On February 28, 2014, the OCC issued
an interim final rule to bring its subordinated debt regulations in
conformity with its revised capital rules. The interim final rule
provided that all national banks now must receive prior OCC
approval in order to prepay subordinated debt that is included in
tier 2 capital, and certain banks must receive prior approval to
prepay subordinated debt that is not included in tier 2 capital. If
the prepayment is in the form of a call option and the subordinated
debt is included in tier 2 capital, a national bank must submit the
information required for general prepayment requests and also
submit either: (1) a statement explaining why the bank believes
that following the proposed prepayment the bank would continue to
hold an amount of capital commensurate with its risk; or (2) a
description of the replacement capital instrument that meets the
criteria for tier 1 or tier 2 capital, including the amount of such
instrument and the time frame for issuance. The interim final rule
also provided that prepayment of subordinated debt securities or
mandatorily redeemable preferred stock included in tier 2 capital
by Federal savings associations requires prior OCC approval. If the
prepayment is in the form of a call option, the information
required for general prepayment requests must be submitted along
with either: (1) a statement explaining why the Federal savings
association believes that following the proposed prepayment the
savings association would continue to hold an amount of capital
commensurate with its risk; or (2) a description of the replacement
capital instrument that meets the criteria for tier 1 or tier 2
capital, including the amount of such instrument and the time frame
for issuance. The OCC is issuing a second interim final rule
further clarifying the subordinated debt rules. The interim final
rule revises 12 CFR 5.47 to add a disclosure requirement in
paragraph (d)(3)(ii)(C). A description must appear on the face of
the subordinated debt note of the OCC's authority under 12 CFR 3.11
to limit distributions, including interest payments on any tier 2
capital instrument if the national bank has full discretion to
permanently or temporarily suspend such payments without triggering
an event of default.
Subordinated debt plays
a critical role in the capital and liquidity management of national
banks. On February 28, 2014, the OCC published an interim final
rule that, among other things, revised and clarified the OCC’s
rules governing subordinated debt issued by national banks to make
those rules consistent with the 2013 revised capital rules. This
interim final rule makes crucial clarifications to those
subordinated debt rules by moving certain provisions from the
current Guidelines to the rules and making other clarifying and
technical amendments. The underlying need for an interim final rule
is driven by the fact that the 2013 revised capital rules will
become applicable to non-advanced approaches national banks
beginning January 1, 2015. Thus, it is imperative that the OCC
issue this interim final rule with an effective date of January 1,
2015, in order to clarify for banks which requirements are
applicable with respect to subordinated debt. Absent having these
clarifying amendments in place and in effect by January 1, 2015,
national banks may undergo great difficulty and expense ensuring
that their subordinated debt satisfies all applicable rules and
policies. This is particularly true for community banks.
On behalf of this Federal agency, I certify that
the collection of information encompassed by this request complies
with 5 CFR 1320.9 and the related provisions of 5 CFR
1320.8(b)(3).
The following is a summary of the topics, regarding
the proposed collection of information, that the certification
covers:
(i) Why the information is being collected;
(ii) Use of information;
(iii) Burden estimate;
(iv) Nature of response (voluntary, required for a
benefit, or mandatory);
(v) Nature and extent of confidentiality; and
(vi) Need to display currently valid OMB control
number;
If you are unable to certify compliance with any of
these provisions, identify the item by leaving the box unchecked
and explain the reason in the Supporting Statement.
Signed Letter 12-5-14.pdf
1557-320 Emergency Request Fall 2014-2.doc
12 CFR 5.47(d)(3)(ii)(C)