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 OCCâs 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)