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Federal Reserve Bank
of Dallas

l l★K

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 provided that a bank meets the criteria if it has a current long-term issuer credit rating from a nationally 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 comments 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.

-2ATTACHMENT
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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15050

Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

FEDERAL RESERVE SYSTEM
12 CFR Part 208
[Regulation H; Docket No. R–1066]

DEPARTMENT OF THE TREASURY
Office of the Under Secretary for
Domestic Finance
12 CFR Part 1501
RIN 1505–AA77

Financial Subsidiaries
AGENCIES: The Department of the
Treasury and the Board of Governors of
the Federal Reserve System.
ACTION: Joint interim rule with request
for comments.
SUMMARY: The Department of the
Treasury (Treasury) and the Board of
Governors of the Federal Reserve
System (Board) are jointly issuing this
interim rule pursuant to section 121 of
the Gramm-Leach-Bliley Act (GLBA).
The 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 the eligible debt
requirement set forth in section 121 of
the Act or alternative criteria
established jointly by Treasury and the
Board. This interim rule establishes the
alternative criteria and provides that a
bank meets the criteria if it has a current
long-term issuer credit rating from a
nationally recognized statistical rating
organization that is within the three
highest investment grade rating
categories used by the organization.
DATES: This interim rule is effective
March 14, 2000. Written comments
must be submitted on or before May 15,
2000.
ADDRESSES: Comments should refer to
docket number R–1066 and should be
sent both: to Comparable Ratings
Regulation, Office of Financial
Institutions Policy, U.S. Department of
the Treasury, 1500 Pennsylvania
Avenue, N.W., Room SC 37,
Washington, D.C. 20220, and to Ms.
Jennifer J. Johnson, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, N.W., Washington, D.C. 20551.
Comments addressed to the Treasury
Department also may be mailed
electronically to
financial.institutions@do.treas.gov or
delivered to the Treasury Department
mail room between the hours of 8:45
a.m. and 5:15 p.m. at the 15th Street
entrance to the Treasury Building.
Comments addressed to Ms. Johnson

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15:44 Mar 17, 2000

also may be mailed electronically to
regs.comments@federalreserve.gov or
delivered to the Board’s mail room
between the hours of 8:45 a.m. and 5:15
p.m. and, outside of those hours, to the
Board’s security control room. Both the
Board’s mail room and the security
control room are accessible from the
Eccles Building courtyard entrance,
located on 20th Street between
Constitution Avenue and C Street, N.W.
Members of the public may inspect
comments in Room SC 37 of the
Treasury Department and in Room MP–
500 of the Martin Building between 9:00
a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:
Department of the Treasury: Joan
Affleck-Smith, Director, Office of
Financial Institutions Policy (202/622–
2740); Matthew Green, Senior Financial
Analyst (202/622–2740); or Gary W.
Sutton, Senior Banking Counsel (202/
622–1976).
Board of Governors: Kieran J. Fallon,
Senior Counsel, Legal Division (202/
452–5270); or Mark S. Carey, Senior
Economist, Division of Research &
Statistics (202/452–2784). For the
hearing impaired only,
Telecommunications Device for the Deaf
(TDD), Janice Simms (202/872–4984).
SUPPLEMENTARY INFORMATION:
Background
On November 12, 1999, the President
signed the GLBA, Public Law 106–102,
113 Stat. 1338, which comprehensively
restructures the statutory framework
that governs the financial services
industry. Section 121 of the Act
authorizes national banks and state
member banks to acquire control of, or
hold an interest in, a new type of
subsidiary called a ‘‘financial
subsidiary.’’ A financial subsidiary may,
with certain exceptions, engage in
activities that have been determined to
be financial in nature or incidental to
financial activities in accordance with
the GLBA, and in other activities that
the parent bank is permitted to conduct
directly.
In order for a national bank or state
member bank to control, or hold an
interest in, a financial subsidiary, the
bank and each of its depository
institution affiliates must be ‘‘wellcapitalized’’ and ‘‘well-managed,’’ as
those terms are defined in the GLBA.
The aggregate consolidated total assets
of all financial subsidiaries of the bank
also may not exceed the lesser of 45
percent of the consolidated total assets
of the parent bank or $50 billion. (The
$50 billion limit is to be adjusted
according to an indexing mechanism
established in a separate regulation to be

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issued jointly by Treasury and the
Board.) In addition, in order to acquire
control of a financial subsidiary, the
bank and each of its insured depository
institution affiliates must have received
a ‘‘satisfactory’’ or better rating at its
most recent examination under the
Community Reinvestment Act.
In addition, if the bank is one of the
50 largest insured banks, as determined
by the bank’s consolidated total assets at
the end of the most recent calendar year,
the bank must have at least one issue of
outstanding eligible debt that is rated in
one of the three highest rating categories
by a nationally recognized statistical
rating organization (debt rating
requirement). If the bank is one of the
second 50 largest insured banks, the
bank must meet either this debt rating
requirement or such alternative criteria
that the Secretary of the Treasury and
the Board jointly determine by
regulation to be comparable to and
consistent with the purpose of the rating
requirement.1 This interim rule
establishes such alternative criteria.
Description of the Interim Rule
The interim rule provides that a
national bank or state member bank
within the second 50 largest insured
banks satisfies the alternative criteria if
the bank has a current long-term issuer
credit rating from a nationally
recognized statistical rating organization
that is within the three highest
investment grade rating categories used
by the rating organization. A long-term
issuer credit rating is one that assesses
the bank’s overall capacity and
willingness to pay on a timely basis its
unsecured financial obligations.2 Unlike
debt ratings, an issuer credit rating does
not assess the bank’s ability and
willingness to make payments on any
individual class or issue of debt, nor
does it reflect priority or preference in
payment among financial obligations.
Ratings organizations may issue longterm or short-term issuer credit ratings
for the same bank and separate ratings
for dollar-denominated and foreign
currency-denominated obligations. Only
long-term issuer credit ratings for dollardenominated obligations satisfy the
requirements of the rule. A long-term
issuer credit rating is one that reflects
the bank’s ability over a period of not
1 A bank does not have to satisfy the debt rating
requirement or the alternative criteria established
by this rule if the bank’s financial subsidiaries
engage in the newly authorized financial activities
solely as agent and not as principal.
2 Issuer credit ratings that are assigned to a
subsidiary or affiliate of the bank, such as a
subsidiary engaged in derivatives activities, do not
meet the rule’s requirements.

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Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

15051

less than one year to fulfill its financial
obligations on a timely basis.
Treasury and the Board believe that
the long-term issuer credit rating
required by the rule is comparable to,
and consistent with the purposes of, the
debt rating requirement applicable to
the 50 largest insured banks. The longterm issuer credit rating assigned large
banks generally is identical to the rating
given the bank’s senior long-term
unsecured debt, where such rated debt
exists. Furthermore, representatives of
rating organizations have indicated that
the rating given to a specific long-term
unsecured financial obligation of an
issuer is anchored to the issuer’s longterm issuer credit rating because the
latter rating exemplifies the issuer’s
fundamental creditworthiness over the
long-term. For these reasons, Treasury
and the Board believe that the long-term
issuer credit rating is consistent with
the purposes underlying the debt rating
requirement.
The interim rule requires that the
parent bank have a long-term issuer
credit rating in the top three investment
grade rating categories from at least one
nationally recognized statistical rating
organization. Standard & Poor’s top
three investment grade categories for
long-term issuer credit ratings are AAA,
AA, or A, with AAA denoting the
highest rating.3 Standard & Poor’s may
modify its AA or A ratings with the
addition of a plus (+) or minus (¥) sign
to show relative standing within these
rating categories. Any rating from A
minus to AAA would satisfy the longterm issuer credit rating requirement; an
A minus would constitute the lowest
acceptable rating (in the case of
Standard & Poor’s). Moody’s top three
investment grade categories for longterm issuer credit ratings are Aaa, Aa, or
A, with Aaa denoting the highest rating.
Moody’s likewise applies numerical
modifiers of 1, 2 and 3 in the Aa and
A rating categories, with 3 denoting the
lowest end of the letter-rating modifiers.
Any rating from A–3 to Aaa would
satisfy the long-term issuer credit rating
requirement; a rating of A–3 would be
the lowest acceptable rating (in the case
of Moody’s).

reasons therefor in the rule issued) that
notice and public comment are
impracticable, unnecessary, or contrary
to the public interest. 5 U.S.C. 553(b)(B).
Section 553 also permits agencies to
issue a rule without delaying its
effectiveness for thirty days from
publication if the agency finds good
cause and publishes this finding with
the rule. 5 U.S.C. 553(d)(3). In addition,
section 302 of the Riegle Community
Development and Regulatory
Improvement Act of 1994, 12 U.S.C.
4802(b), permits federal banking
agencies to issue a regulation which
takes effect before the first day of a
calendar quarter beginning on or after
the date on which the regulations are
published in final form when the agency
determines for good cause (published
with the regulation) that the regulation
should become effective before such
time.
For the reasons set forth below,
Treasury and the Board find that there
is good cause for issuing this interim
rule without notice and public comment
and without a delayed effective date.
For the same reasons, Treasury and the
Board find that there is good cause for
the interim rule to become effective
before the first day of a calendar quarter
beginning on or after the date on which
the regulations are published in final
form.
Section 121 of the GLBA becomes
effective on March 11, 2000. A national
bank or state member bank that is
among the second 50 largest insured
banks may control a financial subsidiary
or hold an interest in a financial
subsidiary only if the bank meets the
debt rating requirement or the
alternative criteria established by this
rule. To prevent any bank from being
denied the opportunity to control or
hold an interest in a financial
subsidiary, it is in the public interest to
make this interim rule effective
immediately. Treasury and the Board
are soliciting comments on all aspects of
the interim rule and will consider those
comments before the rule is finalized.

Executive Order 12866 Determination

Regulatory Flexibility Act Analysis

Authority and Issuance

Interim Effectiveness of the Rule
This interim rule is effective on
March 14, 2000. Section 553 of the
Administrative Procedure Act permits
agencies to issue a rule without public
notice and comment when the agency,
for good cause, finds (and incorporates
the finding and a brief statement of

Because no notice of proposed
rulemaking is required for this interim
final rule, the provisions of the
Regulatory Flexibility Act (5 U.S.C. 601
et. seq.) do not apply. In addition, the
interim rule applies only to national
banks and state member banks that are
within the second 50 largest insured
banks. Accordingly, the interim rule is
not expected to have a significant
economic impact on a substantial
number of small entities.

For the reasons set forth in the
preamble, the Board of Governors of the
Federal Reserve System amends part
208 of Chapter II, Title 12 of the Code
of Federal Regulations as follows:

3 Standard & Poor’s also issues counterparty
credit ratings, which are a form of issuer credit
rating.

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The Department of the Treasury has
determined that this rule does not
constitute a ‘‘significant regulatory
action’’ for the purposes of Executive
Order 12866.
Solicitation of Comments Regarding the
Use of ‘‘Plain Language’’
Section 722 of the Gramm-LeachBliley Act requires the Board to use
‘‘plain language’’ in all proposed and
final rules published after January 1,
2000. The Board invites comments
about how to make the interim rule
easier to understand, including answers
to the following questions:
(1) Is the material organized in an
effective manner? If not, how could the
material be better organized?
(2) Are the terms of the rule clearly
stated? If not, how could the terms be
more clearly stated?
(3) Does the rule contain technical
language or jargon that is unclear? If not,
which language requires clarification?
(4) Would a different format (with
respect to the grouping and order of
sections and use of headings) make the
rule easier to understand? If so, what
changes to the format would make the
rule easier to understand?
(5) Would increasing the number of
sections (and making each section
shorter) clarify the rule? If so, which
portions of the rule should be changed
in this respect?
(6) What additional changes would
make the rule easier to understand?
List of Subjects
12 CFR Part 208
Administrative practice and
procedure, Federal Reserve System,
Banks.
12 CFR Part 1501
Administrative practice and
procedure, National banks, Reporting
and recordkeeping requirements.
Federal Reserve System
12 CFR Chapter II

PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
(REGULATION H)
1. The authority citation for part 208
continues to read as follows:

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15052

Federal Register / Vol. 65, No. 54 / Monday, March 20, 2000 / Rules and Regulations

Authority: 12 U.S.C. 24, 36, 92a, 93a,
248(a), 248(c), 321–338a, 371d, 461, 481–486,
601, 611, 1814, 1816, 1818, 1820(d)(9),
1823(j), 1828(o), 1831, 1831o, 1831p–1,
1831r–1, 1831w, 1835a, 1882, 2901–2907,
3105, 3310, 3331–3351, and 3906–3909; 15
U.S.C. 78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5),
78q, 78q–1, and 78w; 31 U.S.C. 5318; 42
U.S.C. 4012a, 4104a, 4104b, 4106 and 4128.

2. Section 208.71 is amended by
adding a new paragraph (c) to read as
follows:

12 CFR Chapter XV

*

*
*
*
*
(c) Alternative requirement. A state
member bank satisfies the alternative
criteria referenced in paragraph (b)(1)(ii)
of this section if the bank has a current
long-term issuer credit rating from at
least one nationally recognized
statistical rating organization that is
within the three highest investment
grade rating categories used by the
organization.
3. Section 208.77 is amended by
redesignating paragraphs (e) and (f) as
paragraphs (f) and (g), respectively, and
adding a new paragraph (e) to read as
follows:
Definitions.

*

*
*
*
*
(e) Long-term issuer credit rating. The
term ‘‘long-term issuer credit rating’’
means a written opinion issued by a
nationally recognized statistical rating
organization of the bank’s overall
capacity and willingness to pay on a

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By order of the Board of Governors of the
Federal Reserve System, March 14, 2000.
Jennifer J. Johnson,
Secretary of the Board.

Department of the Treasury

§ 208.71 What are the requirements to
invest in or control a financial subsidiary?

§ 208.77

timely basis its unsecured, dollardenominated financial obligations
maturing in not less than one year.
*
*
*
*
*

Authority and Issuance
For the reasons set forth in the
preamble, the Department of the
Treasury amends part 1501 of Chapter
XV of Title 12 of the Code of Federal
Regulations as follows:
PART 1501—FINANCIAL
SUBSIDIARIES
1. The authority citation for part 1501
continues to read as follows:
Authority: Section 5136A of the Revised
Statutes of the United States (12 U.S.C. 24a).

2. A new § 1501.2 is added to read as
follows:
§ 1501.2 Comparable ratings requirement
for national banks among the second 50
largest insured banks.

(a) Scope and purpose. Section 5136A
of the Revised Statutes permits a
national bank that is within the second
50 largest insured banks to own or
control a financial subsidiary only if,
among other requirements, the bank
satisfies the eligible debt requirement

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set forth in section 5136A or an
alternative criteria jointly established by
the Secretary of the Treasury and the
Board of Governors of the Federal
Reserve System. This section establishes
the alternative criteria that national
banks among the second 50 largest
insured banks may meet, which criteria
is comparable to and consistent with the
purposes of the eligible debt
requirement established by section
5136A.
(b) Alternative criteria. A national
bank satisfies the alternative criteria
referenced in Section 5136A(a)(2)(E) of
the Revised Statutes (12 U.S.C. 24a) and
12 CFR 5.39(g)(3) if the bank has a
current long-term issuer credit rating
from at least one nationally recognized
statistical rating organization that is
within the three highest investment
grade rating categories used by the
organization.
(c) Definition of long-term issuer
credit rating. A ‘long-term issuer credit
rating’ is a written opinion issued by a
nationally recognized statistical rating
organization of the bank’s overall
capacity and willingness to pay on a
timely basis its unsecured, dollardenominated financial obligations
maturing in not less than one year.
Dated: March 14, 2000.
Gregory A. Baer,
Assistant Secretary for Financial Institutions,
Department of the Treasury.
[FR Doc. 00–6808 Filed 3–17–00; 8:45 am]
BILLING CODE 6210–01–P and 4810–25–P

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102