Current through 2024-13, March 27, 2024
1. "Borrower" means a person who is named as
a borrower or debtor in a loan or extension of credit; a person to whom a
financial institution has credit exposure arising from a derivative transaction
entered by the financial institution; or any other person, including a drawer,
endorser, or guarantor, who is deemed to be a borrower under the "direct
benefit" or the "common enterprise" tests set forth in section
6 of this regulation.
2. "Contractual commitment to advance funds":
A. Includes a financial institution's
obligation to:
(1) Make payment (directly or
indirectly) to a third person contingent upon default by a customer of the
financial institution in performing an obligation and to make such payment in
keeping with the agreed upon terms of the customer's contract with the third
person, or to make payments upon some other stated condition;
(2) Guarantee or act as surety for the
benefit of a person;
(3) Advance
funds under a qualifying commitment to lend, that is, a legally binding written
commitment to lend that, when combined with all other outstanding loans and
qualifying commitments to a borrower, is within the financial institution's
lending limit when entered into, and has not be disqualified; and
(4) Advance funds under a standby letter of
credit as defined in subsection
3(13) of this
regulation, a put, or other similar arrangement.
B. The term does not include commercial
letters of credit and similar instruments where the issuing financial
institution expects the beneficiary to draw on the issuer, that do not
guarantee payment, and that do not provide for payment in the event of a
default by a third party.
3. "Control" is presumed to exist when a
person directly or indirectly, or acting through or together with one or more
persons:
A. Owns, controls, or has the power
to vote 25 percent or more of any class of voting securities of another
person;
B. Controls, in any manner,
the election of a majority of the directors, trustees, or other persons
exercising similar functions of another person; or
C. Has the power to exercise a controlling
influence over the management or policies of another person.
4. "Credit derivative" means a
financial contract executed under standard industry credit derivative
documentation that allows one party (the protection purchaser) to transfer the
credit risk of one or more exposures (reference exposure) to another party (the
protection provider).
5.
"Derivative transaction" includes any transaction that is a contract,
agreement, swap, warrant, note, or option that is based, in whole or in part,
on the value of, any interest in, or any quantitative measure or the occurrence
of any event relating to, one or more commodities, securities, currencies,
interest or other rates, indices, or other assets.
6. "Eligible credit derivative" means a
single-name credit derivative or a standard, non-tranched index credit
derivative provided that:
A. The derivative
contract meets the requirements of an eligible guarantee, as defined in
subsection
3(7) of this
regulation and has been confirmed by the protection purchaser and the
protection provider;
B. Any
assignment of the derivative contract has been confirmed by all relevant
parties;
C. If the credit
derivative is a credit default swap, the derivative contract includes the
following credit events:
(1) Failure to pay
any amount due under the terms of the reference exposure, subject to any
applicable minimal payment threshold that is consistent with standard market
practice and with a grace period that is closely in line with the grace period
of the reference exposure; and
(2)
Bankruptcy, insolvency, or inability of the obligor on the reference exposure
to pay its debts, or its failure or admission in writing of its inability
generally to pay its debts as they become due and similar events;
D. The terms and conditions
dictating the manner in which the derivative contract is to be settled are
incorporated into the contract;
E.
If the derivative contract allows for cash settlement, the contract
incorporates a robust valuation process to estimate loss with respect to the
derivative reliably and specifies a reasonable period for obtaining post-credit
event valuations of the reference exposure;
F. If the derivative contract requires the
protection purchaser to transfer an exposure to the protection provider at
settlement, the terms of at least one of the exposures that is permitted to be
transferred under the contract provides that any required consent to transfer
may not be unreasonably withheld; and
G. If the credit derivative is a credit
default swap, the derivative contract clearly identifies the parties
responsible for determining whether a credit event has occurred, specifies that
this determination is not the sole responsibility of the protection provider,
and gives the protection purchaser the right to notify the protection provider
of the occurrence of a credit event.
7. "Eligible guarantee" means a guarantee
that:
A. Is written and
unconditional;
B. Covers all or a
pro rata portion of all contractual payments of the obligor on the reference
exposure;
C. Gives the beneficiary
a direct claim against the protection provider;
D. Is not unilaterally cancelable by the
protection provider for reasons other than the breach of the contract by the
beneficiary;
E. Is legally
enforceable against the protection provider in a jurisdiction where the
protection provider has sufficient assets against which a judgment may be
attached and enforced;
F. Requires
the protection provider to make payment to the beneficiary on the occurrence of
a default (as defined in the guarantee) of the obligor on the reference
exposure in a timely manner without the beneficiary first having to take legal
actions to pursue the obligor for payment;
G. Does not increase the beneficiary's cost
of credit protection on the guarantee in response to deterioration in the
credit quality of the reference exposure; and
H. Is not provided by an affiliate of the
financial institution, unless the affiliate is an insured depository
institution, bank, securities broker or dealer, or insurance company that:
(1) Does not control the financial
institution; and
(2) Is subject to
consolidated supervision and regulation comparable to that imposed on U.S.
depository institutions, securities broker-dealers, or insurance companies (as
the case may be).
8. "Eligible protection provider" means:
A. A sovereign entity (a central government,
including the U.S. government; an agency; department; ministry; or central
bank);
B. The Bank for
International Settlements, the International Monetary Fund, the European
Central Bank, the European Commission, or a multilateral development
bank;
C. A Federal Home Loan
Bank;
D. The Federal Agricultural
Mortgage Corporation;
E. A
depository institution, as defined in section
3 of the Federal Deposit Insurance
Act, 12 U.S.C.
§1813(c);
F. A bank holding company, as defined in
section
2 of the Bank Holding Company Act, as
amended,
12
U.S.C. §1841;
G. A savings and loan holding company, as
defined in section
10 of the Home Owners' Loan Act,
12 U.S.C.
§1467a;
H. A securities broker or dealer registered
with the SEC under the Securities Exchange Act of 1934,
15 U.S.C.
§78o
et seq.;
I. An insurance company that is subject to
the supervision of a State insurance regulator;
J. A foreign banking organization;
K. A non-U.S.-based securities firm or a
non-U.S.-based insurance company that is subject to consolidated supervision
and regulation comparable to that imposed on U.S. depository institutions,
securities broker-dealers, or insurance companies; and
L. A qualifying central counterparty, for
example, a clearing house that:
(1)
Facilitates trades between counterparties in one or more financial markets by
either guaranteeing trades or novating contracts;
(2) Requires all participants in its
arrangements to be fully collateralized on a daily basis; and
(3) The bank demonstrates to the satisfaction
of the Bureau that it is in sound financial condition and is subject to
effective oversight by a national supervisory authority.
9. "Financial institution" has the
same meaning that is set forth in
9-B MRSA
§131(17).
10. "Loans or extensions of credit" has the
same meaning that is set forth in
9-B MRSA
§439-A(1)(A)
A. "Loans or extensions of credit" include:
(1) Any credit exposure, as determined
pursuant to section
8 of this regulation, arising from a
derivative transaction;
(2) A
contractual commitment to advance funds;
(3) An overdraft, whether or not prearranged,
but not an intraday overdraft for which payment is received before the close of
business of the financial institution that makes the funds available;
(4) The sale of Federal funds with a maturity
of more than one business day, but not Federal funds with a maturity of one day
or less or Federal funds sold under a continuing contract; and
(5) Loans or extensions of credit that have
been charged off on the books of the financial institution in whole or in part,
unless the loan or extension of credit:
(a)
Is unenforceable by reason of discharge in bankruptcy;
(b) Is no longer legally enforceable because
of expiration of the statute of limitations or a judicial decision;
or
(c) Is no longer legally
enforceable for other reasons, provided that the financial institution
maintains sufficient records to demonstrate that the loan is
unenforceable.
B. In addition to the exclusions from
limitations found in
9-B MRSA
§439-A(3), the
following items do not constitute "loans or extensions of credit" for purposes
of this regulation:
(1) Additional funds
advanced for the benefit of a borrower by a financial institution for payment
of taxes, insurance, utilities, security, and maintenance and operating
expenses necessary to preserve the value of real property securing the loan,
consistent with safe and sound banking practices, but only if the advance is
for the protection of the financial institution's interest in the collateral,
and provided that such amounts must be treated as an extension of credit if a
new loan or extension of credit is made to the borrower;
(2) Accrued and discounted interest on an
existing loan or extension of credit, including interest that has been
capitalized from prior notes and interest that has been advanced under terms
and conditions of a loan agreement;
(3) Financed sales of a financial
institution's own assets, including Other Real Estate Owned, if the financing
does not put the financial institution in a worse position than when the
financial institution held title to the assets;
(4) A renewal or restructuring of a loan as a
new ''loan or extension of credit,'' following the exercise by a financial
institution of reasonable efforts, consistent with safe and sound banking
practices, to bring the loan into conformance with the lending limit, unless
new funds are advanced by the financial institution to the borrower, or a new
borrower replaces the original borrower, or unless the Bureau determines that a
renewal or restructuring was undertaken as a means to evade the financial
institution's lending limit;
(5)
Amounts paid against uncollected funds in the normal process of
collection;
(6)
(a) That portion of a loan or extension of
credit sold as a participation by a financial institution on a nonrecourse
basis, provided that the participation results in a pro rata sharing of credit
risk proportionate to the respective interests of the originating and
participating lenders. Where a participation agreement provides that repayment
must be applied first to the portions sold, a pro rata sharing will be deemed
to exist only if the agreement also provides that, in the event of a default or
comparable event defined in the agreement, participants must share in all
subsequent repayments and collections in proportion to their percentage
participation at the time of the occurrence of the event.
(b) When an originating financial institution
funds the entire loan, it must receive funding from the participants before the
close of business of its next business day. If the participating portions are
not received within that period, then the portions funded will be treated as a
loan by the originating financial institution to the borrower. If the portions
so attributed to the borrower exceed the originating financial institution's
lending limit, the loan may be treated as nonconforming subject to section
7 of this regulation, rather than a
violation, if:
(i) The originating financial
institution had a valid and unconditional participation agreement with a
participant or participants that was sufficient to reduce the loan to within
the originating financial institution's lending limit;
(II) The participant reconfirmed its
participation and the originating financial institution had no knowledge of any
information that would permit the participant to withhold its participation;
and
(ii) The
participation was to be funded by close of business of the originating
financial institution's next business day; and
(7) Intraday credit exposures arising from a
derivative transaction.
11. "Perpetual preferred stock" means
preferred stock that does not have a stated maturity date and cannot be
redeemed at the option of the holder.
12. "Person" has the meaning as defined in
9-B MRSA
§131(30).
13. "Standby letter of credit" is any letter
of credit, or similar arrangement, however named or described, which represents
an obligation to the beneficiary on the part of the issuer:
A. To repay money borrowed by or advanced to
or for the account of the account party;
B. To make payment on account of any
indebtedness undertaken by the account party; or
C. To make payment on account of any default
by the account party in the performance of an obligation.
14. "Subsidiary" has the meaning as defined
in
9-B MRSA
§131(39-A). A "service
corporation," as defined in
9-B MRSA
§131(37), is a
"subsidiary" for the purposes of this regulation.
15. "Total capital and surplus" means:
A. A financial institution's Tier 1 and Tier
2 capital calculated under the risk-based capital standards applicable to the
institution as reported in the financial institution's Consolidated Reports of
Condition and Income (Call Report); plus
B. The balance of a financial institution's
allowance for loan and lease losses not included in the financial institution's
Tier 2 capital, for purposes of the calculation of risk-based capital described
in paragraph (A) of this subsection, as reported in the financial institution's
Call Report.