ Section 13(14) of the Federal Reserve Act; 12 U.S.C. 347d.
    \15\ 12 U.S.C. 1813(c)(3). While commercial lending companies 
owned or controlled by foreign banks are also treated as insured 
depository institutions for purposes of section 1813(c)(3) of the 
Federal Deposit Insurance Act, these companies do not have access to 
Federal Reserve advances under the Federal Reserve Act, and thus, 
are not treated as insured depository institutions for purposes of 
this interim final rule.
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    Treating uninsured U.S. branches and agencies of foreign banks as 
insured depository institutions is also consistent with the purpose and 
legislative history of section 716. Section 716 and Title VII of the 
Dodd-Frank Act generally are intended to reduce systemic risks from 
derivatives activities. Treating uninsured U.S. branches and agencies 
as insured depository institutions furthers these objectives by 
providing sufficient opportunity for uninsured U.S. branches and 
agencies to conform or cease their swaps activities in an orderly 
manner and to continue the same risk-mitigating hedging and other 
activities permitted for insured depository institutions under section 
716. This approach is also consistent with the legislative history, 
which suggests Congress intended to treat uninsured branches and 
agencies as insured depository institutions.\16\
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    \16\ Senator Lincoln, the sponsor of section 716, and Senator 
Dodd, the Chairman of the Senate Committee on Banking, Housing, and 
Urban Affairs, engaged in a colloquy on the Senate floor during 
Senate consideration of the Dodd-Frank Act Conference Report in 
which they confirmed that uninsured U.S. branches and agencies 
should be treated in the same manner as insured depository 
institutions. See 156 Cong. Rec. S5904 (daily ed. July 15, 2010) 
(statement of Sen. Lincoln).
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    The interim final rule provides that, for purposes of section 716 
of the Dodd-Frank Act and the interim final rule, the term ``insured 
depository institution'' includes any insured depository institution as 
defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 
1813) and any uninsured U.S. branch or agency of a foreign bank.\17\ 
The terms branch, agency, and foreign bank are defined in section 1 of 
the International Banking Act of 1978.\18\
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    \17\ The interim final rule would define uninsured U.S. branches 
and agencies of foreign banks as insured depository institutions 
solely for the purposes of section 716 and the interim final rule. 
Nothing in this interim final rule affects the availability of 
deposit insurance under the Federal Deposit Insurance Act with 
respect to deposits received by an uninsured U.S. branch or agency 
of a foreign bank.
    \18\ 12 U.S.C. 3101. Insured branches of foreign banks are also 
included in the definition of ``insured depository institution'' 
under section 3(c)(2) of the Federal Deposit Insurance Act.
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B. Transition Period for Insured Depository Institutions and Uninsured 
U.S. Branches and Agencies of Foreign Banks

    Section 716 provides insured depository institutions with a 
transition period to conform their activities.\19\ Under section 
716(f), the appropriate Federal banking agency for an insured 
depository institution, in consultation with the SEC and CFTC, as 
appropriate, is required to establish the length of the transition 
period for conformance with the requirements of section 716. That 
transition period may be up to 24 months and may be extended for a 
period of up to one additional year.
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    \19\ See 15 U.S.C. 8305(f).
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    In establishing the length of the transition period for an insured 
depository institution, the Board is required by statute to take into 
account and make written findings regarding the potential impact of 
divestiture or cessation of swap or security-based swaps activities on 
the insured depository institution's: (i) Mortgage lending; (ii) small 
business lending; (iii) job creation; (iv) capital formation versus the 
potential negative impact on insured depositors and the Deposit 
Insurance Fund of the FDIC; and (v) any other factor that the Board 
believes appropriate to consider.
    The interim final rule provides that a state member bank and an 
uninsured state branch and agency of foreign bank may seek a transition 
period of up to 24 months from July 16, 2013 (for an entity

[[Page 34547]]

that is a swaps entity as of July 16, 2013), or from the date on which 
the entity becomes a swaps entity (if that date occurs after July 16, 
2013), by submitting a written request to the Board. The request must 
include: (i) The length of the transition period requested; (ii) a 
description of the quantitative and qualitative impacts of immediate 
divestiture or cessation of swap or security-based swaps activities on 
the institution, including regarding the potential impact of 
divestiture or cessation of swap or security-based swaps activities on 
the institution's mortgage lending, small business lending, job 
creation, capital formation versus the potential negative impact on 
insured depositors and the Deposit Insurance Fund of the FDIC; and 
(iii) a description of the insured institution's plan for conforming 
its activities to the requirements of section 716.
    Under the interim final rule, the Board may also request additional 
information that it believes is necessary in order to act on a request 
for a transition period. The Board will seek to act on a request for a 
transition period expeditiously after the receipt of a complete 
request. The interim final rule would allow the Board to impose 
conditions on any transition period granted if the Board determines 
such conditions are necessary and appropriate. Consistent with section 
716(f), the interim final rule also permits the Board, in consultation 
with the SEC and CFTC, as appropriate, to extend the transition period 
for up to one additional year. To request an extension of the 
transition period, an insured depository institution must submit a 
written request no later than 60 days before the end of the transition 
period.

II. Request for Comments

    The Board is interested in receiving comments on all aspects of the 
interim final rule. In particular:
    Question 1. Is it appropriate and consistent with section 716 to 
define insured depository institution to include an uninsured U.S. 
branch or agency?
    Question 2. How could the transition period process be modified to 
better achieve the purposes of section 716? Are there any additional 
factors that the Board should consider in reviewing a request for a 
transition period?
    Question 3. Are there specific additional conditions or limitations 
that the Board should, by rule, impose in connection with granting a 
transition period? If so, what conditions or limitations would be 
appropriate? Alternatively, should the Board consider what conditions 
or limitations might be appropriate to apply during a transition period 
(including any extension thereof) on a tailored or case-by-case basis?

III. Effective Date; Solicitation of Comments

    This interim final rule is effective immediately. Pursuant to the 
Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice and 
comment are not required prior to the issuance of a final rule if an 
agency, for good cause, finds that ``notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.'' \20\ Similarly, a final rule may be published with an 
immediate effective date if an agency finds good cause and publishes 
such with the final rule.\21\
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    \20\ 5 U.S.C. 553(b)(B).
    \21\ 5 U.S.C. 553(d)(3).
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    Consistent with section 553(b)(B) of the APA, the Board finds that 
issuing this rule as an interim final rule is necessary to avoid 
significant disruptions in the swaps activities of the uninsured U.S. 
branches and agencies of foreign banks, and that obtaining notice and 
comment prior to issuing the interim final rule would be impracticable 
and contrary to the public interest. Furthermore, the Board finds that 
there is good cause to publish the interim final rule with an immediate 
effective date.
    The Board views the scope of section 716's prohibition as closely 
related to the application of the Title VII framework to the cross-
border activities of foreign banks. The CFTC and SEC both have issued 
proposals regarding the cross-border application of Title VII.\22\ The 
CFTC issued an exemptive order granting temporary relief from certain 
cross-border applications of the swaps provisions of Title VII.\23\
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    \22\ 76 FR 858, 860 (January 7, 2013), 78 FR 30,967 (May 23, 
2013).
    \23\ 76 FR 858. The SEC did not issue a similar exemptive order 
because it has not established the compliance date for the security-
based swap dealer registration provisions of Title VII.
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    Although the Title VII regulatory structure is still being 
developed, section 716 goes into effect on July 16, 2013. Accordingly, 
the Board is seeking to provide clarity to uninsured U.S. branches and 
agencies of foreign banks regarding the availability of the transition 
period and the exceptions available for insured depository 
institutions. Absent clarity regarding the availability of the 
transition period, uninsured U.S. branches and agencies of foreign 
banks arguably would have to terminate their swaps activities by July 
16, 2013 in order to continue to be eligible for access to the discount 
window. Terminating swaps activities by this date may result in foreign 
banks and their counterparties winding down their swaps activities in 
an inefficient and disorderly fashion that could present significant 
operational and other risks.
    There is also good cause to provide clarity on the availability of 
the exceptions set forth in section 716 through this interim final rule 
because notice and public procedure would be impracticable and contrary 
to the public interest. Without such clarity, uninsured branches and 
agencies would be required to begin terminating all their swap 
activities during the transition period, even those that qualified for 
the exceptions. The novation of existing swaps may require the branch 
or agency to enter quickly into new master swap agreements with each 
customer, which could present operational risks to the branch or agency 
and its customers. In the Board's view, the potential harm to these 
entities and their counterparties that may result from not providing 
clarity on the availability of the exceptions warrants a departure from 
the notice and comment rulemaking procedure.
    Last, the Board finds that there is good cause to establish the 
process for applying for transition period relief through this interim 
final rule because notice and comment would be unnecessary and contrary 
to the public interest. The interim final rule establishes a procedure 
of obtaining a statutory transition period and reduces burden on 
applying institutions by narrowing and clarifying the information that 
must be provided to obtain this statutory benefit. State member banks 
are eligible for the transition period under section 716(f) absent 
implementing regulations, and the Board has already received 
applications from state member banks requesting transition period 
relief. In addition, this portion of the interim final rule is 
appropriately characterized as a rule of procedure, and therefore would 
not normally be subject to notice and comment requirements. The Board 
has determined to publish the transition period procedures in this 
interim final rule in order to provide notice to all state member banks 
regarding these procedures.
    Although notice and comment are not required prior to the effective 
date of this interim final rule, the Board invites comment on all 
aspects of this rulemaking and will revise this interim final rule if 
necessary or appropriate in light of the comments received.

[[Page 34548]]

IV. Regulatory Analysis

A. Regulatory Flexibility Act Analysis

    In accordance with section 4 of the Regulatory Flexibility Act 
(``RFA''), 5 U.S.C. 601 et seq., the Board is publishing an initial 
regulatory flexibility analysis for the interim final rule. The RFA 
generally requires an agency to assess the impact a rule is expected to 
have on small entities.\24\ The RFA requires an agency either to 
provide a regulatory flexibility analysis or to certify that the 
interim final rule will not have a significant economic impact on a 
substantial number of small entities. Based on this analysis and for 
the reasons stated below, the Board believes that this interim final 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing an 
initial regulatory flexibility analysis and requesting public comment 
on the effect of the interim final rule on small entities. A final 
regulatory flexibility analysis will be conducted after consideration 
of comments received during the public comment period.
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    \24\ Under standards the U.S. Small Business Administration has 
established, an entity is considered ``small'' if it has $175 
million or less in assets for banks and other depository 
institutions. U.S. Small Business Administration, Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes, available at https://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
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    The Board is adopting this interim final rule to treat an uninsured 
U.S. branch or agency of a foreign bank as an insured depository 
institution for purposes of section 716 of the Dodd-Frank Act and 
establish a process by which a state member bank and uninsured branch 
or agency of a foreign bank may request a transition period to conform 
its swaps activities to the requirements of section 716.
    Under regulations issued by the Small Business Administration 
(``SBA''), a ``small entity'' includes those firms within the ``Finance 
and Insurance'' sector with asset sizes that vary from $7 million or 
less to $175 million or less.\25\ The Board believes that the Finance 
and Insurance sector constitutes a reasonable universe of firms for 
these purposes because such firms generally engage in activities that 
are financial in nature. Consequently, bank holding companies or 
nonbank financial companies with assets sizes of $175 million or less 
are small entities for purposes of the RFA.
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    \25\ 13 CFR 121.201.
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    As discussed in the Supplementary Information, the interim final 
rule would apply to an uninsured U.S. branch or agency of a foreign 
bank and a state member bank that is registered with the CFTC or SEC as 
a swap dealer or security-based swap dealer, respectively. Regulations 
issued by the CFTC and SEC provide that a person shall not be deemed a 
swap dealer if its swap dealing activity over the preceding 12 months 
results in swap positions with an aggregate gross notional amount of no 
more than $3 billion, and an aggregate gross notional amount of no more 
than $25 million with regard to swaps with a ``special entity'' (which 
includes municipalities, other political subdivisions and employee 
benefit plans).\26\ Given the relative size of the de minimis 
exemption, it is unlikely that a financial firm that is at or below the 
$175 million asset threshold would be engaged in swaps transactions 
that would meet or exceed the threshold to qualify as a swap dealer or 
security-based swap dealer.\27\
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    \26\ 77 FR 30596 (May 23, 2012).
    \27\ See id. at 30701 and 30743.
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    As noted above, because the interim final rule is not likely to 
apply to any company with assets of $175 million or less, it is not 
expected to apply to any small entity for purposes of the RFA. The 
Board does not believe that the interim final rule duplicates, 
overlaps, or conflicts with any other Federal rules. In light of the 
foregoing, the Board does not believe that the interim final rule, if 
adopted in final form, would have a significant economic impact on a 
substantial number of small entities supervised. Nonetheless, the Board 
seeks comment on whether the interim final rule would impose undue 
burdens on, or have unintended consequences for, small organizations, 
and whether there are ways such potential burdens or consequences could 
be minimized in a manner consistent with section 716 of the Dodd-Frank 
Act.

B. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act required the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Federal banking agencies invite 
comment on how to make this interim final rule easier to understand. 
For example:
     Has the Board organized the material to suit your needs? 
If not, how could the rule be more clearly stated?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could the Board do to make the regulation easier 
to understand?

C. Paperwork Reduction Act

Request for Comment on Proposed Information Collection
    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501-3521) (``PRA''), the Board may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. The OMB control number for this 
information collection will be assigned. The Board reviewed the interim 
final rule under the authority delegated to the Board by OMB.
    The interim final rule contains requirements subject to the PRA. 
The reporting requirements are found in sections 237.22(a)1 and 
237.22(e). This information collection requirement would implement 
section 716 of the Dodd-Frank Act.
Proposed Information Collection
    Title of Information Collection: Reporting Requirements Associated 
with Regulation KK.
    Frequency of Response: On occasion.
    Affected Public: Businesses or other for-profit.
    Respondents: Uninsured state branches or agencies of foreign banks, 
state member banks.
    Abstract: The interim final rule would treat an uninsured U.S. 
branch or agency of a foreign bank as an insured depository institution 
and establish a process by which a state member bank and uninsured 
state branch or agency of a foreign bank may request a transition 
period to conform its swaps activities.
    Section 237.22(a)(1) would enable an insured depository institution 
for which the Board is the appropriate Federal banking agency to 
request a transition period of up to 24 months from the later of July 
16, 2013, or the date on which it becomes a swaps entity, during which 
to conform its swaps activities to the requirements of this section by 
submitting a request in writing to the

[[Page 34549]]

Board. Any request submitted must, at a minimum, include the following 
information: (i) The length of the transition period requested; (ii) a 
description of the quantitative and qualitative impacts of divestiture 
or cessation of swap or security-based swaps activities on the insured 
depository institution, including information that addresses the 
factors in paragraph (d) of that section; and (iii) a detailed 
explanation of the insured depository institution's plan for conforming 
its activities to the requirements of section 716 of the Dodd-Frank Act 
(15 U.S.C. 8305) and this part.
    Section 237.22(e) would allow the Board to extend a transition 
period for a period of up to one additional year. To request an 
extension of the transition period, an insured depository institution 
must submit a request containing the information set forth in paragraph 
(a) of this section. The insured depository institution must submit the 
request no later than 60 days before the end of the transition period.

Estimated Paperwork Burden

    Number of Respondents: 29.
    Estimated Average Hours per Response: 7 hours.
    Total Estimated Annual Burden: 203 hours.
    Comments are invited on:
    (a) Whether the proposed collections of information are necessary 
for the proper performance of the Federal Reserve's functions, 
including whether the information has practical utility;
    (b) The accuracy of the Federal Reserve's estimate of the burden of 
the proposed information collections, 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 collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The Board has a continuing interest in the public's opinions of 
collections of information. At any time, comments regarding the burden 
estimate, or any other aspect of this collection of information, 
including suggestions for reducing the burden, may be sent to: 
Secretary, Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551; and to the Office of Management and 
Budget, Paperwork Reduction Project, Washington, DC 20503.

List of Subjects in 12 CFR Part 237

    Administrative practice and procedure, Banks and banking, Capital, 
Derivatives, Foreign banking, Holding companies, Margin requirements, 
Reporting and recordkeeping requirements, Risk.

Authority and Issuance

    For the reasons stated in the Supplementary Information, the Board 
amends 12 CFR Chapter II by adding new part 237 to read as follows:

PART 237--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES 
(REGULATION KK)

Subpart A--[RESERVED]
Subpart B-- Prohibition Against Federal Assistance to Swaps Entities
Sec.
237.20 Definitions.
237.21 Definition of insured depository institution for purposes of 
section 716.
237.22 Transition period for insured depository institutions.

    Authority:  15 U.S.C. 8305, 12 U.S.C. 343-350, 12 U.S.C. 1818, 
12 U.S.C. 3101 et seq.

Subpart A--[RESERVED]

Subpart B-- Prohibition Against Federal Assistance to Swaps 
Entities


Sec.  237.20  Definitions.

    Unless otherwise specified, for purposes of this subpart:
    Board means the Board of Governors of the Federal Reserve System.
    Dodd-Frank Act means the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.
    Foreign bank has the same meaning as in Sec.  211.21(n) of the 
Board's Regulation K (12 CFR 211.21(n)).
    Major security-based swap participant has the same meaning as in 
section 3(a)(67) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(67)) and as implemented in rules and orders issued by the 
Securities and Exchange Commission.
    Major swap participant has the same meaning as in section 1a(33) of 
the Commodity Exchange Act (7 U.S.C. 1a(33)) and as implemented in 
rules and orders issued by the Commodity Futures Trading Commission.
    Security-based swap has the same meaning as in section 3(a)(68) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)) and as 
implemented in rules and orders issued by the Securities and Exchange 
Commission.
    Security-based swap dealer has the same meaning as in section 
3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71)) 
and as implemented in rules and orders issued by the Commodity Futures 
Trading Commission.
    Swap dealer has the same meaning as in section 1a(49) of the 
Commodity Exchange Act (7 U.S.C. 1a(49)) and as implemented in rules 
and orders issued by the Commodity Futures Trading Commission.
    Swaps entity means a person that is registered as a swap dealer, 
security-based swap dealer, major swap participant, or major security-
based swap participant under the Commodity Exchange Act or Securities 
Exchange Act of 1934, other than an insured depository institution that 
is registered as a major swap participant or major security-based swap 
participant.


Sec.  237.21  Definition of insured depository institution for purposes 
of section 716.

    For purposes of section 716 of the Dodd-Frank Act (15 U.S.C. 8305) 
and this subpart, the term ``insured depository institution'' includes 
any insured depository institution as defined in section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813) and any uninsured U.S. 
branch or agency of a foreign bank. The terms branch, agency, and 
foreign bank are defined in section 1 of the International Banking Act 
of 1978 (12 U.S.C. 3101).


Sec.  237.22  Transition period for insured depository institutions.

    (a) Approval of transition period. (1) To the extent an insured 
depository institution for which the Board is the appropriate Federal 
banking agency qualifies as a ``swaps entity'' and would be subject to 
the Federal assistance prohibition in section 716(a) of the Dodd-Frank 
Act, the insured depository institution may request a transition period 
of up to 24 months from the later of July 16, 2013, or the date on 
which it becomes a swaps entity, during which to conform its swaps 
activities to the requirements of this section by submitting a request 
in writing to the Board. Any request submitted pursuant to this 
paragraph (a) of this section shall, at a minimum, include the 
following information:
    (i) The length of the transition period requested;
    (ii) A description of the quantitative and qualitative impacts of 
divestiture or cessation of swap or security-based swaps activities on 
the insured depository institution, including information that 
addresses the factors in paragraph (d) of this section; and

[[Page 34550]]

    (iii) A detailed explanation of the insured depository 
institution's plan for conforming its activities to the requirements of 
section 716 of the Dodd-Frank Act (15 U.S.C. 8305) and this part.
    (2) The Board may, at any time, request additional information that 
it believes is necessary for its decision.
    (b) Transition period for insured depository institutions. 
Following review of a written request submitted under paragraph (a) of 
this section, the Board shall permit an insured depository institution 
for which it is the appropriate Federal banking agency up to 24 months 
after the later of July 16, 2013, or the date on which the insured 
depository institution becomes a swaps entity, to comply with the 
requirements of section 716 of the Dodd-Frank Act (15 U.S.C. 8305) and 
this subpart based on its consideration of the factors in paragraph (c) 
of this section.
    (c) Factors governing Board determinations. In establishing an 
appropriate transition period pursuant to any request under this 
section, the Board will take into account and make written findings 
regarding:
    (1) The potential impact of divestiture or cessation of swap or 
security-based swaps activities on the insured depository 
institution's:
    (i) Mortgage lending;
    (ii) Small business lending;
    (iii) Job creation; and
    (iv) Capital formation versus the potential negative impact on 
insured depositors and the Deposit Insurance Fund of the Federal 
Deposit Insurance Corporation; and
    (2) Any other factor that the Board believes appropriate.
    (d) Timing of Board review. The Board will seek to act on a request 
under paragraph (a) of this section expeditiously after the receipt of 
a complete request.
    (e) Extension of transition period. The Board may extend a 
transition period provided under this section for a period of up to one 
additional year. To request an extension of the transition period, an 
insured depository institution must submit a written request containing 
the information set forth in paragraph (a) of this section no later 
than 60 days before the end of the transition period.
    (f) Authority to impose restrictions during any transition period. 
The Board may impose such conditions on any transition period granted 
under this section as the Board determines are necessary or 
appropriate.
    (g) Consultation. The Board shall consult with the Commodity 
Futures Trading Commission or the Securities and Exchange Commission, 
as appropriate, prior to the approval of a request by an insured 
depository institution for a transition period under this section.

    By order of the Board of Governors of the Federal Reserve 
System, June 5, 2013.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2013-13670 Filed 6-7-13; 8:45 am]
BILLING CODE 6210-01-P