Joint Interim Rule and Request for Public Comment on Alternative to  Debt Requirements for Financial
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Joint Interim Rule and Request for Public Comment on Alternative to Debt Requirements for Financial

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Federal Reserve Bankll★Kof DallasDALLAS, TEXAS 75265-5906April 6, 2000Notice 2000-23TO: The Chief Executive Officer of eachfinancial institution and others concernedin the Eleventh Federal Reserve DistrictSUBJECTJoint Interim Rule andRequest for Public Comment on Alternative toDebt Requirement for Financial SubsidiariesDETAILSThe Gramm-Leach-Bliley Act (GLBA) permits a national bank or state member bankthat is among the second 50 largest insured banks to own or control a financial subsidiary only ifthe bank meets either of the following requirements:• the eligible debt requirement in section 121 of the GLBA or• alternative criteria established jointly by the Board of Governors of the FederalReserve System and the Department of the Treasury.In an interim rule, the Board and the Treasury have established the alternative criteria and pro-vided that a bank meets the criteria if it has a current long-term issuer credit rating from a nation-ally recognized statistical rating organization that is within the three highest investment graderating categories used by the organization. The interim rule became effective March 14, 2000.Comments on the interim rule must be received by May 15, 2000. Please addresscomments to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System,20th Street and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail com-ments electronically to regs.comments@federalreserve.gov. All ...

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Federal Reserve Bank
ll★K
of Dallas
DALLAS, TEXAS
75265-5906
April 6, 2000
Notice 2000-23
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Joint Interim Rule and
Request for Public Comment on Alternative to
Debt Requirement for Financial Subsidiaries
DETAILS
The Gramm-Leach-Bliley Act (GLBA) permits a national bank or state member bank
that is among the second 50 largest insured banks to own or control a financial subsidiary only if
the bank meets either of the following requirements:
• the eligible debt requirement in section 121 of the GLBA or
• alternative criteria established jointly by the Board of Governors of the Federal
Reserve System and the Department of the Treasury.
In an interim rule, the Board and the Treasury have established the alternative criteria and pro-
vided that a bank meets the criteria if it has a current long-term issuer credit rating from a nation-
ally recognized statistical rating organization that is within the three highest investment grade
rating categories used by the organization. The interim rule became effective March 14, 2000.
Comments on the interim rule must be received by May 15, 2000. Please address
comments to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail com-
ments electronically to regs.comments@federalreserve.gov. All comments should refer to
Docket No. R-1066. In Notice 2000-19, Notice 2000-20, and Notice 2000-21, the e-mail address
for electronic comments was listed incorrectly. Please use the e-mail address in this notice for all
Board requests for comments.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.- 2 -
AT TACHMENT
A copy of the Board’s notice as it appears on pages 15050–52, Vol. 65, No. 54 of the
Federal Register dated March 20, 2000, is attached.
MORE INFORMATION
For more information, please contact Dorsey Davis, Banking Supervision Department,
(214) 922-6051. For additional copies of this Bank’s notice, contact the Public Affairs Department
at (214) 922-5254 or access District Notices on our web site at
http://www.dallasfed.org/banking/notices/index.html.Monday,
March 20, 2000
Part III
Federal Reserve
System
Department of the
Treasury
12 CFR Parts 208 and 1501
Financial Subsidiaries; Interim Rule
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also may be mailed electronically to issued jointly by Treasury and theFEDERAL RESERVE SYSTEM
regs.comments@federalreserve.gov or Board.) In addition, in order to acquire
12 CFR Part 208 delivered to the Board’s mail room control of a financial subsidiary, the
between the hours of 8:45 a.m. and 5:15 bank and each of its insured depository
[Regulation H; Docket No. R–1066]
p.m. and, outside of those hours, to the institution affiliates must have received
Board’s security control room. Both the a ‘‘satisfactory’’ or better rating at itsDEPARTMENT OF THE TREASURY
Board’s mail room and the security most recent examination under the
control room are accessible from the Community Reinvestment Act.Office of the Under Secretary for
Eccles Building courtyard entrance,Domestic Finance In addition, if the bank is one of the
located on 20th Street between 50 largest insured banks, as determined
Constitution Avenue and C Street, N.W.12 CFR Part 1501 by the bank’s consolidated total assets at
Members of the public may inspect the end of the most recent calendar year,RIN 1505–AA77 comments in Room SC 37 of the the bank must have at least one issue of
Treasury Department and in Room MP–Financial Subsidiaries outstanding eligible debt that is rated in
500 of the Martin Building between 9:00 one of the three highest rating categories
AGENCIES: The Department of the a.m. and 5:00 p.m. on weekdays. by a nationally recognized statistical
Treasury and the Board of Governors of FOR FURTHER INFORMATION CONTACT: rating organization (debt rating
the Federal Reserve System. Department of the Treasury: Joan requirement). If the bank is one of the
ACTION: Joint interim rule with request Affleck-Smith, Director, Office of second 50 largest insured banks, the
for comments. Financial Institutions Policy (202/622– bank must meet either this debt rating
2740); Matthew Green, Senior Financial requirement or such alternative criteria
SUMMARY: The Department of the Analyst (202/622–2740); or Gary W. that the Secretary of the Treasury and
Treasury (Treasury) and the Board of Sutton, Senior Banking Counsel (202/ the Board jointly determine by
Governors of the Federal Reserve 622–1976). regulation to be comparable to and
System (Board) are jointly issuing this Board of Governors: Kieran J. Fallon, consistent with the purpose of the rating
interim rule pursuant to section 121 of 1Senior Counsel, Legal Division (202/ requirement. This interim rule
the Gramm-Leach-Bliley Act (GLBA). 452–5270); or Mark S. Carey, Senior establishes such alternative criteria.
The GLBA permits a national bank or Economist, Division of Research &
state member bank that is among the Description of the Interim RuleStatistics (202/452–2784). For the
second 50 largest insured banks to own hearing impaired only, The interim rule provides that aor control a financial subsidiary only if Telecommunications Device for the Deaf national bank or state member bankthe bank meets either the eligible debt (TDD), Janice Simms (202/872–4984). within the second 50 largest insuredrequirement set forth in section 121 of
SUPPLEMENTARY INFORMATION: banks satisfies the alternative criteria ifthe Act or alternative criteria
the bank has a current long-term issuerestablished jointly by Treasury and the Background
credit rating from a nationallyBoard. This interim rule establishes the On November 12, 1999, the President recognized statistical rating organizationalternative criteria and provides that a signed the GLBA, Public Law 106–102, that is within the three highestbank meets the criteria if it has a current 113 Stat. 1338, which comprehensively investment grade rating categories usedlong-term issuer credit rating from a restructures the statutory framework by the rating organization. A long-termnationally recognized statistical rating that governs the financial services issuer credit rating is one that assessesorganization that is within the three industry. Section 121 of the Act the bank’s overall capacity andhighest investment grade rating authorizes national banks and state willingness to pay on a timely basis itscategories used by the organization. member banks to acquire control of, or 2unsecured financial obligations. Unlike
DATES: This interim rule is effective hold an interest in, a new type of debt ratings, an issuer credit rating does
March 14, 2000. Written comments subsidiary called a ‘‘financial not assess the bank’s ability and
must be submitted on or before May 15, subsidiary.’’ A financial subsidiary may, willingness to make payments on any
2000. with certain exceptions, engage in individual class or issue of debt, nor
ADDRESSES: Comments should refer to activities that have been determined to does it reflect priority or preference in
docket number R–1066 and should be be financial in nature or incidental to payment among financial obligations.
sent both: to Comparable Ratings financial activities in accordance with Ratings organizations may issue long-
Regulation, Office of Financial the GLBA, and in other activities that term or short-term issuer credit ratings
Institutions Policy, U.S. Department of the parent bank is permitted to conduct for the same bank and separate ratings
the Treasury, 1500 Pennsylvania directly. for dollar-denominated and foreign
Avenue, N.W., Room SC 37, In order for a national bank or state currency-denominated obligations. Only
Washington, D.C. 20220, and to Ms. member bank to control, or hold an long-term issuer credit ratings for dollar-
Jennifer J. Johnson, Secretary, Board of interest in, a financial subsidiary, the denominated obligations satisfy the
Governors of the Federal Reserve bank and each of its depository requirements of the rule. A long-term
System, 20th Street and Constitution institution affiliates must be ‘‘well- issuer credit rating is one that reflects
Avenue, N.W., Washington, D.C. 20551. capitalized’’ and ‘‘well-managed,’’ as the bank’s ability over a period of not
Comments addressed to the Treasury those terms are defined in the GLBA.
Department also may be mailed The aggregate consolidated total assets
1 A bank does not have to satisfy the debt rating
electronically to of all financial subsidiaries of the bank requirement or the alternative criteria established
financial.institutions@do.treas.gov or also may not exceed the lesser of 45 by this rule if the bank’s financial subsidiaries
engage in the newly authorized financial activitiesdelivered to the Treasury Department percent of the consolidated total assets
solely as agent and not as principal.mail room between the hours of 8:45 of the parent bank or $50 billion. (The
2 Issuer credit ratings that are assigned to aa.m. and 5:15 p.m. at the 15th Street $50 billion limit is to be adjusted
subsidiary or affiliate of the bank, such as a
entrance to the Treasury Building. according to an indexing mechanism subsidiary engaged in derivatives activities, do not
Comments addressed to Ms. Johnson established in a separate regulation to be meet the rule’s requirements.
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less than one year to fulfill its financial reasons therefor in the rule issued) that Executive Order 12866 Determination
obligations on a timely basis. notice and public comment are The Department of the Treasury has
Treasury and the Board believe that impracticable, unnecessary, or contrary determined that this rule does not
the long-term issuer credit rating to the public interest. 5 U.S.C. 553(b)(B). constitute a ‘‘significant regulatory
required by the rule is comparable to, Section 553 also permits agencies to action’’ for the purposes of Executive
and consistent with the purposes of, the issue a rule without delaying its Order 12866.
debt rating requirement applicable to effectiveness for thirty days from
the 50 largest insured banks. The long- Solicitation of Comments Regarding thepublication if the agency finds good
term issuer credit rating assigned large Use of ‘‘Plain Language’’cause and publishes this finding with
banks generally is identical to the rating the rule. 5 U.S.C. 553(d)(3). In addition, Section 722 of the Gramm-Leach-
given the bank’s senior long-term section 302 of the Riegle Community Bliley Act requires the Board to use
unsecured debt, where such rated debt Development and Regulatory ‘‘plain language’’ in all proposed and
exists. Furthermore, representatives of Improvement Act of 1994, 12 U.S.C. final rules published after January 1,
rating organizations have indicated that 4802(b), permits federal banking 2000. The Board invites comments
the rating given to a specific long-term agencies to issue a regulation which about how to make the interim rule
unsecured financial obligation of an takes effect before the first day of a easier to understand, including answers
issuer is anchored to the issuer’s long- calendar quarter beginning on or after to the following questions:
term issuer credit rating because the the date on which the regulations are (1) Is the material organized in an
latter rating exemplifies the issuer’s published in final form when the agency effective manner? If not, how could the
fundamental creditworthiness over the determines for good cause (published material be better organized?
long-term. For these reasons, Treasury with the regulation) that the regulation (2) Are the terms of the rule clearly
and the Board believe that the long-term should become effective before such stated? If not, how could the terms be
issuer credit rating is consistent with time. more clearly stated?
the purposes underlying the debt rating (3) Does the rule contain technicalFor the reasons set forth below,requirement. language or jargon that is unclear? If not,Treasury and the Board find that thereThe interim rule requires that the
which language requires clarification?is good cause for issuing this interimparent bank have a long-term issuer
(4) Would a different format (withrule without notice and public commentcredit rating in the top three investment
respect to the grouping and order ofand without a delayed effective date.grade rating categories from at least one
sections and use of headings) make theFor the same reasons, Treasury and thenationally recognized statistical rating
rule easier to understand? If so, whatBoard find that there is good cause fororganization. Standard & Poor’s top
changes to the format would make thethe interim rule to become effectivethree investment grade categories for
rule easier to understand?before the first day of a calendar quarterlong-term issuer credit ratings are AAA,
(5) Would increasing the number ofbeginning on or after the date on whichAA, or A, with AAA denoting the
sections (and making each sectionthe regulations are published in final3highest rating. Standard & Poor’s may
shorter) clarify the rule? If so, whichform.modify its AA or A ratings with the
portions of the rule should be changedaddition of a plus (+) or minus (·) sign Section 121 of the GLBA becomes
in this respect?to show relative standing within these effective on March 11, 2000. A national
(6) What additional changes wouldrating categories. Any rating from A bank or state member bank that is
make the rule easier to understand?minus to AAA would satisfy the long- among the second 50 largest insured
term issuer credit rating requirement; an banks may control a financial subsidiary List of Subjects
A minus would constitute the lowest or hold an interest in a financial
12 CFR Part 208acceptable rating (in the case of subsidiary only if the bank meets the
Standard & Poor’s). Moody’s top three debt rating requirement or the Administrative practice and
investment grade categories for long- alternative criteria established by this procedure, Federal Reserve System,
term issuer credit ratings are Aaa, Aa, or rule. To prevent any bank from being Banks.
A, with Aaa denoting the highest rating. denied the opportunity to control or
12 CFR Part 1501
Moody’s likewise applies numerical hold an interest in a financialmodifiers of 1, 2 and 3 in the Aa and subsidiary, it is in the public interest to
procedure, National banks, ReportingA rating categories, with 3 denoting the make this interim rule effective
and recordkeeping requirements.lowest end of the letter-rating modifiers. immediately. Treasury and the Board
Any rating from A–3 to Aaa would are soliciting comments on all aspects of Federal Reserve System
satisfy the long-term issuer credit rating the interim rule and will consider those
12 CFR Chapter IIrequirement; a rating of A–3 would be comments before the rule is finalized.
the lowest acceptable rating (in the case Authority and IssuanceRegulatory Flexibility Act Analysisof Moody’s).
For the reasons set forth in theBecause no notice of proposedInterim Effectiveness of the Rule preamble, the Board of Governors of therulemaking is required for this interim
This interim rule is effective on Federal Reserve System amends partfinal rule, the provisions of the
March 14, 2000. Section 553 of the 208 of Chapter II, Title 12 of the CodeRegulatory Flexibility Act (5 U.S.C. 601
Administrative Procedure Act permits of Federal Regulations as follows:et. seq.) do not apply. In addition, the
agencies to issue a rule without public
interim rule applies only to national PART 208—MEMBERSHIP OF STATEnotice and comment when the agency,
banks and state member banks that are BANKING INSTITUTIONS IN THEfor good cause, finds (and incorporates
within the second 50 largest insured FEDERAL RESERVE SYSTEMthe finding and a brief statement of
banks. Accordingly, the interim rule is (REGULATION H)
not expected to have a significant
3 Standard & Poor’s also issues counterparty
economic impact on a substantial 1. The authority citation for part 208credit ratings, which are a form of issuer credit
rating. number of small entities. continues to read as follows:
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Authority: 12 U.S.C. 24, 36, 92a, 93a, timely basis its unsecured, dollar- set forth in section 5136A or an
248(a), 248(c), 321–338a, 371d, 461, 481–486, denominated financial obligations alternative criteria jointly established by
601, 611, 1814, 1816, 1818, 1820(d)(9), maturing in not less than one year. the Secretary of the Treasury and the
1823(j), 1828(o), 1831, 1831o, 1831p–1, Board of Governors of the Federal* * * * *1831r–1, 1831w, 1835a, 1882, 2901–2907,
Reserve System. This section establishes
3105, 3310, 3331–3351, and 3906–3909; 15 By order of the Board of Governors of the
the alternative criteria that nationalU.S.C. 78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5), Federal Reserve System, March 14, 2000.
banks among the second 50 largest78q, 78q–1, and 78w; 31 U.S.C. 5318; 42 Jennifer J. Johnson,
U.S.C. 4012a, 4104a, 4104b, 4106 and 4128. insured banks may meet, which criteria
Secretary of the Board. is comparable to and consistent with the
2. Section 208.71 is amended by purposes of the eligible debtDepartment of the Treasury
adding a new paragraph (c) to read as requirement established by section12 CFR Chapter XVfollows: 5136A.
Authority and Issuance§ 208.71 What are the requirements to (b) Alternative criteria. A national
invest in or control a financial subsidiary? bank satisfies the alternative criteriaFor the reasons set forth in the
* * * * * referenced in Section 5136A(a)(2)(E) ofpreamble, the Department of the
(c) Alternative requirement. A state the Revised Statutes (12 U.S.C. 24a) andTreasury amends part 1501 of Chapter
member bank satisfies the alternative 12 CFR 5.39(g)(3) if the bank has aXV of Title 12 of the Code of Federal
criteria referenced in paragraph (b)(1)(ii) current long-term issuer credit ratingRegulations as follows:
of this section if the bank has a current from at least one nationally recognized
long-term issuer credit rating from at PART 1501—FINANCIAL statistical rating organization that is
least one nationally recognized SUBSIDIARIES within the three highest investment
statistical rating organization that is grade rating categories used by the
1. The authority citation for part 1501within the three highest investment organization.
continues to read as follows:grade rating categories used by the (c) Definition of long-term issuer
Authority: Section 5136A of the Revisedorganization. credit rating. A ‘long-term issuer credit
Statutes of the United States (12 U.S.C. 24a).3. Section 208.77 is amended by rating’ is a written opinion issued by a
redesignating paragraphs (e) and (f) as nationally recognized statistical rating2. A new § 1501.2 is added to read as
paragraphs (f) and (g), respectively, and organization of the bank’s overallfollows:
adding a new paragraph (e) to read as capacity and willingness to pay on a
§ 1501.2 Comparable ratings requirementfollows: timely basis its unsecured, dollar-
for national banks among the second 50 denominated financial obligations
§ 208.77 Definitions. largest insured banks.
maturing in not less than one year.
(a) Scope and purpose. Section 5136A* * * * *
Dated: March 14, 2000.(e) Long-term issuer credit rating. The of the Revised Statutes permits a
Gregory A. Baer,term ‘‘long-term issuer credit rating’’ national bank that is within the second
Assistant Secretary for Financial Institutions,means a written opinion issued by a 50 largest insured banks to own or
Department of the Treasury.nationally recognized statistical rating control a financial subsidiary only if,
[FR Doc. 00–6808 Filed 3–17–00; 8:45 am]organization of the bank’s overall among other requirements, the bank
capacity and willingness to pay on a satisfies the eligible debt requirement BILLING CODE 6210–01–P and 4810–25–P
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