SR 15-13:
Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
November 6, 2015
Revised June 16, 2022
Attachment Reposted June 16, 2022
On June 16, 2022 this letter was revised to modify its applicability. The 2018 enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act modified the scope of the statutory definition of “banking entity” in section 13 of the Bank Holding Company Act (also referred to as the Volcker Rule) to exclude certain community banks and their affiliates, and in 2019, the regulations implementing the Volcker Rule were updated to reflect the statutory change. See 84 Fed. Reg. 35008 (July 22, 2019).
In connection with these modifications, the following changes apply to the guidance attached to this SR letter. For the definition of “banking entity” in the guidance, please refer to the updated definition in this letter. In terms of reporting deductions of covered funds on regulatory reports, banking organizations with $100 billion or more in total consolidated assets (rather than $50 billion or more, as noted in the attachment), should reflect this treatment of covered funds on the FR Y-14 Capital Assessments and Stress Testing Reports, where applicable. Further, the FDIC and OCC agency-specific Dodd-Frank Act Stress Testing (DFAST) reporting templates described in the attachment have been eliminated.
TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule
Applicability: The guidance in this letter and attachment applies to state member banks, bank holding companies, and savings and loan holding companies (not substantially engaged in insurance underwriting or commercial activities) supervised by the Federal Reserve and subject to section 13 of the Bank Holding Company Act. See footnotes 2 and 3 for further detail on applicability.
The Federal Reserve (Board), together with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), is issuing the attached Deduction Methodology for Investments in Covered Funds (guidance) to clarify the interaction between the agencies’ regulatory capital rule and the Volcker Rule with respect to the appropriate capital treatment for investments in certain private equity funds and hedge funds (“covered funds”).1 In particular, the guidance clarifies supervisory expectations on how a banking organization’s regulatory capital deductions of investments in covered funds made pursuant to section 13 of the Bank Holding Company Act (also referred to as the Volcker Rule) and implementing regulations relate to deductions of these investments pursuant to the regulatory capital rule.2
Federal Reserve Banks are asked to distribute this letter to financial institutions supervised by the Federal Reserve, particularly banking entities covered by the Volcker Rule,3 as well as to their own supervisory and examination staff. Questions concerning the deduction mechanics described in the attached guidance should be sent via the Board’s public website.4
signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation
Notes:
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See 12 CFR part 217 (regulatory capital rule). See also 12 U.S.C. 1851; 12 CFR part 248 (Volcker Rule). Return to text.
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“Banking organizations” include national banks, state member banks, state non-member banks, federal savings associations, state savings associations, and top-tier bank holding companies and savings and loan holding companies domiciled in the United States not subject to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (12 CFR part 225, appendix C), other than certain savings and loan holding companies that are substantially engaged in insurance underwriting or commercial activities. Return to text.
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The term “banking entity” is defined by statute to include, with limited exceptions: (i) any insured depository institution (IDI) (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)); (ii) any company that controls an IDI (including, for example, a bank holding company or savings and loan holding company); (iii) any company that is treated as a bank holding company for purposes of section 8(a) of the International Banking Act of 1978 (for example, any foreign bank operating a branch or agency in the United States); and (iv) any affiliate or subsidiary of any of the foregoing. The rule excludes from the definition of IDI an insured depository institution if it has, and every company that controls it has, total consolidated assets of $10 billion or less and total trading assets and trading liabilities, on a consolidated basis, that are 5 percent or less of total consolidated assets. See 12 U.S.C. 1851(h)(1); 12 CFR 44.2(c) and (r) (OCC), 12 CFR 248.2(c) and (r) (Board), 12 CFR 351.2(c) and (r) (FDIC), 17 CFR 255.12(c) and (r) (Securities and Exchange Commission), and 17 CFR 75.12(c) and (r) (Commodity Futures Trading Commission). Return to text.
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http://www.federalreserve.gov/apps/contactus/feedback.aspx. Return to text.