OCC Seeks Public Input on Volcker Rule
On August 2, the OCC released a request for public comment on whether certain aspects of the Volcker Rule’s implementing regulation should be revised to better accomplish the purposes of section 619 of the Dodd-Frank Act and decrease the compliance burden on banking entities.
Among the topics that the OCC is requesting feedback on is the definition of “covered funds” under the rule. The final rule defines the term “covered fund” to include any issuer that would be an investment company under the Investment Company Act of 1940 if it were not otherwise excluded by sections 3(c)(1) or 3(c)(7) of that Act, as well as certain foreign funds and commodity pools. As we’ve covered over the years, this broad definition impacts most Separate Account BOLI programs which rely on those registration exemptions.
The request for comment includes several questions about the Covered Funds Prohibition, including:
- What evidence is there that the final rule has been effective or ineffective in limiting banking entity exposure to private equity funds and hedge funds? What evidence is there that the covered fund definition is too broad in practice?
- Would replacing the current covered fund definition that references sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 with a definition that references characteristics of the fund, such as investment strategy, fee structure, etc., reduce the compliance burden associated with the covered fund provisions? If so, what specific characteristics could be used to narrow the covered fund definition? Does data or other appropriate information support the use of a characteristics-based approach to fund investments?
- What types of additional activities and investments, if any, should be permitted or excluded under the covered funds provisions? Please provide a description of the activity or investment and discuss why it would be appropriate to permit the activity or investment, including supporting data or other appropriate information.
Comments are due by September 21, 2017.
Regulatory Capital Treatment of Certain Centrally-Cleared Derivative Contracts
On August 14, the OCC, FRB, and FDIC jointly provided guidance on the regulatory capital treatment of certain centrally-cleared derivative contracts in light of recent changes to the rulebooks of certain central counterparties.
According to the guidance, certain central counterparties recently modified their variation margin requirements for certain Cleared Derivative Contract Netting Sets. Under the new rulebooks, variation margin for certain Cleared Derivative Contract Netting Sets is considered a settlement payment for the exposure that arises from marking the Cleared Derivative Contract Netting Sets to fair value (“Settled-to-Market Contracts”).
The guidance concludes that, if an institution determines that (i) the variation margin payment on a centrally cleared Settled-to-Market Contract settles any outstanding exposure on the contract, and (ii) the terms are reset so that fair value of the contract is zero, the remaining maturity on such contract would equal the time until the next exchange of variation margin on the contract.
While we do not expect this development or guidance to have a material impact on risk-weighted assets computations for BOLI portfolios, many BOLI portfolios utilize cleared derivative contracts. As such, we will be reaching out to the insurance companies and asset managers in an effort to better understand the structure of cleared derivative contracts in each portfolio and determine if any supplemental reporting may be needed or useful.
Bank Accounting Advisory Series – Update
On August 15, the OCC released an update to its Bank Accounting Advisory Series. This edition reflects Accounting Standards Updates (ASUs) issued by the FASB through March 31, 2017.
Section 5B includes a number of questions and answers related to life insurance and deferred compensation plans. However, none of these questions have been changed from last year’s edition.
FNB PA Appeals District Court Ruling in Favor of Transamerica
Last month, we reported that the District Court (PA-W.D.) ruled in favor of Transamerica in the ongoing litigation with First National Bank of PA. On August 3, FNB PA filed a notice of appeal. On August 16, FNB PA filed a Concise Summary of the Case. In primary part, the bank appears to be challenging the District Court’s ruling with regard to whether the policies had been “previously owned by an entity other than the Policyowner.”
The summary included the following passage:
Moreover, and in addition to the unambiguous provisions of the National Bank Act, the publicly filed Park View/FNB Bank Merger Agreement expressly stated that FNB “shall be considered the same business and corporate entity as each constituent bank” in the merger “in accordance with the provisions of the National Bank Act.” While Transamerica and Clark incorrectly asserted that the National Bank Act is inapplicable, FNB’s regulator, the Office of the Comptroller of the Currency (“OCC”), approved the Park View/FNB merger as “authorized under 12 U.S.C. § 215c” of the National Bank Act. Moreover, OCC regulations governing “business combinations involving a national bank” expressly and completely refute Appellees’ conclusion regarding the National Bank Act: as determined by the OCC, in “any consolidation or merger in which the resulting institution is a national bank … on the effective date of the merger or consolidation . . . [t]he resulting national bank or Federal savings association shall be deemed to be a continuation of the entity of each participating institution, the rights and obligations of which shall succeed to such rights and obligations and the duties and liabilities connected therewith.” 12 C.F.R. § 5.33(1). Thus, Appellees’ contention that full surrender value was not owed to FNB because, purportedly, FNB could not represent that the Policies “have not been previously owned by an entity other than the Policyowner” was simply incorrect. In an attempt to avoid paying FNB what it is owed, Appellees disregarded both applicable facts and the unambiguous language of the National Bank Act and its implementing regulations.
Interestingly, the summary did not include any discussion of the second required representation that FNB PA purportedly failed to satisfy according to the District Court ruling.
Citation: US-APP-CA3 17-2691