Alternatives to References to Credit Ratings With Respect to Permissible Activities for Foreign Branches of Insured State Nonmember Banks and Pledge of Assets by Insured Domestic Branches of Foreign Banks, 9135-9144 [2018-04255]
Download as PDF
<![CDATA[
9135
Rules and Regulations
Federal Register
Vol. 83, No. 43
Monday, March 5, 2018
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 347
RIN 3064–AE36
Alternatives to References to Credit
Ratings With Respect to Permissible
Activities for Foreign Branches of
Insured State Nonmember Banks and
Pledge of Assets by Insured Domestic
Branches of Foreign Banks
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
AGENCY:
The FDIC is adopting a final
rule (final rule) to amend its
international banking regulations
consistent with section 939A (section
939A) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act) and the FDIC’s
authority under section 5(c) of the
Federal Deposit Insurance Act (FDI Act).
The final rule adopts without change
the revisions and amendments that the
FDIC proposed in a June 2016 notice of
proposed rulemaking (NPR or proposed
rule). These revisions and amendments
include: Replacing references to credit
ratings in the regulation’s definition of
investment grade with an alternative
standard of creditworthiness; and
making changes to the eligibility criteria
for the types of assets that insured
branches of foreign banks may pledge
for the benefit of the FDIC.
DATES: This rule is effective April 1,
2018.
SUMMARY:
Eric
Reither, Senior Capital Markets
Specialist, Examination Support,
Capital Markets Branch, Division of Risk
Management Supervision, 202–898–
3707, EReither@fdic.gov; Galo Cevallos,
Senior International Advisor,
International Affairs Branch, Division of
Insurance and Research, GCevallos@
fdic.gov; Catherine Topping, Counsel,
CTopping@fdic.gov; Benjamin Klein,
sradovich on DSK3GMQ082PROD with RULES
FOR FURTHER INFORMATION CONTACT:
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
Counsel, BKlein@fdic.gov, Bank
Activities Unit, Supervision and
Legislation Branch, Legal Division.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The intent of the final rule is to
conform Part 347 with section 939A’s
directive to reduce reliance on external
credit ratings. By removing references to
credit ratings in Part 347 and adopting
an alternative standard of
creditworthiness, the final rule
encourages regular, in-depth analysis of
the credit risks associated with specific
types of securities held by foreign
branches of state nonmember banks
under subpart A of Part 347 (subpart A),
or pledged for the benefit of the Deposit
Insurance Fund (DIF) by the insured
U.S. branches of foreign banks under
subpart B of Part 347 (subpart B). The
final rule supports these objectives by
establishing an investment grade
definition that is now applied in both
subparts A and B.
The financial crisis in 2008
highlighted the importance of
considering the liquidity of a security
when assessing its overall risk. To
address this concern, the revisions to
the asset pledge requirement in subpart
B include the application of a liquidity
standard to the securities pledged to the
FDIC by the insured U.S. branches of
foreign banks, and applying a fair value
discount to such pledged assets. These
amendments support the objective of
the asset pledge requirement, which is
to ensure orderly asset liquidation at
maximum value in the event such assets
need to be liquidated to pay the insured
deposits of the U.S. branch of the
foreign bank.
II. Background
In the decades prior to the financial
crisis in 2008, third party credit risk
assessments by nationally recognized
statistical ratings organizations
(NRSROs) helped to provide
transparency and efficiency to the
securities markets. Their assessments of
creditworthiness allowed originators
and investors to more accurately and
readily meet their risk tolerances and
investment strategies. Many financial
regulations used these external credit
risk ratings to set limits on the activities
of regulated entities in order to foster
safe and sound investment practices.
However, during the run-up to the crisis
PO 00000
Frm 00001
Fmt 4700
Sfmt 4700
many regulated institutions overly
relied on the credit risk assessments of
NRSROs, often neglecting to conduct a
thorough, independent credit risk
analysis. At the same time, flaws in the
NRSROs’ rating methodologies and
conflicts arising from their business
model (including certain commercial
relationships with the originators of
securities and strong competition by
NRSROs for market share), undermined
the accuracy of the credit ratings for a
number of asset classes. Consequently,
many investors, including banking
organizations, experienced significant
losses on securities with ratings that
implied credit losses would be very
unlikely and minimal. This prompted
Congress to enact section 939A of the
Dodd-Frank Act,1 which directs each
federal agency to review and modify
regulations that reference credit ratings.
Section 939A requires each federal
agency to review its regulations that
require the use of an assessment of
creditworthiness of a security or money
market instrument and any references to
or requirements in such regulations
regarding credit ratings. Each agency
must modify its regulations identified in
the review by removing references to, or
requirements of reliance on, credit
ratings and substituting appropriate
standards of creditworthiness.
Subpart A of Part 347—Foreign Banking
and Investment by Insured State
Nonmember Banks
Subpart A of Part 347, 12 CFR 347.101
to 347.122, addresses the international
banking and investment activities of
state nonmember banks, including the
establishment and operations of foreign
branches and subsidiaries.2 In general,
these regulations implement the FDIC’s
statutory authority under section
1 Public Law No. 111–203, section 939A, 124 Stat.
1376, 1887 (July 21, 2010).
2 A state nonmember bank may establish a nonU.S. branch with the approval of the FDIC (12
U.S.C. 1828(d)(2)). National banks must gain the
approval of the Board of Governors of the Federal
Reserve System (‘‘Federal Reserve’’) to open a nonU.S. branch. These branches may engage in any
activity that is permitted in the United States, as
well as those that are usual in connection with the
banking business in the foreign country where it is
located. State member banks may establish foreign
branches with the approval of the Federal Reserve.
U.S. banking organizations may also conduct
international banking activities through Edge and
agreement corporations. 12 U.S.C. 611–631 (‘‘Edge
corporations’’); 12 U.S.C. 601–604(a) (‘‘agreement
corporations’’).
E:\FR\FM\05MRR1.SGM
05MRR1
9136
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
18(d)(2) of the FDI Act 3 regarding
branches of insured state nonmember
banks in foreign countries, and section
18(l) of the FDI Act 4 regarding insured
state nonmember bank investments in
foreign entities.
In addition to their general banking
powers, banks with foreign branches are
permitted to conduct a broad range of
investment activities, including
investment services and underwriting of
debt and equity securities.5 Under 12
CFR 347.115(b), a foreign branch of a
bank may invest in, underwrite,
distribute and deal, or trade foreign
government obligations that have an
investment grade rating, up to an
aggregate limit of ten percent of the
bank’s Tier 1 capital, as calculated
under the Basel III capital rules in 12
CFR part 324, subpart C.6 Section
347.102(o) currently defines investment
grade to mean a security that is rated in
one of the four highest categories by two
or more NRSROs or one NRSRO if the
security is rated by only one NRSRO.7
Subpart B of Part 347—Foreign Banks
The regulations contained in subpart
B of Part 347 primarily implement
provisions of the FDI Act and the
International Banking Act (IBA) 8
concerning insured and noninsured U.S.
branches of foreign banks.9 Each foreign
banking organization maintaining an
insured branch must comply with
specific FDIC asset maintenance 10 and
asset pledge requirements under section
5(c) of the FDI Act. These requirements
are separate and apart from other capital
equivalency requirements of federal or
sradovich on DSK3GMQ082PROD with RULES
3 12
U.S.C. 1828(d)(2).
4 12 U.S.C. 1828(l).
5 The limitations on international investments
and the definition of permissible activities found in
the FDIC’s regulations in Part 347 are similar to, but
not identical to, those found in Regulation K of the
Federal Reserve.
6 12 CFR 324.20 through 324.22.
7 An NRSRO is an entity registered with the U.S.
Securities and Exchange Commission as an NRSRO
under section 15E of the Securities Exchange Act
of 1934. See 15 U.S.C. 78o–7, as implemented by
17 CFR 240.17g–1.
8 Public Law 95–369, 92 Stat. 607 (Sept. 17, 1978)
(codified at 12 U.S.C. 3101 et seq.).
9 U.S. branches of foreign banks may be licensed
by the Office of the Comptroller of the Currency
(‘‘OCC’’) or by an individual state. The Federal
Reserve is required to approve any new foreign
bank branch. The Federal Reserve, among other
things, is required to certify that the country from
which the foreign bank is located subjects its banks,
including the applicant, to comprehensive,
consolidated supervision. 12 U.S.C. 3105(d).
10 The FDIC requires that an insured branch of a
foreign bank maintain, on a daily basis, eligible U.S.
dollar-denominated assets in an amount not less
than 106% of the preceding quarter’s average book
value of the branch’s liabilities excluding those due
to other offices or wholly owned subsidiaries of the
foreign bank. 12 CFR 347.210.
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
state licensing authorities.11 The FDIC
no longer insures the deposits accepted
by branches of foreign banks, except for
deposits made in branches of foreign
banks that are insured by operation of
the grandfathering provisions of the
IBA, as amended by the Foreign Bank
Supervision Enhancement Act of 1991
(FBSEA).12 The universe of these
grandfathered branches is very limited.
There are currently only ten insured
U.S. branches of foreign banks in
operation (four federal branches and six
state branches). A foreign bank that has
an insured branch must pledge assets
for the benefit of the FDIC to protect the
DIF in the event that the FDIC is
obligated to pay the insured deposits of
an insured branch under section 11(f) of
the FDI Act.13 Section 347.209(d)
provides a list of the types of assets that
a foreign bank may pledge for the
benefit of the FDIC. In describing certain
asset types, 12 CFR 347.209(d)
references credit ratings issued by a
nationally recognized rating service in
connection with a determination of the
credit quality of the assets that a foreign
bank may pledge. Specifically, in three
instances in subpart B, the references
are to the highest subset of rating bands
within the investment grade categories
established by the ratings agencies.
III. Notice of Proposed Rulemaking
On June 28, 2016, the FDIC published
the NPR in the Federal Register.14 The
NPR proposed amending the provisions
of subparts A and B of Part 347 that
reference credit ratings. The NPR
proposed amending subpart A, which
sets forth the FDIC’s requirements for
insured state nonmember banks that
operate foreign branches, by replacing
references to credit ratings in the
definition of investment grade with a
11 Although U.S. branches and agencies of foreign
banks have no capital of their own, those that are
federally licensed must deposit cash or eligible
securities at approved insured banks to satisfy the
‘‘capital equivalency requirement’’ specified by the
IBA. The amount of the deposit is required to be
at least 5% of the total liabilities of the branch or
agency office, or the capital that would be required
if it were a freestanding national bank. 12 U.S.C.
3102(g)(2). The underlying purpose of the IBA
provision is to ensure that branches and agencies
of a foreign bank maintain a minimum level of
unencumbered assets in the United States that
would be available in a liquidation of the branch
or agency. State-licensed branches and agencies
also must meet capital equivalency requirements,
which vary from state to state. See, e.g., N.Y.
Banking Law 202–b.
12 Before FBSEA, a small number of foreign bank
branches had obtained FDIC insurance under the
provisions of the IBA and thus were permitted to
accept retail deposits. These branches (insured
branches) are ‘‘grandfathered’’, i.e., they may
continue to receive insured retail deposits pursuant
to section 6(d)(2) of the IBA. 12 U.S.C. 3104(d)(2).
13 12 U.S.C. 1821(f).
14 81 FR 41877 (June 28, 2016).
PO 00000
Frm 00002
Fmt 4700
Sfmt 4700
standard for determining the
creditworthiness of securities and other
financial instruments that has been
adopted in other federal regulations that
conform to section 939A. The NPR
proposed amending subpart B to revise
the FDIC’s asset pledge requirement for
insured U.S. branches of foreign banks.
The NPR proposed amending the
eligibility criteria for the types of assets
that foreign banks may pledge by
replacing the references to credit ratings
with the revised definition of
investment grade. This investment grade
standard would be applied to each type
of pledgeable asset under the NPR,
which also proposed a liquidity
requirement for such assets, and
proposed subjecting them to a fair value
discount. The NPR also proposed
introducing cash as a new asset type
that foreign banks may pledge under
subpart B, and proposed creating a
separate asset category expressly for
debt securities issued by government
sponsored enterprises.
The FDIC sought comments on all
aspects of the June 2016 NPR and
received two comment letters, one from
a foreign banking organization and one
from a private individual. These
comments were considered in
developing this final rule. The
comments are discussed in the relevant
sections that follow.
IV. The Final Rule
Part 347—International Banking
Subpart A—Foreign Banking and
Investment by Insured State
Nonmember Banks
Section 347.102 Definitions
The final rule amends the definition
of investment grade in 12 CFR
347.102(o) by deleting the references to
credit ratings and NRSROs. This final
rule defines investment grade as a
security whose issuer has adequate
capacity to meet all financial
commitments under the security for the
projected life of the exposure. Such an
entity has adequate capacity to meet
financial commitments if the risk of its
default is low, and the full and timely
repayment of principal and interest is
expected.
The FDIC sought comment on
whether this proposed standard of
creditworthiness addressed the FDIC’s
objective of applying a standard that is
transparent, well defined, differentiates
credit risk, and provides for the timely
measurement of change to the credit
profile of the investment. One
commenter, while generally supportive
of efforts to implement an alternative to
credit ratings references, expressed
concern that the standard was
E:\FR\FM\05MRR1.SGM
05MRR1
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
sradovich on DSK3GMQ082PROD with RULES
subjective, entity-specific and possibly
arbitrary. The other commenter
expressed a similar concern that the
standard was general and would require
subjective determinations. The
commenter recommended that the FDIC
provide a more straightforward and
objective standard.
The FDIC believes that the revised
standard provides a flexible,
straightforward measure of
creditworthiness that is consistent with
existing policy. The revised definition
achieves the dual goal of reducing
reliance on credit ratings and
encouraging regular, in-depth analysis
of the credit risks associated with
specific types of securities held by
foreign branches of state nonmember
banks under subpart A, or pledged for
the benefit of the FDIC by the insured
U.S. branches of foreign banks under
subpart B. The revised definition of
investment grade is also consistent with
the definition of investment grade that
was adopted by the FDIC, OCC, and
Federal Reserve in the Basel III capital
rules.15 This definition is also consistent
with the non-ratings based
creditworthiness standard applicable to
permissible corporate debt securities
investments of savings associations
adopted by the FDIC in 12 CFR part
362 16 and the credit quality standards
regarding permissible investments for
national banks adopted by the OCC
under 12 CFR parts 1, 16, and 160.17 In
addition, it is consistent with the final
rules adopted by the OCC that remove
references to credit ratings from its
regulations pertaining to foreign bank
capital equivalency deposits for federal
branches under 12 CFR 28.15.18
Achieving consistency with other
creditworthiness standards adopted by
15 See 78 FR 62018 (Oct. 11, 2013) (Federal
Reserve and OCC) (final rule); 78 FR 55340 (Sept.
10, 2013) (interim final rule) (FDIC); 79 FR 20754
(April 14, 2014) (final rule) (FDIC). In finalizing the
Basel III capital rules, Federal Reserve and OCC
issued a joint final rule, and the FDIC separately
issued a substantively identical interim final rule,
which was later made final without substantive
changes.
16 See Permissible Investments for Federal and
State Savings Associations: Corporate Debt
Securities, 77 FR 43151 (July 24, 2012).
17 See Alternatives to the Use of External Credit
Ratings in the Regulations of the OCC, 77 FR 35253
(June 13, 2012).
18 The OCC’s regulations previously allowed for
the use of certificates of deposit (‘‘CDs’’) or bankers’
acceptances as part of the deposit if the issuer of
the instrument was rated ‘‘investment grade’’ by an
internationally recognized rating organization.
Under the revised regulation, the issuer of the
certificate of deposit or banker’s acceptance must
have ‘‘an adequate capacity to meet financial
commitments under the security for the projected
life of the asset or exposure.’’ See Alternatives to
the Use of External Credit Ratings in the
Regulations of the OCC, 77 FR 35253 (June 13,
2012).
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
the federal banking agencies advances
section 939A’s directive that agencies
establish, to the extent feasible, uniform
standards of creditworthiness. Based on
these considerations, the FDIC is
adopting as final the revisions in the
proposed rule to the regulatory
definition of investment grade.
Section 347.115 Permissible Activities
for a Foreign Branch of an Insured State
Nonmember Bank
Section 347.115 defines the particular
activities that a foreign branch of an
insured state nonmember bank may
conduct. These activities are subject to
safety and soundness limitations and
are limited by the extent to which the
activities are consistent with banking
practices in the foreign country where
the bank maintains a branch. The final
rule, consistent with the NPR, retains
the language of 12 CFR 347.115(b), but
§ 347.115(b) is affected by the final rule
insofar as § 347.115(b) uses the adopted
definition of the term investment grade
in 12 CFR 347.102(o). Subject to certain
limitations and restrictions, § 347.115(b)
permits a state nonmember bank’s
foreign branches to underwrite,
distribute and deal, invest in, or trade
investment grade obligations of any
foreign country, its political
subdivisions, and certain of its agencies
and instrumentalities.19 This authority
is generally consistent with the
provisions of the Federal Reserve’s
Regulation K, which governs the
international operations of foreign
branches of member banks.20
The regulatory definition of
investment grade adopted in the final
rule will remove references to credit
ratings consistent with section 939A but
will not affect the general consistency
between the Federal Reserve’s
Regulation K and the FDIC’s Part 347
with regard to permissible activities. For
purposes of the final rule, an issuer
would satisfy this new standard if the
state nonmember bank appropriately
determines that the obligor presents low
default risk and is expected to make
timely payments of principal and
interest. The definition addresses the
19 The definition of ‘‘investment grade’’ for
obligations of governments other than the host
government was adopted in 2005 when the FDIC
amended its international banking regulations, Part
347. 70 FR 17550 (April 6, 2005).
20 Under the Regulation K, a foreign branch of a
member bank may underwrite, distribute, buy, sell,
and hold certain government debt obligations only
if such obligations are rated investment grade. See
12 CFR 211.4(a)(2)(i)(C)–(D). The Federal Reserve
adopted the definition of investment grade in its
revisions to Regulation K in 2001. The investment
grade rating requirement for obligations of
governments other than the host government was
considered appropriate because it limited crossborder transfer risk. 66 FR 54346 (Oct. 26, 2001).
PO 00000
Frm 00003
Fmt 4700
Sfmt 4700
9137
safety and soundness concerns of this
activity of foreign branches—namely the
exposure of the foreign branch and the
DIF to the entity issuing the security—
without reference to a credit rating or an
NRSRO. As noted above, the FDIC
believes that the finalized standard will
encourage state nonmember banks to
conduct regular, in-depth analysis of the
credit risks associated with specific
types of securities held by their foreign
branches.
Part 347—International Banking
Subpart B—Foreign Banks
Section 347.209 Pledge of Assets
12 CFR 347.209 establishes the asset
pledge requirement for insured U.S.
branches of foreign banks. The amount
that each foreign bank must pledge is
determined by the supervisory risk
posed by each U.S. branch and the U.S.
branch’s asset maintenance level.21 The
amount of assets that a U.S. branch of
a foreign bank must pledge varies from
two percent to eight percent of the
branch’s liabilities and is determined by
reference to the risk-based assessment
schedule provided in 12 CFR
347.209(b)(1).22
The current FDIC rules in 12 CFR
347.209(d) require that certain asset
types have credit ratings within the top
rating bands of an NRSRO. Under the
existing rule, commercial paper may be
eligible for pledging purposes if it is
rated P–1 or P–2, or their equivalent, by
an NRSRO.23 Municipal general
obligations are eligible if they have a
credit rating within the top two rating
bands of a NRSRO. Notes issued by
bank and thrift holding companies,
banks, or savings associations must also
be rated within the top two rating bands
of an NRSRO in order to be eligible.
These references to the highest subset of
rating bands within the investment
grade categories established by the
ratings agencies impose a higher credit
standard than investment grade. The
other types of eligible assets in the
existing rules include: Bank CDs with
maturities of not greater than one year;
Treasury bills, interest bearing bonds,
notes, debentures, or other direct
obligations of or fully guaranteed by the
United States or any agency thereof;
21 12 CFR 347.209(b). Generally, an insured
branch must maintain a level of assets that exceeds
106 percent of its liabilities. 12 CFR 347.210.
22 The pledged assets must be placed at a
depository approved by the FDIC. Generally, each
insured branch of the foreign bank must meet the
asset pledge requirement separately; however, a
foreign bank with more than one insured branch in
any state may treat all of its insured branches in the
state as one entity for purposes of complying with
this requirement. See 12 CFR 347.209(b)(5).
23 P–1 and P–2 are Moody’s top two rating bands
for short-term obligations.
E:\FR\FM\05MRR1.SGM
05MRR1
9138
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
banker’s acceptances with a maturity
not greater than 180 days; and
obligations of certain international
development banks.24
The final rule removes the references
to credit ratings issued by NRSROs in 12
CFR 347.209(d) and substitutes an
investment grade standard to ensure the
assets have appropriate credit quality.
As proposed in the NPR, the final rule
also permits only highly liquid assets to
be pledged, and submits these
instruments to fair value haircuts. The
revised credit and liquidity standards
and the comments addressing these
standards are discussed below.
sradovich on DSK3GMQ082PROD with RULES
Credit and Liquidity Standards
Under this final rule, instruments
falling within the relevant asset
categories are eligible for pledging if
they are investment grade. Consistent
with this final rule’s amendment to
subpart A of Part 347, the final rule adds
the same definition of investment grade
to the definitions section of subpart B,
12 CFR 347.202, to define investment
grade as a security issued by an entity
that has adequate capacity to meet
financial commitments under the
security for the projected life of the
exposure. To meet this standard, the
insured branch of the foreign bank
needs to determine that the risk of
default by the obligor is low, and that
full and timely repayment of principal
and interest is expected. As noted
earlier, this investment grade standard
is consistent with other regulations
amended pursuant to section 939A.
As proposed in the NPR, this final
rule also provides that instruments
falling within the relevant asset
categories are eligible for pledging only
if they are highly liquid. Highly liquid
securities are those that:
• Exhibit low credit and market risk;
• are traded in an active secondary
two-way market that has committed
market makers and independent bona
fide offers to buy and sell so that a price
reasonably related to the last sales price
or current bona fide competitive bid and
offer quotations can be determined
within one day and settled at that price
within a reasonable time period
conforming with trade custom; and
• are a type of asset that investors
historically have purchased in periods
of financial market distress during
which market liquidity has been
impaired.25
24 See
12 CFR 347.209(d)(1), (2), (5), and (6).
definition of a highly liquid asset is
consistent with the definition established in 12 CFR
part 252, subpart O Enhanced Prudential Standards
for Foreign Banking Organizations (The Federal
Reserve’s Regulation YY).
25 The
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
The final rule requires a foreign bank
to demonstrate that the instrument
meets the highly liquid standard.
The FDIC sought comment on
whether the proposed investment grade
and liquidity standards for pledged
assets under subpart B of Part 347 are
reasonable provisions and whether the
removal of references to external credit
ratings should be implemented as
proposed or whether there are
alternatives that would achieve a
creditworthiness standard that is
sufficiently risk sensitive. One
commenter expressed concern that the
proposed investment grade and
liquidity requirements will significantly
increase the operational burden on the
branch. This commenter expressed
concern that the new standards
contained in the definitions of
investment grade and highly liquid are
general and will require subjective
determinations. The commenter also
expressed the opinion that the highly
liquid standard is not required under
Section 939A. The commenter further
noted that the introduction of this new
standard is not necessary to protect the
DIF against losses. This commenter
contended that the types of pledgeable
assets, coupled with the investment
grade requirement, would provide
adequate assurance that pledged assets
are sufficiently low risk and liquid.
The proposed amendments in Subpart
A address the permissible international
banking and investment activities of
state nonmember banks. Subpart A
differs in scope and purpose from
subpart B, which establishes asset
maintenance and pledge requirements
for insured U.S. branches of foreign
banks. The asset pledge requirements
exist to protect the DIF by ensuring
orderly asset liquidations at maximum
values in the event such assets are
liquidated to pay the insured deposits of
the U.S. branch of the foreign bank.
Although requiring foreign banks to
verify that pledged assets satisfy the
proposed standards may require some
initial adjustment of existing processes,
the FDIC believes that it would impose
minimal additional burden. The final
rule adopts standards of investment
grade and highly liquid assets that are
already in use in other banking
regulations. In addition, insured U.S.
branches of foreign banks are currently
expected to conduct due diligence to
meet applicable standards of safety and
soundness in connection with their
investment activities without sole
reliance on NRSRO ratings as a measure
of creditworthiness. Furthermore,
market data should already be
accessible through an insured branch’s
normal data source channels, and
PO 00000
Frm 00004
Fmt 4700
Sfmt 4700
should be used in pre-purchase and
ongoing investment due diligence.
Therefore, the FDIC does not believe
that the final rule will significantly
increase the operational burden on
insured branches of foreign banks.
Existing 12 CFR 347.209(d) includes
creditworthiness standards that exceed
investment grade. That is, with some
pledgeable asset types only the top two
letter ratings (e.g., AAA, AA) within the
investment grade band would be
acceptable. The highly liquid standard
in the final rule is necessary, in part, to
ensure that the elevated quality of the
pledged assets established under the
current standard continues.
Furthermore, complementing the
investment grade requirement with the
highly liquid requirement will ensure
that the pledged assets can be readily
converted to cash with little impact on
their values.
The FDIC believes that adopting the
investment grade and highly liquid
criteria, in conjunction with the fair
value discount, helps ensure that
pledged assets continue to support
orderly asset liquidation at maximum
value in the event such assets need to
be liquidated to pay the insured
deposits of the U.S. branch of the
foreign bank. Based on these
considerations, the FDIC is adopting as
final the revisions in the proposed rule
related to the definition of investment
grade and the highly liquid requirement.
Fair Value Discount
As proposed in the NPR, the final rule
requires that the fair values of the
investment grade and highly liquid
pledged assets be discounted to reflect
the credit risk and market price
volatility of such assets. Under the final
rule, the discounted fair value of the
assets determines the pledged dollar
amount. The FDIC expects that the
valuations of the pledged assets be
updated at least quarterly. Further, the
final rule adopts a standardized haircut
table, consistent with the Basel III
capital rules, to promote simplicity and
ease of reference.26 Under this
approach, the applicable haircut is
determined by reference to the asset’s
risk-weight and remaining maturity.27
For example, a foreign insured branch
may elect to pledge investment grade
commercial paper with a fair value of
26 In 12 CFR 324.37(c)(3), the FDIC established
requirements for applying standardized haircuts for
market price volatility which are scheduled on
Table 1 to § 324.37—Standard Supervisory Market
Price Volatility Haircuts (Table 1). A portion of
Table 1 concerning haircuts for non-sovereign
issuers serves as the basis for the reference table
included in the proposed rule.
27 See 12 CFR 324.32 for general risk weights.
E:\FR\FM\05MRR1.SGM
05MRR1
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
sradovich on DSK3GMQ082PROD with RULES
$100,000 and remaining maturity of less
than one year. These instruments are
risk-weighted at 100 percent under the
Basel III capital rules. Under the
reference table, the corresponding
haircut is 4 percent; therefore, the
amount of the $100,000 asset that
counts towards the satisfaction of the
asset pledge requirement is arrived at by
multiplying $100,000 by 0.96 (1¥0.04),
which equals $96,000. Consistent with
the haircut requirements in the riskbased capital rules, pledged assets that
receive a zero percent risk weight do not
receive a fair value haircut.28
The FDIC solicited comment on
whether pledged assets should be
discounted as proposed, or whether the
full fair value of assets pledged under
the existing risk-based assessment
schedule already provide sufficient
protection to the DIF. In addition, the
FDIC sought comment on whether
another method of discounting would
advance the objective of ensuring that
pledged assets be as free from risk and
as liquid as possible. One commenter
indicated that the fair value discount is
burdensome and suggested that the full
fair value be permitted to be pledged,
contending that the benefit to the DIF of
the discount requirement would likely
be minimal. The commenter further
cited operational burden concerns with
implementing the quarterly valuation
calculation. The commenter also
contended that, based on its tentative
calculations, the fair value discount
requirement would require it to pledge
a considerable amount of additional
eligible assets, resulting in increased
costs.
The FDIC believes the fair value
haircut provides an appropriate
methodology for discounting fair values
which is consistent with the haircuts
applied to financial collateral pledged to
certain transactions under the Basel III
capital rules as adopted by the FDIC.29
Further, the FDIC believes the
expectation of quarterly updates to
valuation of the pledged assets is
reasonable given that quarterly
valuations are currently required in the
pledge agreement between each of the
28 Assets with zero percent risk weight include
cash; Treasury bills, interest bearing bonds, notes,
debentures, or other direct obligations of or
obligations fully guaranteed as to principal and
interest by the United States or any agency thereof;
and obligations of the African Development Bank,
Asian Development Bank, Inter-American
Development Bank, and the International Bank for
Reconstruction and Development.
29 FDIC-supervised institutions may use the riskmitigating effects of financial collateral, subject to
a market price volatility haircut, in determining the
exposure amount of such transactions for riskweighting purposes. See 79 FR 20760 (April 14,
2014).
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
foreign banks and the FDIC. Moreover,
the FDIC believes that applying the fair
value discount results in minimal
burden because the calculation of the
applicable fair value discount is based
on the risk weight of the applicable
asset under the Basel III capital rules,
which is an analysis that should already
be undertaken by these institutions.
Lastly, the FDIC recognized in the NPR
that the haircut provision could impact
foreign banks that pledge bank notes or
CDs because they may need to pledge
additional collateral under the proposed
rule compared with the pledge
requirements under the existing rule.
However, the FDIC expects any
additional collateral required as a result
of the haircut provision to be minimal.
Based on these and other
considerations, the FDIC is adopting as
final the discount methodology in the
proposed rule.
Assets That May Be Pledged
As proposed in the NPR, the final rule
also amends 12 CFR 347.209(d) by
adding cash as a new asset type that
foreign banks may pledge under subpart
B, and by creating a separate asset
category expressly for debt securities
issued by government sponsored
enterprises (GSEs). Cash and securities
issued by GSEs are included in the
definition of highly liquid assets in the
Federal Reserve’s regulation prescribing
enhanced prudential standards for
foreign banking organizations.30 The
FDIC also understands that some
insured branches of foreign banks
currently pledge GSE debt securities
under 12 CFR 347.209(d)(2) because
they qualify as obligations of a U.S.
government instrumentality. The Basel
III capital rules recognize that the risk
characteristics of GSE securities differ
from those guaranteed by the U.S.
government. The capital rules bear this
out by assigning the former a twenty
percent risk weight and the latter a zero
percent risk weight.31 Therefore, the
final rule eliminates the reference to
obligations of U.S. instrumentalities in
12 CFR 347.209(d)(2), and creates a
separate category expressly for GSE
securities. Creating a separate category
for GSE securities is necessary because
such securities are subject to a haircut
under the final rule to account for their
twenty percent risk weight under the
Basel III capital rules, whereas securities
guaranteed by the U.S. government are
not subject to a haircut given their zero
percent risk weight.
Pursuant to subpart B, all assets
pledged, including cash, are required to
30 12
31 12
PO 00000
CFR part 252 subpart O.
CFR 324.32(a) and (c).
Frm 00005
Fmt 4700
Sfmt 4700
9139
be subject to the terms of a pledge
agreement executed by the pledging
foreign bank and the depository.32
Subpart B requires that the pledge
agreement’s terms include a
requirement that pledged assets be
placed with a depository for
safekeeping.33 Subpart B also requires
that the pledged assets be designated as
assets subject to the pledge agreement.34
In addition, the assets must be held
separately from the assets of the foreign
bank or depository, and must at all
times be segregated on the records of the
depository and clearly identified as
assets subject to the pledge agreement.35
Subpart B requires that a foreign bank
obtain the FDIC’s prior written approval
of the depository selected.36
The FDIC solicited comment on
whether the types of assets that may be
pledged should be expanded to include
cash as proposed. One commenter
expressed support for the addition of
cash as a new eligible asset type. The
commenter also sought clarification as
to whether an insured branch would be
permitted to receive interest on any
such pledged cash. While subpart B
generally authorizes insured branches to
retain interest earned on pledged
assets,37 the operation of subpart B’s
segregation and safekeeping
requirements as applied to pledged cash
would preclude the payment of interest
on such cash. Most importantly, in
order for pledged cash to be deemed
held for safekeeping and segregated in
accordance with subpart B’s
requirements, such cash must be held
separate from the general funds of the
bank and may not be commingled with
any cash or other property of the
depository. Accordingly, such cash may
not be loaned, invested, used in
operations, or used for any other
purpose by the depository. Because,
generally, interest is paid for the use of
cash, if the depository complies with
the safekeeping and segregation
requirement, it cannot use the cash and,
thus, there would be no basis for the
payment of interest. In the event that the
FDIC is appointed receiver of the
depository, cash pledged and held for
the purposes of, and in accordance with,
the requirements of subpart B, would
32 12 CFR 347.209(e)(5)(i). FDIC staff is reviewing
executed pledge agreements in order to determine
what revisions, if any, will be necessary in light of
the final rule’s revisions to Part 347.
33 12 CFR 347.209(c).
34 12 CFR 347.209(e)(5)(ii).
35 Id.
36 12 CFR 347.209(c)
37 12 CFR 347.209(e)(10). A foreign bank may
retain interest earned on pledged assets unless the
FDIC by written notice prohibits such retention.
E:\FR\FM\05MRR1.SGM
05MRR1
sradovich on DSK3GMQ082PROD with RULES
9140
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
not be treated as property of the
depository receivership.
The FDIC views the amendments to
the pledgeable asset criteria as
consistent with other rulemakings, and
as resulting in minimal impact on the
insured U.S. branches of foreign banks.
Based on these, and other,
considerations, the final rule adopts the
pledgeable asset categories as proposed
in the NPR. Accordingly, a foreign bank
may pledge the assets listed below,
provided that such assets are
denominated in United States dollars,
and satisfy both the investment grade
and highly liquid standards. Further,
such assets must be discounted at the
rates set forth in the haircut table.
The revised pledgeable asset
categories are as follows:
(1) Cash;
(2) Treasury bills, interest bearing
bonds, notes, debentures, or other direct
obligations of or obligations fully
guaranteed as to principal and interest
by the United States or any agency
thereof;
(3) Obligations of U.S. GSEs;
(4) Negotiable CDs that are payable in
the United States and that are issued by
any state bank, national bank, state or
federal savings association, or branch or
agency of a foreign bank which has
executed a valid waiver of offset
agreement or similar debt instruments
that are payable in the United States;
provided, that the maturity of any
certificate or issuance is not greater than
one year; and provided further, that the
issuing branch or agency of a foreign
bank is not an affiliate of the pledging
bank or from the same country as the
pledging bank’s domicile;
(5) Obligations of the African
Development Bank, Asian Development
Bank, Inter-American Development
Bank, and the International Bank for
Reconstruction and Development;
(6) Commercial paper;
(7) Notes issued by bank and savings
and loan holding companies, banks, or
savings associations organized under
the laws of the United States or any
state thereof or notes issued by branches
or agencies of foreign banks, provided
that the notes are payable in the United
States, and provided further, that the
issuing branch or agency of a foreign
bank is not an affiliate of the pledging
bank or from the same country as the
pledging bank’s domicile;
(8) Banker’s acceptances that are
payable in the United States and that are
issued by any state bank, national bank,
state or federal savings association, or
branch or agency of a foreign bank;
provided, that the maturity of any
acceptance is not greater than 180 days;
and provided further, that the branch or
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
agency issuing the acceptance is not an
affiliate of the pledging bank or from the
same country as the pledging bank’s
domicile;
(9) General obligations of any state of
the United States, or any county or
municipality of any state of the United
States, or any agency, instrumentality,
or political subdivision of the foregoing
or any obligation guaranteed by a state
of the United States or any county or
municipality of any state of the United
States; and
(10) Any other asset determined by
the FDIC to be acceptable.38
Cash, treasury bills or other direct
obligations of or fully guaranteed by the
United States or any agency thereof, and
the obligations of the stated
international development banks will
categorically satisfy the investment
grade and highly liquid standards
discussed above.39 Therefore, foreign
banks that pledge these assets will not
be required to perform individual
analyses to verify that the assets meet
the investment grade and highly liquid
standards. Pledgeable assets that receive
a zero percent risk weight will generally
not require a fair value haircut.
Foreign banks pledging assets that do
not categorically satisfy the investment
grade and highly liquid standards will
need to demonstrate that the assets
being pledged meet the investment
grade and highly liquid standards.
Foreign banks can find the appropriate
haircut by identifying the risk weight
associated with the asset in the capital
rules.
Other Technical Revisions
As proposed in the NPR, the final rule
adds a definition of agency to the
definitions section of subpart B, 12 CFR
347.202, which already contains a
definition of branch under the existing
regulation, in order to clarify that
negotiable CDs, banker’s acceptances,
and notes issued by a branch or agency
of a foreign bank located only in the
United States are eligible for pledging.
The definition was not previously in
subpart B. The term agency is used in
12 CFR 347.209(d)(1), (d)(4), and (d)(7)
to describe the types of bank CDs,
banker’s acceptances, and notes issued
by a branch or agency of a foreign bank
38 The FDIC also reserves the right to require the
substitution of pledged assets with other assets
deemed more acceptable to the FDIC, as currently
provided in 12 CFR 347.209(d).
39 A direct debt obligation issued by a U.S.
government-sponsored enterprise or an assetbacked security guaranteed by a U.S. GSE will
categorically satisfy the investment grade standard
only if the GSE is operating with capital support or
another form of direct financial assistance from the
U.S. government. All GSEs will categorically satisfy
the liquidity standard.
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
that are eligible for pledging by a U.S.
branch of a foreign bank. The final rule
incorporates the definition of agency
found in section 1(b)(1) of the IBA,
which defines agency to mean ‘‘any
office or any place of business of a
foreign bank located in any State of the
United States at which credit balances
are maintained incidental to or arising
out of the exercise of banking powers,
checks are paid, or money is lent but at
which deposits may not be accepted
from citizens or residents of the United
States.’’ 40 This definition makes clear
that only negotiable CDs, banker’s
acceptances, or notes issued by an
agency of a foreign bank located in the
United States are eligible pledged assets.
The FDIC does not allow for the
pledging of these instruments unless
they are issued by an agency of a foreign
bank located in the United States. It is
also consistent with the definition of
branch in subpart B, which means any
office or place of business of a foreign
bank located in any state of the United
States.41 The final rule also amends 12
CFR 347.209(d)(7) by removing the
reference to United States in the
description of branches or agencies of
foreign banks because those terms as
defined in existing subpart B necessarily
mean an office or place of business of
a foreign bank located in the United
States. Furthermore, as proposed, the
final rule amends 12 CFR 347.209(d)(7)
to clarify that, consistent with
requirements associated with pledging
CDs and banker’s acceptances in
paragraphs (d)(1) and (d)(4), a pledging
U.S. branch of a foreign bank may not
pledge a note issued by a branch or
agency of a foreign bank that has the
same country of domicile as the
pledging bank. This requirement avoids
potential same-country risks
represented by the branches and
agencies as direct extensions of foreign
banks.
One commenter expressed concern
with the proposal to amend 12 CFR
347.209(d)(7) to clarify that a pledging
U.S. branch of a foreign bank may not
pledge a note issued by a branch or
agency of a foreign bank that has the
same country of domicile as the
pledging bank. In particular, the
commenter contended that in some
instances the same-country risk would
be very low in certain jurisdictions and
recommended the implementation of an
objective standard when evaluating
same-country risks given that the risk
40 12 U.S.C. 3101(1). The proposed definition is
also consistent with the definition of agency in the
Federal Reserve’s and OCC’s international banking
regulations. See 12 CFR 211.21(b) (Federal Reserve)
and 12 CFR 28.11(g) (OCC).
41 12 CFR 347.202(b).
E:\FR\FM\05MRR1.SGM
05MRR1
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
profiles of different countries can vary
significantly. The FDIC believes the
requirement as proposed is an important
safeguard against potential samecountry risks represented by issuing
branches and agencies as direct
extensions of foreign banks. The
requirement as proposed is also
consistent with the existing
requirements for pledging CDs and
banker’s acceptances under 12 CFR
347.209(d)(1) and (d)(4). The FDIC is
adopting the proposed requirement
related to this and all other proposed
technical revisions as final.
As proposed in the NPR, the final rule
amends the list of eligible collateral to
eliminate the obsolete exception for
non-negotiable CDs that were pledged as
collateral to the FDIC on March 18,
2005, until maturity according to the
original terms of the existing deposit
agreement. The maturity date for any
non-negotiable CD that was
grandfathered under this provision has
passed. Consequently, the provision by
its terms is obsolete and no longer
serves a useful purpose.
sradovich on DSK3GMQ082PROD with RULES
V. Expected Effects
a. Subpart A
The applicability of the revision to
subpart A of Part 347 in the final rule
is limited to state nonmember banks
that operate branches in foreign
countries. As of June 30, 2017, there
were seven state nonmember banks
operating 13 foreign branches in six
countries. All but one of the state
nonmember banks with foreign
branches are large, multi-billion dollar
financial institutions with
commensurate systems and capabilities.
The revision to subpart A will therefore
apply to a small number of mostly larger
state nonmember banks with more
sophisticated operations, and the effect
of the revision to the definition of
investment grade is expected to impose
negligible additional burden relative to
the size and capabilities of these banks.
The FDIC also notes that prior to the
enactment of the Dodd-Frank Act and
implementation of section 939A, state
nonmember banks were expected to
have a credit risk management
framework for securities and
investments that included robust prepurchase analysis and ongoing
monitoring by the banking organization.
The revision to the definition of
investment grade in Part 347 will
encourage regular, in-depth analysis by
the banking organization of credit risks
of securities, which is a prudent
practice already expected of banks. This
will likely result in little or no
additional costs associated with credit
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
risk analysis over those currently
expended. However, potential credit
losses will likely decline as covered
institutions are more diligent in
assessing their credit risk exposure,
which would provide a benefit.
b. Subpart B
The revisions to subpart B of Part 347
in the final rule will apply only to the
insured U.S. branches of foreign banks.
As of June 30, 2017, there were ten
insured branches of foreign banks. The
FDIC expects the revisions to subpart B
to have the effect of ensuring that
collateral pledged by these institutions
is very low risk and as liquid as possible
in order to provide protection to the
DIF. For purposes of carrying out the
section 939A review related to subpart
B, the FDIC surveyed the insured U.S.
branches of foreign banks to examine
the composition of assets pledged. At
the time of the review, treasury bills,
bank notes, and CDs were the primary
instruments pledged. Consequently, the
haircut provision could impact foreign
banks that choose to continue pledging
a predominance of bank notes or CDs,
as this may require pledging some
measure of additional collateral under
the proposed rule compared with the
pledge requirements under the existing
rule. Additionally, the final rule may
alter to some extent the nature of the
recordkeeping and reporting
requirements associated with subpart B.
Information developed through prudent
investment practices will need to
evidence satisfaction of the new
standards. That information will be
retained for supervisory review, but
additional time should be negligible.
Therefore, the FDIC views the proposed
amendments to the pledgeable asset
criteria as resulting in minimal impact
on the insured U.S. branches of foreign
banks.
VI. Alternatives Considered
Section 939A requires that agencies
adopt standards of creditworthiness
that, to the extent feasible, are uniform.
The adoption of an alternative
definition of investment grade would be
inconsistent with section 939A’s
directive to adopt uniform standards.
In addition to adopting the definition
of investment grade, the final rule,
consistent with the proposed rule,
amends subpart B of Part 347 to impose
liquidity and discounting requirements
for assets pledged by insured branches
of foreign banks operating in the United
States. Alternatives to the proposed
definition of highly liquid would
contradict the definition of highly liquid
assets as adopted in other Dodd-Frank
Act rulemakings, thereby creating
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
9141
different treatment of the same
securities. Similarly, the calculation of
fair value discounts for pledged assets is
based on the risk weights assigned to
such assets in the capital rules. The
FDIC did not receive any comments
with specific recommendations for
alternatives.
VII. Effective Date
The Administrative Procedure Act
(APA) generally requires that a final rule
be published in the Federal Register no
less than 30 days before its effective
date.42 Section 302 of Riegle
Community Development and
Regulatory Improvement Act
(RCDRIA) 43 generally requires that
regulations prescribed by Federal
banking agencies which impose
additional reporting, disclosures or
other new requirements on insured
depository institutions take effect on the
first day of a calendar quarter which
begins on or after the date on which the
regulations are published in final form
unless an agency finds good cause that
the regulations should become effective
sooner. The effective date of the Rule is
April 1, 2018, which is the first day of
the calendar quarter which begins on or
after the date on which the regulations
are published in final form, as required
by RCDRIA. 12 CFR 347.209(b) requires
that a foreign bank with an insured
branch pledge assets equal to the
appropriate percentage of the insured
branch’s average liabilities for the last
30 days of the most recent calendar
quarter. The FDIC expects foreign banks
with insured branches to comply with
Part 347 Subpart B’s asset pledge
requirements, as amended by the final
rule, beginning in the calendar quarter
commencing on April 1, 2018. This
provides foreign banks and their insured
branches with adequate time to
transition to Subpart B’s amended asset
pledge requirements.
VIII. Regulatory Analyses
Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(PRA) 44 the FDIC 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. The collection
of information associated with subpart
A is entitled Foreign Banking and
Investment by Insured State
Nonmember Banks (OMB No. 3064–
0125). This information collection
42 5
U.S.C. 553(d).
U.S.C. 4802.
44 44 U.S.C. 3501 et seq.
43 12
E:\FR\FM\05MRR1.SGM
05MRR1
9142
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
consists of applications related to
establishing and closing a foreign
branch; applications related to acquiring
stock of a foreign organization; and
records and reports which a nonmember
bank must maintain once it has
established a foreign branch or foreign
organization. As described above, the
final rule’s revision to subpart A
consists of a change to the definition of
investment grade and imposes no
additional recordkeeping or reporting
burden on insured state nonmember
banks. Therefore, the FDIC expects that
the PRA burden estimates of this
collection will not be affected by this
final rule. Accordingly, the FDIC will
not be submitting any information
collection request to OMB relating to the
information collection associated with
subpart A (OMB 3064–0125).
The collection of information
associated with subpart B is entitled
Foreign Banks (OMB No. 3064–0114).
This information collection consists of,
among other things, internal
recordkeeping by insured branches of
foreign banks, and reporting
requirements related to an insured
branch’s pledge of assets to the FDIC.
Under the final rule, all assets pledged
to the FDIC under subpart B must be
investment grade, highly liquid, and
subject to a fair value discount. Several
types of assets pledged by banks under
subpart B would be categorically
investment grade and highly liquid, and
subject to a zero percent discount under
the final rule. Insured branches of
foreign banks will be able to continue to
pledge these assets without any
adjustment to their reporting and
recordkeeping requirements. To the
extent that an insured branch of a
foreign bank pledges an asset that would
not be categorically investment grade,
highly liquid, or that would not receive
a zero percent discount, the FDIC
expects minimal additional burden to
accompany such a pledge of assets.
Recordkeeping associated with the
diligence that will be required for
determining that an asset is highly
liquid and investment grade is already
Title
expected of these institutions as part of
their pre-purchase and ongoing
investment due diligence. Similarly, the
calculation of the applicable fair value
discount is based on the risk weight of
the applicable asset under the Basel III
capital rules, which is an analysis that
should already be undertaken by these
institutions. Therefore, the FDIC expects
that any resulting changes in burden
will be so minimal that they will not
alter the existing PRA burden estimates
of this collection. Notwithstanding the
fact that the FDIC does not expect a
change in burden, the final rule may
alter to some extent the nature of the
recordkeeping requirements associated
with subpart B. Accordingly, the FDIC
will be submitting an information
collection request to OMB relating to the
information collection associated with
subpart B (OMB 3064–0114). The
existing burden estimates for the
information collection associated with
subpart B are as follows:
Respondents
per year
Times/year
Hours per
response
Total
burden
hours
1
1
1
1
1
1
1
10
8
8
8
120
8
8
8
1,200
4
4
10
10
0.25
2
10
80
Total Burden ......................................................................................
sradovich on DSK3GMQ082PROD with RULES
Moving a branch ..............................................................................................
Consent to operate ..........................................................................................
Conduct activities .............................................................................................
Recordkeeping .................................................................................................
Pledge of assets:
documents ................................................................................................
reports .......................................................................................................
........................
........................
........................
1,314
The FDIC has a continuing interest in
the public’s opinions of our existing
information collections. At any time,
comments are invited on:
• Whether the collections of
information are necessary for the proper
performance of the Agencies’ functions,
including whether the information has
practical utility;
• The accuracy of the estimates of the
burden of the information collections,
including the validity of the
methodology and assumptions used;
• Ways to enhance the quality, utility,
and clarity of the information to be
collected;
• 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
• Estimates of capital or startup costs
and costs of operation, maintenance,
and purchase of services to provide
information.
All comments will become a matter of
public record. A copy of the comments
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
may also be submitted to the OMB desk
officer for the FDIC by mail to U.S.
Office of Management and Budget, 725
17th Street NW, #10235, Washington,
DC 20503, by facsimile to 202–395–
5806, or by email to oira_submission@
omb.eop.gov, Attention, Federal
Banking Agency Desk Officer.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA)
generally requires that, in connection
with a notice of final rulemaking, an
agency prepare a Final Regulatory
Flexibility Act analysis describing the
impact of the rule on small entities
(defined in regulations promulgated by
the Small Business Administration to
include banking organizations with total
assets of less than or equal to $550
million). A Final Regulatory Flexibility
Act analysis, however, is not required if
the agency certifies that the 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
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
Federal Register together with the final
rule. For the reasons provided below,
the FDIC certifies that the final rule will
not have a significant economic impact
on a substantial number of small
entities.
The final rule makes revisions to the
existing rules in subpart A of Part 347
consistent with section 939A of the
Dodd-Frank Act.45 The rules in subpart
A of Part 347 address issues related to
the international activities and
investments of insured state nonmember
banks. In general, they implement the
FDIC’s statutory authority under section
18(d)(2) of the FDI Act regarding
branches of insured state nonmember
banks in foreign countries, and section
18(l) of the FDI Act regarding insured
state nonmember bank investments in
foreign entities. As of June 30, 2017,
there were seven state nonmember
banks with 13 foreign branches.
45 Subpart J of part 303 contains the procedural
rules that implement Part 347. No revisions are
proposed to these rules.
E:\FR\FM\05MRR1.SGM
05MRR1
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
Available information indicates that
state nonmember banks with foreign
investments or foreign branches are not
small entities.
The final rule also amends subpart B
of Part 347 as applied to insured U.S.
branches of foreign banks. As of
September 30, 2016, there were ten
insured branches of foreign banks, only
one of which qualifies as a small entity.
Therefore, the revisions to subpart B of
Part 347 will not have a significant
impact on a substantial number of small
entities.
Small Business Regulatory Enforcement
Fairness Act
The OMB has determined that the
final rule is not a major rule within the
meaning of the relevant sections of the
Small Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA).46 As
required by SBREFA, the FDIC will
submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
The Omnibus Consolidated and
Emergency Supplemental
Appropriations Act, 1999: Assessment
of Federal Regulations and Policies on
Families
The FDIC has determined that this
final rule will not affect family wellbeing within the meaning of section 654
of the Omnibus Consolidated and
Emergency Supplemental
Appropriations Act, 1999.47
Plain Language
Section 722 of the Gramm-LeachBliley Act requires the FDIC to use plain
language in all proposed and final rules
published after January 1, 2000. The
FDIC sought to present the final rule in
a simple and straightforward manner.
The FDIC did not receive any comment
on its use of plain language.
List of Subjects in 12 CFR Part 347
Bank deposit insurance, Banks,
Banking, Foreign banking, Investments,
Insured foreign branches, Reporting and
recordkeeping requirements, United
States investments abroad.
sradovich on DSK3GMQ082PROD with RULES
Authority and Issuance
For the reasons stated in the
preamble, the Federal Deposit Insurance
Corporation amends part 347 of chapter
III of Title 12, Code of Federal
Regulations as follows:
46 5
U.S.C. 801, et seq.
Law 105–277, 112 Stat. 2681 (1998).
47 Public
VerDate Sep<11>2014
15:56 Mar 02, 2018
Jkt 244001
PART 347—INTERNATIONAL
BANKING
1. The authority citation for part 347
is revised to read as follows:
■
Authority: 12 U.S.C. 1813, 1815, 1817,
1819, 1820, 1828, 3103, 3104, 3105, 3108,
3109; Pub L. No. 111–203, section 939A, 124
Stat. 1376, 1887 (July 21, 2010) (codified 15
U.S.C. 78o–7 note).
2. In § 347.102, paragraph (o) is
revised to read as follows:
9143
for the projected life of the exposure.
Such an entity has adequate capacity to
meet financial commitments if the risk
of its default is low and the full and
timely repayment of principal and
interest is expected.
*
*
*
*
*
■ 4. In § 347.209, paragraph (d) is
revised and Table 1 is added to the end
of the section to read as follows:
■
§ 347.102
Definitions.
*
*
*
*
(o) Investment grade means a security
issued by an entity that has adequate
capacity to meet financial commitments
for the projected life of the exposure.
Such an entity has adequate capacity to
meet financial commitments if the risk
of its default is low and the full and
timely repayment of principal and
interest is expected.
*
*
*
*
*
■ 3. In § 347.202, paragraphs (p) through
(y) are redesignated as paragraphs (s)
through (bb); paragraphs (k) through (o)
are redesignated as paragraphs (m)
through (q); paragraphs (b) through (j)
are redesignated as paragraphs (c)
through (k); and new paragraphs (b), (l),
and (r) are added to read as follows:
Definitions.
*
*
*
*
*
(b) Agency means any office or any
place of business of a foreign bank
located in any State of the United States
at which credit balances are maintained
incidental to or arising out of the
exercise of banking powers, checks are
paid, or money is lent but at which
deposits may not be accepted from
citizens or residents of the United
States.
*
*
*
*
*
(l) Highly liquid means, with respect
to a security, that the security has low
credit and market risk; is traded in an
active secondary two-way market that
has committed market makers and
independent bona fide offers to buy and
sell so that a price reasonably related to
the last sales price or current bona fide
competitive bid and offer quotations can
be determined within one day and
settled at that price within a reasonable
time period conforming with trade
custom; is a type of asset that investors
historically have purchased in periods
of financial market distress during
which market liquidity has been
impaired.
*
*
*
*
*
(r) Investment grade means a security
issued by an entity that has adequate
capacity to meet financial commitments
PO 00000
Frm 00009
Fmt 4700
Pledge of assets.
*
*
§ 347.202
§ 347.209
Sfmt 4700
*
*
*
*
(d) Assets that may be pledged. (1)
This paragraph sets forth the kinds of
assets that may be pledged to satisfy the
requirements of this section. A foreign
bank shall be deemed to have pledged
any such assets for the benefit of the
FDIC or its designee at such time as any
such asset is placed with the depository.
The FDIC reserves the right to require
the substitution of pledged assets with
other assets deemed acceptable to the
FDIC.
(2) A foreign bank may pledge the
kinds of assets set forth in this
paragraph (d)(2), provided that: Such
assets are denominated in United States
dollars; such assets are investment
grade, as that term is defined in
§ 347.202(r); and such assets are highly
liquid, as that term is defined in
§ 347.202(l). Furthermore, for the
purposes of calculating the amount of
assets required to be pledged under
paragraph (b) of this section, the assets
that are eligible for pledging under this
paragraph (d)(2) must be discounted at
the rates set forth in Table 1 to
§ 347.209.
(i) Cash;
(ii) Treasury bills, interest bearing
bonds, notes, debentures, or other direct
obligations of or obligations fully
guaranteed as to principal and interest
by the United States or any agency
thereof;
(iii) Obligations of United States
government-sponsored enterprises;
(iv) Negotiable certificates of deposit
that are payable in the United States and
that are issued by any state bank,
national bank, state or federal savings
association, or branch of a foreign bank
which has executed a valid waiver of
offset agreement or similar debt
instruments that are payable in the
United States and that are issued by any
agency of a foreign bank which has
executed a valid waiver of offset
agreement; provided, that the maturity
of any certificate or issuance is not
greater than one year; and provided
further, that the issuing branch or
agency of a foreign bank is not an
affiliate of the pledging bank or from the
same country as the pledging bank’s
domicile;
E:\FR\FM\05MRR1.SGM
05MRR1
9144
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules and Regulations
(v) Obligations of the African
Development Bank, Asian Development
Bank, Inter-American Development
Bank, and the International Bank for
Reconstruction and Development;
(vi) Commercial paper;
(vii) Notes issued by bank and savings
and loan holding companies, banks, or
savings associations organized under
the laws of the United States or any
state thereof or notes issued by branches
or agencies of foreign banks, provided
that the notes are payable in the United
States, and provided further, that the
issuing branch or agency of a foreign
bank is not an affiliate of the pledging
bank or from the same country as the
pledging bank’s domicile;
(viii) Banker’s acceptances that are
payable in the United States and that are
issued by any state bank, national bank,
state or federal savings association, or
branch or agency of a foreign bank;
provided, that the maturity of any
acceptance is not greater than 180 days;
and provided further, that the branch or
agency issuing the acceptance is not an
affiliate of the pledging bank or from the
same country as the pledging bank’s
domicile;
(ix) General obligations of any state of
the United States, or any county or
municipality of any state of the United
States, or any agency, instrumentality,
or political subdivision of the foregoing
or any obligation guaranteed by a state
of the United States or any county or
municipality of any state of the United
States;
(x) Any other asset determined by the
FDIC to be acceptable.
*
*
*
*
*
TABLE 1 TO § 347.209—SUPERVISORY HAIRCUTS FOR ASSETS PLEDGED UNDER § 347.209(d)
Haircut % assigned based on maturity and risk weight
Remaining maturity
Risk weight (%) by issuer as specified in part 324.32
0%
≤to 1 Year ........................................................................................................
>1 Year but ≤5 Years ......................................................................................
>5 years ...........................................................................................................
Dated at Washington, DC, on February 14,
2018.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018–04255 Filed 3–2–18; 8:45 am]
BILLING CODE 6714–01–P
20%
0
0
0
The revised ASC Policy
Statements adopted February 14, 2018,
are applicable March 5, 2018.
DATES:
FOR FURTHER INFORMATION CONTACT:
James R. Park, Executive Director, at
(202) 595–7575, or Alice M. Ritter,
General Counsel, at (202) 595–7577,
Appraisal Subcommittee, 1401 H Street
NW, Suite 760, Washington, DC 20005.
SUPPLEMENTARY INFORMATION:
FEDERAL FINANCIAL INSTITUTIONS
EXAMINATION COUNCIL
12 CFR Chapter XI
[Docket No. AS18–02]
Appraisal Subcommittee; Revised ASC
Policy Statements
Appraisal Subcommittee of the
Federal Financial Institutions
Examination Council.
AGENCY:
Adoption of revised ASC Policy
Statements.
ACTION:
The Appraisal Subcommittee
(ASC) of the Federal Financial
Institutions Examination Council is
adopting revised ASC Policy
Statements. The ASC Policy Statements
provide guidance to ensure State
appraiser certifying and licensing
agencies comply with Title XI of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, as
amended, and the rules promulgated
thereunder. The revised ASC Policy
Statements supersede the current ASC
Policy Statements.
sradovich on DSK3GMQ082PROD with RULES
SUMMARY:
VerDate Sep<11>2014
19:35 Mar 02, 2018
Jkt 244001
I. Background
Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act
of 1989, as amended (Title XI),
established the ASC.1 The purpose of
Title XI is to provide protection of
Federal financial and public policy
interests by upholding Title XI
requirements for appraisals performed
for federally related transactions.2
Pursuant to Title XI, one of the ASC’s
core functions is to monitor the
requirements established by the States 3
1 The ASC Board is comprised of seven members.
Five members are designated by the heads of the
FFIEC agencies (Board of Governors of the Federal
Reserve System [Board], Bureau of Consumer
Financial Protection [CFPB], Federal Deposit
Insurance Corporation [FDIC], Office of the
Comptroller of the Currency [OCC], and National
Credit Union Administration [NCUA]). The other
two members are designated by the heads of the
Department of Housing and Urban Development
(HUD) and the Federal Housing Finance Agency
(FHFA).
2 Refers to any real estate related financial
transaction which: (a) A federal financial
institutions regulatory agency engages in, contracts
for, or regulates; and (b) requires the services of an
appraiser. (Title XI § 1121 (4), 12 U.S.C. 3350.)
3 The 50 States, the District of Columbia, and four
Territories, which are the Commonwealth of Puerto
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
50%
1.0
4.0
8.0
100%
2.0
6.0
12.0
4.0
8.0
16.0
for certification and licensing of
appraisers qualified to perform
appraisals in connection with federally
related transactions. This is
accomplished through periodic ASC
Compliance Reviews of each State
appraiser regulatory program (Appraiser
Program) to determine compliance or
lack thereof with Title XI, and to assess
implementation of minimum
requirements for credentialing of
appraisers as adopted by the Appraiser
Qualifications Board (The Real Property
Appraiser Qualification Criteria or AQB
Criteria). The revised ASC Policy
Statements provide guidance to the
States regarding how Appraiser
Programs will be evaluated during ASC
Compliance Reviews.
Title XI as amended by the DoddFrank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank
Act) 4 expanded the ASC’s core
functions to include monitoring of the
requirements established by States that
elect to register and supervise the
operations and activities of appraisal
management companies 5 (AMCs).
States electing to register and supervise
AMCs must implement minimum
requirements in accordance with the
AMC Rule.6 As a result, States with an
Rico, Commonwealth of the Northern Mariana
Islands, Guam, and United States Virgin Islands.
4 Public Law 111–203, 124 Stat. 1376.
5 Title XI § 1103 (a)(1)(B), 12 U.S.C. 3332.
6 The Dodd-Frank Act added section 1124 to Title
XI, Appraisal Management Company Minimum
Requirements, which required the OCC, Board,
FDIC, NCUA, CFPB, and FHFA to establish, by rule,
minimum requirements for the registration and
supervision of AMCs by States that elect to register
E:\FR\FM\05MRR1.SGM
05MRR1
]]>Agencies
[Federal Register Volume 83, Number 43 (Monday, March 5, 2018)]
[Rules and Regulations]
[Pages 9135-9144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04255]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 83, No. 43 / Monday, March 5, 2018 / Rules
and Regulations
[[Page 9135]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 347
RIN 3064-AE36
Alternatives to References to Credit Ratings With Respect to
Permissible Activities for Foreign Branches of Insured State Nonmember
Banks and Pledge of Assets by Insured Domestic Branches of Foreign
Banks
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The FDIC is adopting a final rule (final rule) to amend its
international banking regulations consistent with section 939A (section
939A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) and the FDIC's authority under section 5(c) of the
Federal Deposit Insurance Act (FDI Act). The final rule adopts without
change the revisions and amendments that the FDIC proposed in a June
2016 notice of proposed rulemaking (NPR or proposed rule). These
revisions and amendments include: Replacing references to credit
ratings in the regulation's definition of investment grade with an
alternative standard of creditworthiness; and making changes to the
eligibility criteria for the types of assets that insured branches of
foreign banks may pledge for the benefit of the FDIC.
DATES: This rule is effective April 1, 2018.
FOR FURTHER INFORMATION CONTACT: Eric Reither, Senior Capital Markets
Specialist, Examination Support, Capital Markets Branch, Division of
Risk Management Supervision, 202-898-3707, [email protected]; Galo
Cevallos, Senior International Advisor, International Affairs Branch,
Division of Insurance and Research, [email protected]; Catherine
Topping, Counsel, [email protected]; Benjamin Klein, Counsel,
[email protected], Bank Activities Unit, Supervision and Legislation
Branch, Legal Division.
SUPPLEMENTARY INFORMATION:
I. Policy Objectives
The intent of the final rule is to conform Part 347 with section
939A's directive to reduce reliance on external credit ratings. By
removing references to credit ratings in Part 347 and adopting an
alternative standard of creditworthiness, the final rule encourages
regular, in-depth analysis of the credit risks associated with specific
types of securities held by foreign branches of state nonmember banks
under subpart A of Part 347 (subpart A), or pledged for the benefit of
the Deposit Insurance Fund (DIF) by the insured U.S. branches of
foreign banks under subpart B of Part 347 (subpart B). The final rule
supports these objectives by establishing an investment grade
definition that is now applied in both subparts A and B.
The financial crisis in 2008 highlighted the importance of
considering the liquidity of a security when assessing its overall
risk. To address this concern, the revisions to the asset pledge
requirement in subpart B include the application of a liquidity
standard to the securities pledged to the FDIC by the insured U.S.
branches of foreign banks, and applying a fair value discount to such
pledged assets. These amendments support the objective of the asset
pledge requirement, which is to ensure orderly asset liquidation at
maximum value in the event such assets need to be liquidated to pay the
insured deposits of the U.S. branch of the foreign bank.
II. Background
In the decades prior to the financial crisis in 2008, third party
credit risk assessments by nationally recognized statistical ratings
organizations (NRSROs) helped to provide transparency and efficiency to
the securities markets. Their assessments of creditworthiness allowed
originators and investors to more accurately and readily meet their
risk tolerances and investment strategies. Many financial regulations
used these external credit risk ratings to set limits on the activities
of regulated entities in order to foster safe and sound investment
practices. However, during the run-up to the crisis many regulated
institutions overly relied on the credit risk assessments of NRSROs,
often neglecting to conduct a thorough, independent credit risk
analysis. At the same time, flaws in the NRSROs' rating methodologies
and conflicts arising from their business model (including certain
commercial relationships with the originators of securities and strong
competition by NRSROs for market share), undermined the accuracy of the
credit ratings for a number of asset classes. Consequently, many
investors, including banking organizations, experienced significant
losses on securities with ratings that implied credit losses would be
very unlikely and minimal. This prompted Congress to enact section 939A
of the Dodd-Frank Act,\1\ which directs each federal agency to review
and modify regulations that reference credit ratings.
---------------------------------------------------------------------------
\1\ Public Law No. 111-203, section 939A, 124 Stat. 1376, 1887
(July 21, 2010).
---------------------------------------------------------------------------
Section 939A requires each federal agency to review its regulations
that require the use of an assessment of creditworthiness of a security
or money market instrument and any references to or requirements in
such regulations regarding credit ratings. Each agency must modify its
regulations identified in the review by removing references to, or
requirements of reliance on, credit ratings and substituting
appropriate standards of creditworthiness.
Subpart A of Part 347--Foreign Banking and Investment by Insured State
Nonmember Banks
Subpart A of Part 347, 12 CFR 347.101 to 347.122, addresses the
international banking and investment activities of state nonmember
banks, including the establishment and operations of foreign branches
and subsidiaries.\2\ In general, these regulations implement the FDIC's
statutory authority under section
[[Page 9136]]
18(d)(2) of the FDI Act \3\ regarding branches of insured state
nonmember banks in foreign countries, and section 18(l) of the FDI Act
\4\ regarding insured state nonmember bank investments in foreign
entities.
---------------------------------------------------------------------------
\2\ A state nonmember bank may establish a non-U.S. branch with
the approval of the FDIC (12 U.S.C. 1828(d)(2)). National banks must
gain the approval of the Board of Governors of the Federal Reserve
System (``Federal Reserve'') to open a non-U.S. branch. These
branches may engage in any activity that is permitted in the United
States, as well as those that are usual in connection with the
banking business in the foreign country where it is located. State
member banks may establish foreign branches with the approval of the
Federal Reserve. U.S. banking organizations may also conduct
international banking activities through Edge and agreement
corporations. 12 U.S.C. 611-631 (``Edge corporations''); 12 U.S.C.
601-604(a) (``agreement corporations'').
\3\ 12 U.S.C. 1828(d)(2).
\4\ 12 U.S.C. 1828(l).
---------------------------------------------------------------------------
In addition to their general banking powers, banks with foreign
branches are permitted to conduct a broad range of investment
activities, including investment services and underwriting of debt and
equity securities.\5\ Under 12 CFR 347.115(b), a foreign branch of a
bank may invest in, underwrite, distribute and deal, or trade foreign
government obligations that have an investment grade rating, up to an
aggregate limit of ten percent of the bank's Tier 1 capital, as
calculated under the Basel III capital rules in 12 CFR part 324,
subpart C.\6\ Section 347.102(o) currently defines investment grade to
mean a security that is rated in one of the four highest categories by
two or more NRSROs or one NRSRO if the security is rated by only one
NRSRO.\7\
---------------------------------------------------------------------------
\5\ The limitations on international investments and the
definition of permissible activities found in the FDIC's regulations
in Part 347 are similar to, but not identical to, those found in
Regulation K of the Federal Reserve.
\6\ 12 CFR 324.20 through 324.22.
\7\ An NRSRO is an entity registered with the U.S. Securities
and Exchange Commission as an NRSRO under section 15E of the
Securities Exchange Act of 1934. See 15 U.S.C. 78o-7, as implemented
by 17 CFR 240.17g-1.
---------------------------------------------------------------------------
Subpart B of Part 347--Foreign Banks
The regulations contained in subpart B of Part 347 primarily
implement provisions of the FDI Act and the International Banking Act
(IBA) \8\ concerning insured and noninsured U.S. branches of foreign
banks.\9\ Each foreign banking organization maintaining an insured
branch must comply with specific FDIC asset maintenance \10\ and asset
pledge requirements under section 5(c) of the FDI Act. These
requirements are separate and apart from other capital equivalency
requirements of federal or state licensing authorities.\11\ The FDIC no
longer insures the deposits accepted by branches of foreign banks,
except for deposits made in branches of foreign banks that are insured
by operation of the grandfathering provisions of the IBA, as amended by
the Foreign Bank Supervision Enhancement Act of 1991 (FBSEA).\12\ The
universe of these grandfathered branches is very limited. There are
currently only ten insured U.S. branches of foreign banks in operation
(four federal branches and six state branches). A foreign bank that has
an insured branch must pledge assets for the benefit of the FDIC to
protect the DIF in the event that the FDIC is obligated to pay the
insured deposits of an insured branch under section 11(f) of the FDI
Act.\13\ Section 347.209(d) provides a list of the types of assets that
a foreign bank may pledge for the benefit of the FDIC. In describing
certain asset types, 12 CFR 347.209(d) references credit ratings issued
by a nationally recognized rating service in connection with a
determination of the credit quality of the assets that a foreign bank
may pledge. Specifically, in three instances in subpart B, the
references are to the highest subset of rating bands within the
investment grade categories established by the ratings agencies.
---------------------------------------------------------------------------
\8\ Public Law 95-369, 92 Stat. 607 (Sept. 17, 1978) (codified
at 12 U.S.C. 3101 et seq.).
\9\ U.S. branches of foreign banks may be licensed by the Office
of the Comptroller of the Currency (``OCC'') or by an individual
state. The Federal Reserve is required to approve any new foreign
bank branch. The Federal Reserve, among other things, is required to
certify that the country from which the foreign bank is located
subjects its banks, including the applicant, to comprehensive,
consolidated supervision. 12 U.S.C. 3105(d).
\10\ The FDIC requires that an insured branch of a foreign bank
maintain, on a daily basis, eligible U.S. dollar-denominated assets
in an amount not less than 106% of the preceding quarter's average
book value of the branch's liabilities excluding those due to other
offices or wholly owned subsidiaries of the foreign bank. 12 CFR
347.210.
\11\ Although U.S. branches and agencies of foreign banks have
no capital of their own, those that are federally licensed must
deposit cash or eligible securities at approved insured banks to
satisfy the ``capital equivalency requirement'' specified by the
IBA. The amount of the deposit is required to be at least 5% of the
total liabilities of the branch or agency office, or the capital
that would be required if it were a freestanding national bank. 12
U.S.C. 3102(g)(2). The underlying purpose of the IBA provision is to
ensure that branches and agencies of a foreign bank maintain a
minimum level of unencumbered assets in the United States that would
be available in a liquidation of the branch or agency. State-
licensed branches and agencies also must meet capital equivalency
requirements, which vary from state to state. See, e.g., N.Y.
Banking Law 202-b.
\12\ Before FBSEA, a small number of foreign bank branches had
obtained FDIC insurance under the provisions of the IBA and thus
were permitted to accept retail deposits. These branches (insured
branches) are ``grandfathered'', i.e., they may continue to receive
insured retail deposits pursuant to section 6(d)(2) of the IBA. 12
U.S.C. 3104(d)(2).
\13\ 12 U.S.C. 1821(f).
---------------------------------------------------------------------------
III. Notice of Proposed Rulemaking
On June 28, 2016, the FDIC published the NPR in the Federal
Register.\14\ The NPR proposed amending the provisions of subparts A
and B of Part 347 that reference credit ratings. The NPR proposed
amending subpart A, which sets forth the FDIC's requirements for
insured state nonmember banks that operate foreign branches, by
replacing references to credit ratings in the definition of investment
grade with a standard for determining the creditworthiness of
securities and other financial instruments that has been adopted in
other federal regulations that conform to section 939A. The NPR
proposed amending subpart B to revise the FDIC's asset pledge
requirement for insured U.S. branches of foreign banks. The NPR
proposed amending the eligibility criteria for the types of assets that
foreign banks may pledge by replacing the references to credit ratings
with the revised definition of investment grade. This investment grade
standard would be applied to each type of pledgeable asset under the
NPR, which also proposed a liquidity requirement for such assets, and
proposed subjecting them to a fair value discount. The NPR also
proposed introducing cash as a new asset type that foreign banks may
pledge under subpart B, and proposed creating a separate asset category
expressly for debt securities issued by government sponsored
enterprises.
---------------------------------------------------------------------------
\14\ 81 FR 41877 (June 28, 2016).
---------------------------------------------------------------------------
The FDIC sought comments on all aspects of the June 2016 NPR and
received two comment letters, one from a foreign banking organization
and one from a private individual. These comments were considered in
developing this final rule. The comments are discussed in the relevant
sections that follow.
IV. The Final Rule
Part 347--International Banking Subpart A--Foreign Banking and
Investment by Insured State Nonmember Banks
Section 347.102 Definitions
The final rule amends the definition of investment grade in 12 CFR
347.102(o) by deleting the references to credit ratings and NRSROs.
This final rule defines investment grade as a security whose issuer has
adequate capacity to meet all financial commitments under the security
for the projected life of the exposure. Such an entity has adequate
capacity to meet financial commitments if the risk of its default is
low, and the full and timely repayment of principal and interest is
expected.
The FDIC sought comment on whether this proposed standard of
creditworthiness addressed the FDIC's objective of applying a standard
that is transparent, well defined, differentiates credit risk, and
provides for the timely measurement of change to the credit profile of
the investment. One commenter, while generally supportive of efforts to
implement an alternative to credit ratings references, expressed
concern that the standard was
[[Page 9137]]
subjective, entity-specific and possibly arbitrary. The other commenter
expressed a similar concern that the standard was general and would
require subjective determinations. The commenter recommended that the
FDIC provide a more straightforward and objective standard.
The FDIC believes that the revised standard provides a flexible,
straightforward measure of creditworthiness that is consistent with
existing policy. The revised definition achieves the dual goal of
reducing reliance on credit ratings and encouraging regular, in-depth
analysis of the credit risks associated with specific types of
securities held by foreign branches of state nonmember banks under
subpart A, or pledged for the benefit of the FDIC by the insured U.S.
branches of foreign banks under subpart B. The revised definition of
investment grade is also consistent with the definition of investment
grade that was adopted by the FDIC, OCC, and Federal Reserve in the
Basel III capital rules.\15\ This definition is also consistent with
the non-ratings based creditworthiness standard applicable to
permissible corporate debt securities investments of savings
associations adopted by the FDIC in 12 CFR part 362 \16\ and the credit
quality standards regarding permissible investments for national banks
adopted by the OCC under 12 CFR parts 1, 16, and 160.\17\ In addition,
it is consistent with the final rules adopted by the OCC that remove
references to credit ratings from its regulations pertaining to foreign
bank capital equivalency deposits for federal branches under 12 CFR
28.15.\18\ Achieving consistency with other creditworthiness standards
adopted by the federal banking agencies advances section 939A's
directive that agencies establish, to the extent feasible, uniform
standards of creditworthiness. Based on these considerations, the FDIC
is adopting as final the revisions in the proposed rule to the
regulatory definition of investment grade.
---------------------------------------------------------------------------
\15\ See 78 FR 62018 (Oct. 11, 2013) (Federal Reserve and OCC)
(final rule); 78 FR 55340 (Sept. 10, 2013) (interim final rule)
(FDIC); 79 FR 20754 (April 14, 2014) (final rule) (FDIC). In
finalizing the Basel III capital rules, Federal Reserve and OCC
issued a joint final rule, and the FDIC separately issued a
substantively identical interim final rule, which was later made
final without substantive changes.
\16\ See Permissible Investments for Federal and State Savings
Associations: Corporate Debt Securities, 77 FR 43151 (July 24,
2012).
\17\ See Alternatives to the Use of External Credit Ratings in
the Regulations of the OCC, 77 FR 35253 (June 13, 2012).
\18\ The OCC's regulations previously allowed for the use of
certificates of deposit (``CDs'') or bankers' acceptances as part of
the deposit if the issuer of the instrument was rated ``investment
grade'' by an internationally recognized rating organization. Under
the revised regulation, the issuer of the certificate of deposit or
banker's acceptance must have ``an adequate capacity to meet
financial commitments under the security for the projected life of
the asset or exposure.'' See Alternatives to the Use of External
Credit Ratings in the Regulations of the OCC, 77 FR 35253 (June 13,
2012).
---------------------------------------------------------------------------
Section 347.115 Permissible Activities for a Foreign Branch of an
Insured State Nonmember Bank
Section 347.115 defines the particular activities that a foreign
branch of an insured state nonmember bank may conduct. These activities
are subject to safety and soundness limitations and are limited by the
extent to which the activities are consistent with banking practices in
the foreign country where the bank maintains a branch. The final rule,
consistent with the NPR, retains the language of 12 CFR 347.115(b), but
Sec. 347.115(b) is affected by the final rule insofar as Sec.
347.115(b) uses the adopted definition of the term investment grade in
12 CFR 347.102(o). Subject to certain limitations and restrictions,
Sec. 347.115(b) permits a state nonmember bank's foreign branches to
underwrite, distribute and deal, invest in, or trade investment grade
obligations of any foreign country, its political subdivisions, and
certain of its agencies and instrumentalities.\19\ This authority is
generally consistent with the provisions of the Federal Reserve's
Regulation K, which governs the international operations of foreign
branches of member banks.\20\
---------------------------------------------------------------------------
\19\ The definition of ``investment grade'' for obligations of
governments other than the host government was adopted in 2005 when
the FDIC amended its international banking regulations, Part 347. 70
FR 17550 (April 6, 2005).
\20\ Under the Regulation K, a foreign branch of a member bank
may underwrite, distribute, buy, sell, and hold certain government
debt obligations only if such obligations are rated investment
grade. See 12 CFR 211.4(a)(2)(i)(C)-(D). The Federal Reserve adopted
the definition of investment grade in its revisions to Regulation K
in 2001. The investment grade rating requirement for obligations of
governments other than the host government was considered
appropriate because it limited cross-border transfer risk. 66 FR
54346 (Oct. 26, 2001).
---------------------------------------------------------------------------
The regulatory definition of investment grade adopted in the final
rule will remove references to credit ratings consistent with section
939A but will not affect the general consistency between the Federal
Reserve's Regulation K and the FDIC's Part 347 with regard to
permissible activities. For purposes of the final rule, an issuer would
satisfy this new standard if the state nonmember bank appropriately
determines that the obligor presents low default risk and is expected
to make timely payments of principal and interest. The definition
addresses the safety and soundness concerns of this activity of foreign
branches--namely the exposure of the foreign branch and the DIF to the
entity issuing the security--without reference to a credit rating or an
NRSRO. As noted above, the FDIC believes that the finalized standard
will encourage state nonmember banks to conduct regular, in-depth
analysis of the credit risks associated with specific types of
securities held by their foreign branches.
Part 347--International Banking Subpart B--Foreign Banks
Section 347.209 Pledge of Assets
12 CFR 347.209 establishes the asset pledge requirement for insured
U.S. branches of foreign banks. The amount that each foreign bank must
pledge is determined by the supervisory risk posed by each U.S. branch
and the U.S. branch's asset maintenance level.\21\ The amount of assets
that a U.S. branch of a foreign bank must pledge varies from two
percent to eight percent of the branch's liabilities and is determined
by reference to the risk-based assessment schedule provided in 12 CFR
347.209(b)(1).\22\
---------------------------------------------------------------------------
\21\ 12 CFR 347.209(b). Generally, an insured branch must
maintain a level of assets that exceeds 106 percent of its
liabilities. 12 CFR 347.210.
\22\ The pledged assets must be placed at a depository approved
by the FDIC. Generally, each insured branch of the foreign bank must
meet the asset pledge requirement separately; however, a foreign
bank with more than one insured branch in any state may treat all of
its insured branches in the state as one entity for purposes of
complying with this requirement. See 12 CFR 347.209(b)(5).
---------------------------------------------------------------------------
The current FDIC rules in 12 CFR 347.209(d) require that certain
asset types have credit ratings within the top rating bands of an
NRSRO. Under the existing rule, commercial paper may be eligible for
pledging purposes if it is rated P-1 or P-2, or their equivalent, by an
NRSRO.\23\ Municipal general obligations are eligible if they have a
credit rating within the top two rating bands of a NRSRO. Notes issued
by bank and thrift holding companies, banks, or savings associations
must also be rated within the top two rating bands of an NRSRO in order
to be eligible. These references to the highest subset of rating bands
within the investment grade categories established by the ratings
agencies impose a higher credit standard than investment grade. The
other types of eligible assets in the existing rules include: Bank CDs
with maturities of not greater than one year; Treasury bills, interest
bearing bonds, notes, debentures, or other direct obligations of or
fully guaranteed by the United States or any agency thereof;
[[Page 9138]]
banker's acceptances with a maturity not greater than 180 days; and
obligations of certain international development banks.\24\
---------------------------------------------------------------------------
\23\ P-1 and P-2 are Moody's top two rating bands for short-term
obligations.
\24\ See 12 CFR 347.209(d)(1), (2), (5), and (6).
---------------------------------------------------------------------------
The final rule removes the references to credit ratings issued by
NRSROs in 12 CFR 347.209(d) and substitutes an investment grade
standard to ensure the assets have appropriate credit quality. As
proposed in the NPR, the final rule also permits only highly liquid
assets to be pledged, and submits these instruments to fair value
haircuts. The revised credit and liquidity standards and the comments
addressing these standards are discussed below.
Credit and Liquidity Standards
Under this final rule, instruments falling within the relevant
asset categories are eligible for pledging if they are investment
grade. Consistent with this final rule's amendment to subpart A of Part
347, the final rule adds the same definition of investment grade to the
definitions section of subpart B, 12 CFR 347.202, to define investment
grade as a security issued by an entity that has adequate capacity to
meet financial commitments under the security for the projected life of
the exposure. To meet this standard, the insured branch of the foreign
bank needs to determine that the risk of default by the obligor is low,
and that full and timely repayment of principal and interest is
expected. As noted earlier, this investment grade standard is
consistent with other regulations amended pursuant to section 939A.
As proposed in the NPR, this final rule also provides that
instruments falling within the relevant asset categories are eligible
for pledging only if they are highly liquid. Highly liquid securities
are those that:
Exhibit low credit and market risk;
are traded in an active secondary two-way market that has
committed market makers and independent bona fide offers to buy and
sell so that a price reasonably related to the last sales price or
current bona fide competitive bid and offer quotations can be
determined within one day and settled at that price within a reasonable
time period conforming with trade custom; and
are a type of asset that investors historically have
purchased in periods of financial market distress during which market
liquidity has been impaired.\25\
---------------------------------------------------------------------------
\25\ The definition of a highly liquid asset is consistent with
the definition established in 12 CFR part 252, subpart O Enhanced
Prudential Standards for Foreign Banking Organizations (The Federal
Reserve's Regulation YY).
---------------------------------------------------------------------------
The final rule requires a foreign bank to demonstrate that the
instrument meets the highly liquid standard.
The FDIC sought comment on whether the proposed investment grade
and liquidity standards for pledged assets under subpart B of Part 347
are reasonable provisions and whether the removal of references to
external credit ratings should be implemented as proposed or whether
there are alternatives that would achieve a creditworthiness standard
that is sufficiently risk sensitive. One commenter expressed concern
that the proposed investment grade and liquidity requirements will
significantly increase the operational burden on the branch. This
commenter expressed concern that the new standards contained in the
definitions of investment grade and highly liquid are general and will
require subjective determinations. The commenter also expressed the
opinion that the highly liquid standard is not required under Section
939A. The commenter further noted that the introduction of this new
standard is not necessary to protect the DIF against losses. This
commenter contended that the types of pledgeable assets, coupled with
the investment grade requirement, would provide adequate assurance that
pledged assets are sufficiently low risk and liquid.
The proposed amendments in Subpart A address the permissible
international banking and investment activities of state nonmember
banks. Subpart A differs in scope and purpose from subpart B, which
establishes asset maintenance and pledge requirements for insured U.S.
branches of foreign banks. The asset pledge requirements exist to
protect the DIF by ensuring orderly asset liquidations at maximum
values in the event such assets are liquidated to pay the insured
deposits of the U.S. branch of the foreign bank.
Although requiring foreign banks to verify that pledged assets
satisfy the proposed standards may require some initial adjustment of
existing processes, the FDIC believes that it would impose minimal
additional burden. The final rule adopts standards of investment grade
and highly liquid assets that are already in use in other banking
regulations. In addition, insured U.S. branches of foreign banks are
currently expected to conduct due diligence to meet applicable
standards of safety and soundness in connection with their investment
activities without sole reliance on NRSRO ratings as a measure of
creditworthiness. Furthermore, market data should already be accessible
through an insured branch's normal data source channels, and should be
used in pre-purchase and ongoing investment due diligence. Therefore,
the FDIC does not believe that the final rule will significantly
increase the operational burden on insured branches of foreign banks.
Existing 12 CFR 347.209(d) includes creditworthiness standards that
exceed investment grade. That is, with some pledgeable asset types only
the top two letter ratings (e.g., AAA, AA) within the investment grade
band would be acceptable. The highly liquid standard in the final rule
is necessary, in part, to ensure that the elevated quality of the
pledged assets established under the current standard continues.
Furthermore, complementing the investment grade requirement with the
highly liquid requirement will ensure that the pledged assets can be
readily converted to cash with little impact on their values.
The FDIC believes that adopting the investment grade and highly
liquid criteria, in conjunction with the fair value discount, helps
ensure that pledged assets continue to support orderly asset
liquidation at maximum value in the event such assets need to be
liquidated to pay the insured deposits of the U.S. branch of the
foreign bank. Based on these considerations, the FDIC is adopting as
final the revisions in the proposed rule related to the definition of
investment grade and the highly liquid requirement.
Fair Value Discount
As proposed in the NPR, the final rule requires that the fair
values of the investment grade and highly liquid pledged assets be
discounted to reflect the credit risk and market price volatility of
such assets. Under the final rule, the discounted fair value of the
assets determines the pledged dollar amount. The FDIC expects that the
valuations of the pledged assets be updated at least quarterly.
Further, the final rule adopts a standardized haircut table, consistent
with the Basel III capital rules, to promote simplicity and ease of
reference.\26\ Under this approach, the applicable haircut is
determined by reference to the asset's risk-weight and remaining
maturity.\27\ For example, a foreign insured branch may elect to pledge
investment grade commercial paper with a fair value of
[[Page 9139]]
$100,000 and remaining maturity of less than one year. These
instruments are risk-weighted at 100 percent under the Basel III
capital rules. Under the reference table, the corresponding haircut is
4 percent; therefore, the amount of the $100,000 asset that counts
towards the satisfaction of the asset pledge requirement is arrived at
by multiplying $100,000 by 0.96 (1-0.04), which equals $96,000.
Consistent with the haircut requirements in the risk-based capital
rules, pledged assets that receive a zero percent risk weight do not
receive a fair value haircut.\28\
---------------------------------------------------------------------------
\26\ In 12 CFR 324.37(c)(3), the FDIC established requirements
for applying standardized haircuts for market price volatility which
are scheduled on Table 1 to Sec. 324.37--Standard Supervisory
Market Price Volatility Haircuts (Table 1). A portion of Table 1
concerning haircuts for non-sovereign issuers serves as the basis
for the reference table included in the proposed rule.
\27\ See 12 CFR 324.32 for general risk weights.
\28\ Assets with zero percent risk weight include cash; Treasury
bills, interest bearing bonds, notes, debentures, or other direct
obligations of or obligations fully guaranteed as to principal and
interest by the United States or any agency thereof; and obligations
of the African Development Bank, Asian Development Bank, Inter-
American Development Bank, and the International Bank for
Reconstruction and Development.
---------------------------------------------------------------------------
The FDIC solicited comment on whether pledged assets should be
discounted as proposed, or whether the full fair value of assets
pledged under the existing risk-based assessment schedule already
provide sufficient protection to the DIF. In addition, the FDIC sought
comment on whether another method of discounting would advance the
objective of ensuring that pledged assets be as free from risk and as
liquid as possible. One commenter indicated that the fair value
discount is burdensome and suggested that the full fair value be
permitted to be pledged, contending that the benefit to the DIF of the
discount requirement would likely be minimal. The commenter further
cited operational burden concerns with implementing the quarterly
valuation calculation. The commenter also contended that, based on its
tentative calculations, the fair value discount requirement would
require it to pledge a considerable amount of additional eligible
assets, resulting in increased costs.
The FDIC believes the fair value haircut provides an appropriate
methodology for discounting fair values which is consistent with the
haircuts applied to financial collateral pledged to certain
transactions under the Basel III capital rules as adopted by the
FDIC.\29\ Further, the FDIC believes the expectation of quarterly
updates to valuation of the pledged assets is reasonable given that
quarterly valuations are currently required in the pledge agreement
between each of the foreign banks and the FDIC. Moreover, the FDIC
believes that applying the fair value discount results in minimal
burden because the calculation of the applicable fair value discount is
based on the risk weight of the applicable asset under the Basel III
capital rules, which is an analysis that should already be undertaken
by these institutions. Lastly, the FDIC recognized in the NPR that the
haircut provision could impact foreign banks that pledge bank notes or
CDs because they may need to pledge additional collateral under the
proposed rule compared with the pledge requirements under the existing
rule. However, the FDIC expects any additional collateral required as a
result of the haircut provision to be minimal.
---------------------------------------------------------------------------
\29\ FDIC-supervised institutions may use the risk-mitigating
effects of financial collateral, subject to a market price
volatility haircut, in determining the exposure amount of such
transactions for risk-weighting purposes. See 79 FR 20760 (April 14,
2014).
---------------------------------------------------------------------------
Based on these and other considerations, the FDIC is adopting as
final the discount methodology in the proposed rule.
Assets That May Be Pledged
As proposed in the NPR, the final rule also amends 12 CFR
347.209(d) by adding cash as a new asset type that foreign banks may
pledge under subpart B, and by creating a separate asset category
expressly for debt securities issued by government sponsored
enterprises (GSEs). Cash and securities issued by GSEs are included in
the definition of highly liquid assets in the Federal Reserve's
regulation prescribing enhanced prudential standards for foreign
banking organizations.\30\ The FDIC also understands that some insured
branches of foreign banks currently pledge GSE debt securities under 12
CFR 347.209(d)(2) because they qualify as obligations of a U.S.
government instrumentality. The Basel III capital rules recognize that
the risk characteristics of GSE securities differ from those guaranteed
by the U.S. government. The capital rules bear this out by assigning
the former a twenty percent risk weight and the latter a zero percent
risk weight.\31\ Therefore, the final rule eliminates the reference to
obligations of U.S. instrumentalities in 12 CFR 347.209(d)(2), and
creates a separate category expressly for GSE securities. Creating a
separate category for GSE securities is necessary because such
securities are subject to a haircut under the final rule to account for
their twenty percent risk weight under the Basel III capital rules,
whereas securities guaranteed by the U.S. government are not subject to
a haircut given their zero percent risk weight.
---------------------------------------------------------------------------
\30\ 12 CFR part 252 subpart O.
\31\ 12 CFR 324.32(a) and (c).
---------------------------------------------------------------------------
Pursuant to subpart B, all assets pledged, including cash, are
required to be subject to the terms of a pledge agreement executed by
the pledging foreign bank and the depository.\32\ Subpart B requires
that the pledge agreement's terms include a requirement that pledged
assets be placed with a depository for safekeeping.\33\ Subpart B also
requires that the pledged assets be designated as assets subject to the
pledge agreement.\34\ In addition, the assets must be held separately
from the assets of the foreign bank or depository, and must at all
times be segregated on the records of the depository and clearly
identified as assets subject to the pledge agreement.\35\ Subpart B
requires that a foreign bank obtain the FDIC's prior written approval
of the depository selected.\36\
---------------------------------------------------------------------------
\32\ 12 CFR 347.209(e)(5)(i). FDIC staff is reviewing executed
pledge agreements in order to determine what revisions, if any, will
be necessary in light of the final rule's revisions to Part 347.
\33\ 12 CFR 347.209(c).
\34\ 12 CFR 347.209(e)(5)(ii).
\35\ Id.
\36\ 12 CFR 347.209(c)
---------------------------------------------------------------------------
The FDIC solicited comment on whether the types of assets that may
be pledged should be expanded to include cash as proposed. One
commenter expressed support for the addition of cash as a new eligible
asset type. The commenter also sought clarification as to whether an
insured branch would be permitted to receive interest on any such
pledged cash. While subpart B generally authorizes insured branches to
retain interest earned on pledged assets,\37\ the operation of subpart
B's segregation and safekeeping requirements as applied to pledged cash
would preclude the payment of interest on such cash. Most importantly,
in order for pledged cash to be deemed held for safekeeping and
segregated in accordance with subpart B's requirements, such cash must
be held separate from the general funds of the bank and may not be
commingled with any cash or other property of the depository.
Accordingly, such cash may not be loaned, invested, used in operations,
or used for any other purpose by the depository. Because, generally,
interest is paid for the use of cash, if the depository complies with
the safekeeping and segregation requirement, it cannot use the cash
and, thus, there would be no basis for the payment of interest. In the
event that the FDIC is appointed receiver of the depository, cash
pledged and held for the purposes of, and in accordance with, the
requirements of subpart B, would
[[Page 9140]]
not be treated as property of the depository receivership.
---------------------------------------------------------------------------
\37\ 12 CFR 347.209(e)(10). A foreign bank may retain interest
earned on pledged assets unless the FDIC by written notice prohibits
such retention.
---------------------------------------------------------------------------
The FDIC views the amendments to the pledgeable asset criteria as
consistent with other rulemakings, and as resulting in minimal impact
on the insured U.S. branches of foreign banks.
Based on these, and other, considerations, the final rule adopts
the pledgeable asset categories as proposed in the NPR. Accordingly, a
foreign bank may pledge the assets listed below, provided that such
assets are denominated in United States dollars, and satisfy both the
investment grade and highly liquid standards. Further, such assets must
be discounted at the rates set forth in the haircut table.
The revised pledgeable asset categories are as follows:
(1) Cash;
(2) Treasury bills, interest bearing bonds, notes, debentures, or
other direct obligations of or obligations fully guaranteed as to
principal and interest by the United States or any agency thereof;
(3) Obligations of U.S. GSEs;
(4) Negotiable CDs that are payable in the United States and that
are issued by any state bank, national bank, state or federal savings
association, or branch or agency of a foreign bank which has executed a
valid waiver of offset agreement or similar debt instruments that are
payable in the United States; provided, that the maturity of any
certificate or issuance is not greater than one year; and provided
further, that the issuing branch or agency of a foreign bank is not an
affiliate of the pledging bank or from the same country as the pledging
bank's domicile;
(5) Obligations of the African Development Bank, Asian Development
Bank, Inter-American Development Bank, and the International Bank for
Reconstruction and Development;
(6) Commercial paper;
(7) Notes issued by bank and savings and loan holding companies,
banks, or savings associations organized under the laws of the United
States or any state thereof or notes issued by branches or agencies of
foreign banks, provided that the notes are payable in the United
States, and provided further, that the issuing branch or agency of a
foreign bank is not an affiliate of the pledging bank or from the same
country as the pledging bank's domicile;
(8) Banker's acceptances that are payable in the United States and
that are issued by any state bank, national bank, state or federal
savings association, or branch or agency of a foreign bank; provided,
that the maturity of any acceptance is not greater than 180 days; and
provided further, that the branch or agency issuing the acceptance is
not an affiliate of the pledging bank or from the same country as the
pledging bank's domicile;
(9) General obligations of any state of the United States, or any
county or municipality of any state of the United States, or any
agency, instrumentality, or political subdivision of the foregoing or
any obligation guaranteed by a state of the United States or any county
or municipality of any state of the United States; and
(10) Any other asset determined by the FDIC to be acceptable.\38\
---------------------------------------------------------------------------
\38\ The FDIC also reserves the right to require the
substitution of pledged assets with other assets deemed more
acceptable to the FDIC, as currently provided in 12 CFR 347.209(d).
---------------------------------------------------------------------------
Cash, treasury bills or other direct obligations of or fully
guaranteed by the United States or any agency thereof, and the
obligations of the stated international development banks will
categorically satisfy the investment grade and highly liquid standards
discussed above.\39\ Therefore, foreign banks that pledge these assets
will not be required to perform individual analyses to verify that the
assets meet the investment grade and highly liquid standards.
Pledgeable assets that receive a zero percent risk weight will
generally not require a fair value haircut.
---------------------------------------------------------------------------
\39\ A direct debt obligation issued by a U.S. government-
sponsored enterprise or an asset-backed security guaranteed by a
U.S. GSE will categorically satisfy the investment grade standard
only if the GSE is operating with capital support or another form of
direct financial assistance from the U.S. government. All GSEs will
categorically satisfy the liquidity standard.
---------------------------------------------------------------------------
Foreign banks pledging assets that do not categorically satisfy the
investment grade and highly liquid standards will need to demonstrate
that the assets being pledged meet the investment grade and highly
liquid standards. Foreign banks can find the appropriate haircut by
identifying the risk weight associated with the asset in the capital
rules.
Other Technical Revisions
As proposed in the NPR, the final rule adds a definition of agency
to the definitions section of subpart B, 12 CFR 347.202, which already
contains a definition of branch under the existing regulation, in order
to clarify that negotiable CDs, banker's acceptances, and notes issued
by a branch or agency of a foreign bank located only in the United
States are eligible for pledging. The definition was not previously in
subpart B. The term agency is used in 12 CFR 347.209(d)(1), (d)(4), and
(d)(7) to describe the types of bank CDs, banker's acceptances, and
notes issued by a branch or agency of a foreign bank that are eligible
for pledging by a U.S. branch of a foreign bank. The final rule
incorporates the definition of agency found in section 1(b)(1) of the
IBA, which defines agency to mean ``any office or any place of business
of a foreign bank located in any State of the United States at which
credit balances are maintained incidental to or arising out of the
exercise of banking powers, checks are paid, or money is lent but at
which deposits may not be accepted from citizens or residents of the
United States.'' \40\ This definition makes clear that only negotiable
CDs, banker's acceptances, or notes issued by an agency of a foreign
bank located in the United States are eligible pledged assets. The FDIC
does not allow for the pledging of these instruments unless they are
issued by an agency of a foreign bank located in the United States. It
is also consistent with the definition of branch in subpart B, which
means any office or place of business of a foreign bank located in any
state of the United States.\41\ The final rule also amends 12 CFR
347.209(d)(7) by removing the reference to United States in the
description of branches or agencies of foreign banks because those
terms as defined in existing subpart B necessarily mean an office or
place of business of a foreign bank located in the United States.
Furthermore, as proposed, the final rule amends 12 CFR 347.209(d)(7) to
clarify that, consistent with requirements associated with pledging CDs
and banker's acceptances in paragraphs (d)(1) and (d)(4), a pledging
U.S. branch of a foreign bank may not pledge a note issued by a branch
or agency of a foreign bank that has the same country of domicile as
the pledging bank. This requirement avoids potential same-country risks
represented by the branches and agencies as direct extensions of
foreign banks.
---------------------------------------------------------------------------
\40\ 12 U.S.C. 3101(1). The proposed definition is also
consistent with the definition of agency in the Federal Reserve's
and OCC's international banking regulations. See 12 CFR 211.21(b)
(Federal Reserve) and 12 CFR 28.11(g) (OCC).
\41\ 12 CFR 347.202(b).
---------------------------------------------------------------------------
One commenter expressed concern with the proposal to amend 12 CFR
347.209(d)(7) to clarify that a pledging U.S. branch of a foreign bank
may not pledge a note issued by a branch or agency of a foreign bank
that has the same country of domicile as the pledging bank. In
particular, the commenter contended that in some instances the same-
country risk would be very low in certain jurisdictions and recommended
the implementation of an objective standard when evaluating same-
country risks given that the risk
[[Page 9141]]
profiles of different countries can vary significantly. The FDIC
believes the requirement as proposed is an important safeguard against
potential same-country risks represented by issuing branches and
agencies as direct extensions of foreign banks. The requirement as
proposed is also consistent with the existing requirements for pledging
CDs and banker's acceptances under 12 CFR 347.209(d)(1) and (d)(4). The
FDIC is adopting the proposed requirement related to this and all other
proposed technical revisions as final.
As proposed in the NPR, the final rule amends the list of eligible
collateral to eliminate the obsolete exception for non-negotiable CDs
that were pledged as collateral to the FDIC on March 18, 2005, until
maturity according to the original terms of the existing deposit
agreement. The maturity date for any non-negotiable CD that was
grandfathered under this provision has passed. Consequently, the
provision by its terms is obsolete and no longer serves a useful
purpose.
V. Expected Effects
a. Subpart A
The applicability of the revision to subpart A of Part 347 in the
final rule is limited to state nonmember banks that operate branches in
foreign countries. As of June 30, 2017, there were seven state
nonmember banks operating 13 foreign branches in six countries. All but
one of the state nonmember banks with foreign branches are large,
multi-billion dollar financial institutions with commensurate systems
and capabilities. The revision to subpart A will therefore apply to a
small number of mostly larger state nonmember banks with more
sophisticated operations, and the effect of the revision to the
definition of investment grade is expected to impose negligible
additional burden relative to the size and capabilities of these banks.
The FDIC also notes that prior to the enactment of the Dodd-Frank Act
and implementation of section 939A, state nonmember banks were expected
to have a credit risk management framework for securities and
investments that included robust pre-purchase analysis and ongoing
monitoring by the banking organization. The revision to the definition
of investment grade in Part 347 will encourage regular, in-depth
analysis by the banking organization of credit risks of securities,
which is a prudent practice already expected of banks. This will likely
result in little or no additional costs associated with credit risk
analysis over those currently expended. However, potential credit
losses will likely decline as covered institutions are more diligent in
assessing their credit risk exposure, which would provide a benefit.
b. Subpart B
The revisions to subpart B of Part 347 in the final rule will apply
only to the insured U.S. branches of foreign banks. As of June 30,
2017, there were ten insured branches of foreign banks. The FDIC
expects the revisions to subpart B to have the effect of ensuring that
collateral pledged by these institutions is very low risk and as liquid
as possible in order to provide protection to the DIF. For purposes of
carrying out the section 939A review related to subpart B, the FDIC
surveyed the insured U.S. branches of foreign banks to examine the
composition of assets pledged. At the time of the review, treasury
bills, bank notes, and CDs were the primary instruments pledged.
Consequently, the haircut provision could impact foreign banks that
choose to continue pledging a predominance of bank notes or CDs, as
this may require pledging some measure of additional collateral under
the proposed rule compared with the pledge requirements under the
existing rule. Additionally, the final rule may alter to some extent
the nature of the recordkeeping and reporting requirements associated
with subpart B. Information developed through prudent investment
practices will need to evidence satisfaction of the new standards. That
information will be retained for supervisory review, but additional
time should be negligible. Therefore, the FDIC views the proposed
amendments to the pledgeable asset criteria as resulting in minimal
impact on the insured U.S. branches of foreign banks.
VI. Alternatives Considered
Section 939A requires that agencies adopt standards of
creditworthiness that, to the extent feasible, are uniform. The
adoption of an alternative definition of investment grade would be
inconsistent with section 939A's directive to adopt uniform standards.
In addition to adopting the definition of investment grade, the
final rule, consistent with the proposed rule, amends subpart B of Part
347 to impose liquidity and discounting requirements for assets pledged
by insured branches of foreign banks operating in the United States.
Alternatives to the proposed definition of highly liquid would
contradict the definition of highly liquid assets as adopted in other
Dodd-Frank Act rulemakings, thereby creating different treatment of the
same securities. Similarly, the calculation of fair value discounts for
pledged assets is based on the risk weights assigned to such assets in
the capital rules. The FDIC did not receive any comments with specific
recommendations for alternatives.
VII. Effective Date
The Administrative Procedure Act (APA) generally requires that a
final rule be published in the Federal Register no less than 30 days
before its effective date.\42\ Section 302 of Riegle Community
Development and Regulatory Improvement Act (RCDRIA) \43\ generally
requires that regulations prescribed by Federal banking agencies which
impose additional reporting, disclosures or other new requirements on
insured depository institutions take effect on the first day of a
calendar quarter which begins on or after the date on which the
regulations are published in final form unless an agency finds good
cause that the regulations should become effective sooner. The
effective date of the Rule is April 1, 2018, which is the first day of
the calendar quarter which begins on or after the date on which the
regulations are published in final form, as required by RCDRIA. 12 CFR
347.209(b) requires that a foreign bank with an insured branch pledge
assets equal to the appropriate percentage of the insured branch's
average liabilities for the last 30 days of the most recent calendar
quarter. The FDIC expects foreign banks with insured branches to comply
with Part 347 Subpart B's asset pledge requirements, as amended by the
final rule, beginning in the calendar quarter commencing on April 1,
2018. This provides foreign banks and their insured branches with
adequate time to transition to Subpart B's amended asset pledge
requirements.
---------------------------------------------------------------------------
\42\ 5 U.S.C. 553(d).
\43\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
VIII. Regulatory Analyses
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA) \44\ the FDIC 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. The collection of information associated with
subpart A is entitled Foreign Banking and Investment by Insured State
Nonmember Banks (OMB No. 3064-0125). This information collection
[[Page 9142]]
consists of applications related to establishing and closing a foreign
branch; applications related to acquiring stock of a foreign
organization; and records and reports which a nonmember bank must
maintain once it has established a foreign branch or foreign
organization. As described above, the final rule's revision to subpart
A consists of a change to the definition of investment grade and
imposes no additional recordkeeping or reporting burden on insured
state nonmember banks. Therefore, the FDIC expects that the PRA burden
estimates of this collection will not be affected by this final rule.
Accordingly, the FDIC will not be submitting any information collection
request to OMB relating to the information collection associated with
subpart A (OMB 3064-0125).
---------------------------------------------------------------------------
\44\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The collection of information associated with subpart B is entitled
Foreign Banks (OMB No. 3064-0114). This information collection consists
of, among other things, internal recordkeeping by insured branches of
foreign banks, and reporting requirements related to an insured
branch's pledge of assets to the FDIC. Under the final rule, all assets
pledged to the FDIC under subpart B must be investment grade, highly
liquid, and subject to a fair value discount. Several types of assets
pledged by banks under subpart B would be categorically investment
grade and highly liquid, and subject to a zero percent discount under
the final rule. Insured branches of foreign banks will be able to
continue to pledge these assets without any adjustment to their
reporting and recordkeeping requirements. To the extent that an insured
branch of a foreign bank pledges an asset that would not be
categorically investment grade, highly liquid, or that would not
receive a zero percent discount, the FDIC expects minimal additional
burden to accompany such a pledge of assets. Recordkeeping associated
with the diligence that will be required for determining that an asset
is highly liquid and investment grade is already expected of these
institutions as part of their pre-purchase and ongoing investment due
diligence. Similarly, the calculation of the applicable fair value
discount is based on the risk weight of the applicable asset under the
Basel III capital rules, which is an analysis that should already be
undertaken by these institutions. Therefore, the FDIC expects that any
resulting changes in burden will be so minimal that they will not alter
the existing PRA burden estimates of this collection. Notwithstanding
the fact that the FDIC does not expect a change in burden, the final
rule may alter to some extent the nature of the recordkeeping
requirements associated with subpart B. Accordingly, the FDIC will be
submitting an information collection request to OMB relating to the
information collection associated with subpart B (OMB 3064-0114). The
existing burden estimates for the information collection associated
with subpart B are as follows:
----------------------------------------------------------------------------------------------------------------
Respondents Hours per Total burden
Title Times/year per year response hours
----------------------------------------------------------------------------------------------------------------
Moving a branch................................. 1 1 8 8
Consent to operate.............................. 1 1 8 8
Conduct activities.............................. 1 1 8 8
Recordkeeping................................... 1 10 120 1,200
Pledge of assets:
documents................................... 4 10 0.25 10
reports..................................... 4 10 2 80
---------------------------------------------------------------
Total Burden............................ .............. .............. .............. 1,314
----------------------------------------------------------------------------------------------------------------
The FDIC has a continuing interest in the public's opinions of our
existing information collections. At any time, comments are invited on:
Whether the collections of information are necessary for
the proper performance of the Agencies' functions, including whether
the information has practical utility;
The accuracy of the estimates of the burden of the
information collections, including the validity of the methodology and
assumptions used;
Ways to enhance the quality, utility, and clarity of the
information to be collected;
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
Estimates of capital or startup costs and costs of
operation, maintenance, and purchase of services to provide
information.
All comments will become a matter of public record. A copy of the
comments may also be submitted to the OMB desk officer for the FDIC by
mail to U.S. Office of Management and Budget, 725 17th Street NW,
#10235, Washington, DC 20503, by facsimile to 202-395-5806, or by email
to [email protected], Attention, Federal Banking Agency Desk
Officer.
Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a notice of final rulemaking, an agency prepare a Final
Regulatory Flexibility Act analysis describing the impact of the rule
on small entities (defined in regulations promulgated by the Small
Business Administration to include banking organizations with total
assets of less than or equal to $550 million). A Final Regulatory
Flexibility Act analysis, however, is not required if the agency
certifies that the 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 together with
the final rule. For the reasons provided below, the FDIC certifies that
the final rule will not have a significant economic impact on a
substantial number of small entities.
The final rule makes revisions to the existing rules in subpart A
of Part 347 consistent with section 939A of the Dodd-Frank Act.\45\ The
rules in subpart A of Part 347 address issues related to the
international activities and investments of insured state nonmember
banks. In general, they implement the FDIC's statutory authority under
section 18(d)(2) of the FDI Act regarding branches of insured state
nonmember banks in foreign countries, and section 18(l) of the FDI Act
regarding insured state nonmember bank investments in foreign entities.
As of June 30, 2017, there were seven state nonmember banks with 13
foreign branches.
[[Page 9143]]
Available information indicates that state nonmember banks with foreign
investments or foreign branches are not small entities.
---------------------------------------------------------------------------
\45\ Subpart J of part 303 contains the procedural rules that
implement Part 347. No revisions are proposed to these rules.
---------------------------------------------------------------------------
The final rule also amends subpart B of Part 347 as applied to
insured U.S. branches of foreign banks. As of September 30, 2016, there
were ten insured branches of foreign banks, only one of which qualifies
as a small entity. Therefore, the revisions to subpart B of Part 347
will not have a significant impact on a substantial number of small
entities.
Small Business Regulatory Enforcement Fairness Act
The OMB has determined that the final rule is not a major rule
within the meaning of the relevant sections of the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA).\46\ As required
by SBREFA, the FDIC will submit the final rule and other appropriate
reports to Congress and the Government Accountability Office for
review.
---------------------------------------------------------------------------
\46\ 5 U.S.C. 801, et seq.
---------------------------------------------------------------------------
The Omnibus Consolidated and Emergency Supplemental Appropriations Act,
1999: Assessment of Federal Regulations and Policies on Families
The FDIC has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, 1999.\47\
---------------------------------------------------------------------------
\47\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use
plain language in all proposed and final rules published after January
1, 2000. The FDIC sought to present the final rule in a simple and
straightforward manner. The FDIC did not receive any comment on its use
of plain language.
List of Subjects in 12 CFR Part 347
Bank deposit insurance, Banks, Banking, Foreign banking,
Investments, Insured foreign branches, Reporting and recordkeeping
requirements, United States investments abroad.
Authority and Issuance
For the reasons stated in the preamble, the Federal Deposit
Insurance Corporation amends part 347 of chapter III of Title 12, Code
of Federal Regulations as follows:
PART 347--INTERNATIONAL BANKING
0
1. The authority citation for part 347 is revised to read as follows:
Authority: 12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103,
3104, 3105, 3108, 3109; Pub L. No. 111-203, section 939A, 124 Stat.
1376, 1887 (July 21, 2010) (codified 15 U.S.C. 78o-7 note).
0
2. In Sec. 347.102, paragraph (o) is revised to read as follows:
Sec. 347.102 Definitions.
* * * * *
(o) Investment grade means a security issued by an entity that has
adequate capacity to meet financial commitments for the projected life
of the exposure. Such an entity has adequate capacity to meet financial
commitments if the risk of its default is low and the full and timely
repayment of principal and interest is expected.
* * * * *
0
3. In Sec. 347.202, paragraphs (p) through (y) are redesignated as
paragraphs (s) through (bb); paragraphs (k) through (o) are
redesignated as paragraphs (m) through (q); paragraphs (b) through (j)
are redesignated as paragraphs (c) through (k); and new paragraphs (b),
(l), and (r) are added to read as follows:
Sec. 347.202 Definitions.
* * * * *
(b) Agency means any office or any place of business of a foreign
bank located in any State of the United States at which credit balances
are maintained incidental to or arising out of the exercise of banking
powers, checks are paid, or money is lent but at which deposits may not
be accepted from citizens or residents of the United States.
* * * * *
(l) Highly liquid means, with respect to a security, that the
security has low credit and market risk; is traded in an active
secondary two-way market that has committed market makers and
independent bona fide offers to buy and sell so that a price reasonably
related to the last sales price or current bona fide competitive bid
and offer quotations can be determined within one day and settled at
that price within a reasonable time period conforming with trade
custom; is a type of asset that investors historically have purchased
in periods of financial market distress during which market liquidity
has been impaired.
* * * * *
(r) Investment grade means a security issued by an entity that has
adequate capacity to meet financial commitments for the projected life
of the exposure. Such an entity has adequate capacity to meet financial
commitments if the risk of its default is low and the full and timely
repayment of principal and interest is expected.
* * * * *
0
4. In Sec. 347.209, paragraph (d) is revised and Table 1 is added to
the end of the section to read as follows:
Sec. 347.209 Pledge of assets.
* * * * *
(d) Assets that may be pledged. (1) This paragraph sets forth the
kinds of assets that may be pledged to satisfy the requirements of this
section. A foreign bank shall be deemed to have pledged any such assets
for the benefit of the FDIC or its designee at such time as any such
asset is placed with the depository. The FDIC reserves the right to
require the substitution of pledged assets with other assets deemed
acceptable to the FDIC.
(2) A foreign bank may pledge the kinds of assets set forth in this
paragraph (d)(2), provided that: Such assets are denominated in United
States dollars; such assets are investment grade, as that term is
defined in Sec. 347.202(r); and such assets are highly liquid, as that
term is defined in Sec. 347.202(l). Furthermore, for the purposes of
calculating the amount of assets required to be pledged under paragraph
(b) of this section, the assets that are eligible for pledging under
this paragraph (d)(2) must be discounted at the rates set forth in
Table 1 to Sec. 347.209.
(i) Cash;
(ii) Treasury bills, interest bearing bonds, notes, debentures, or
other direct obligations of or obligations fully guaranteed as to
principal and interest by the United States or any agency thereof;
(iii) Obligations of United States government-sponsored
enterprises;
(iv) Negotiable certificates of deposit that are payable in the
United States and that are issued by any state bank, national bank,
state or federal savings association, or branch of a foreign bank which
has executed a valid waiver of offset agreement or similar debt
instruments that are payable in the United States and that are issued
by any agency of a foreign bank which has executed a valid waiver of
offset agreement; provided, that the maturity of any certificate or
issuance is not greater than one year; and provided further, that the
issuing branch or agency of a foreign bank is not an affiliate of the
pledging bank or from the same country as the pledging bank's domicile;
[[Page 9144]]
(v) Obligations of the African Development Bank, Asian Development
Bank, Inter-American Development Bank, and the International Bank for
Reconstruction and Development;
(vi) Commercial paper;
(vii) Notes issued by bank and savings and loan holding companies,
banks, or savings associations organized under the laws of the United
States or any state thereof or notes issued by branches or agencies of
foreign banks, provided that the notes are payable in the United
States, and provided further, that the issuing branch or agency of a
foreign bank is not an affiliate of the pledging bank or from the same
country as the pledging bank's domicile;
(viii) Banker's acceptances that are payable in the United States
and that are issued by any state bank, national bank, state or federal
savings association, or branch or agency of a foreign bank; provided,
that the maturity of any acceptance is not greater than 180 days; and
provided further, that the branch or agency issuing the acceptance is
not an affiliate of the pledging bank or from the same country as the
pledging bank's domicile;
(ix) General obligations of any state of the United States, or any
county or municipality of any state of the United States, or any
agency, instrumentality, or political subdivision of the foregoing or
any obligation guaranteed by a state of the United States or any county
or municipality of any state of the United States;
(x) Any other asset determined by the FDIC to be acceptable.
* * * * *
Table 1 to Sec. 347.209--Supervisory Haircuts for Assets Pledged Under Sec. 347.209(d)
----------------------------------------------------------------------------------------------------------------
Haircut % assigned based on maturity and risk weight
---------------------------------------------------------------
Remaining maturity Risk weight (%) by issuer as specified in part 324.32
---------------------------------------------------------------
0% 20% 50% 100%
----------------------------------------------------------------------------------------------------------------
<=to 1 Year..................................... 0 1.0 2.0 4.0
>1 Year but <=5 Years........................... 0 4.0 6.0 8.0
>5 years........................................ 0 8.0 12.0 16.0
----------------------------------------------------------------------------------------------------------------
Dated at Washington, DC, on February 14, 2018.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-04255 Filed 3-2-18; 8:45 am]
BILLING CODE 6714-01-P
