Supervision and Regulation Letters

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SR 19-16:

Status of Certain Investment Funds and Their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF
SUPERVISION AND REGULATION

SR 19-16
December 27, 2019

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Status of Certain Investment Funds and Their Portfolio Investments for Purposes of Regulation O and Reporting Requirements under Part 363 of FDIC Regulations

Applicability:  This guidance applies to banks that are members of the Federal Reserve System and principal shareholders of such banks.

The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (together "federal banking agencies") are issuing the attached interagency statement to explain that the federal banking agencies will exercise discretion to not take enforcement action against banks or asset managers, which become principal shareholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O.

Regulation O places quantitative limits and qualitative restrictions on extensions of credit by banks to executive officers, directors, principal shareholders, and related interests of such persons.1 The popularity of mutual funds, exchange-traded funds, and similar index-based investment products has resulted in several large asset management companies becoming principal shareholders of a number of banks, and has triggered the Regulation O presumption of control of a related interest over an increasing number of companies in the asset managers' portfolios. As a result, market participants have expressed concern about possible unintended consequences of application of Regulation O to these relationships.

The federal banking agencies are providing this temporary relief while the Board, in consultation with the other federal banking agencies, considers whether to amend Regulation O to address this issue. As detailed in the statement, the agencies will exercise discretion in not bringing enforcement action against asset managers and banks for extensions of credit that would otherwise violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank. In addition, the agencies would not take action against banks for failure to report, for purposes of section 363.2 of the FDIC's regulations (12 CFR 363.2), extensions of credit that would otherwise violate Regulation O but are covered by this Regulation O no-action position. The OCC and FDIC are taking similar action with respect to the banks that they supervise.

Reserve Banks should distribute this letter to supervised institutions in their districts and to appropriate supervisory staff. Questions regarding this letter should be directed to:

  • Division of Supervision and Regulation:  Joe Maldonado, Senior Financial Institution Policy Analyst, (202) 973-7341
  • Legal Division:  Dan Hickman, Senior Counsel, (202) 973-7432

In addition, questions may be sent via the Board's public website.2

signed by
Joanne Wakim
Deputy Associate Director
Division of
Supervision and Regulation

Attachments:
Notes:
  1. Refer to 12 CFR 215.  Return to text.
  2. See http://www.federalreserve.gov/apps/contactus/feedback.aspx  Return to text.
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Last Update: December 27, 2019