SR 20-31:

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 20-31
December 22, 2020

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 (the "Revised Statement") to explain that the federal banking agencies will continue to exercise discretion to not take enforcement action against asset managers that become principal shareholders of banks or banks that make extensions of credit to the related interests of such asset managers 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. As principal shareholders, the asset managers trigger a Regulation O presumption of control, resulting in an increasing number of companies in the asset managers' portfolios becoming related interests of the asset managers. As a result, market participants have expressed concern about possible unintended consequences of the 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, continues to consider whether to amend Regulation O to address this issue. As detailed in the Revised Statement, the federal banking agencies will exercise discretion in not bringing an 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 federal banking 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 depository institutions that they supervise.

Reserve Banks should distribute this SR letter to supervised institutions in their districts and to appropriate supervisory staff. Questions regarding this SR letter may be sent via the Board's public website.2

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

Supersedes:
  • 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"
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Last Update: December 22, 2020