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Board of Governors of the Federal Reserve System
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Board of Governors of the Federal Reserve System

Supervision and Regulation Letters

SR 15-13

Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule

November 6, 2015

Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.  20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
SR 15-13
November 6, 2015
TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
SUBJECT:   Supervisory Guidance on the Capital Treatment of Certain Investments in Covered Funds under the Regulatory Capital Rule and the Volcker Rule
Applicability:  This guidance 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, including those with $10 billion or less in consolidated assets.

The Federal Reserve, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, 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&nsp13 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 banking organizations supervised by the Federal Reserve, as well as to their own supervisory and examination staff.

Questions concerning the deduction mechanics described in the attached guidance should be directed to the following staff in the Board’s Capital and Regulatory Policy Section:  Elizabeth MacDonald, Manager, at (202) 475-6316, or Kevin Tran, Supervisory Financial Analyst, at (202) 452-2309.  In addition, questions may be sent via the Board’s public website.3

signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation


 
Notes:
  1. See 12 CFR part 217 (regulatory capital rule).  See also 12 U.S.C. 1851; 12 C.F.R. part 248 (Volcker rule).  Return to text
  2. “Banking organization” includes national banks, state member banks, state non-member banks, federal savings associations, state savings associations, and top-tier bank holding companies domiciled in the United States not subject to the Federal Reserve’s Small Bank Holding Company Policy Statement (12 CFR part 225, appendix C), as well as top-tier savings and loan holding companies domiciled in the United States, other than (i) savings and loan holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and (ii) certain savings and loan holding companies that are substantially engaged in insurance underwriting or commercial activities.  Return to text
  3. http://www.federalreserve.gov/apps/contactus/feedback.aspx  Return to text
Last update: November 6, 2015