(a) In general.
(1) If a covered company has an aggregate
net credit exposure to any counterparty that exceeds 5 percent of
its tier 1 capital, the covered company must assess its relationship
with the counterparty under paragraph (b)(2) of this section to determine
whether the counterparty is economically interdependent with one or
more other counterparties of the covered company and under paragraph
(c)(1) of this section to determine whether the counterparty is connected
by a control relationship with one or more other counterparties.
(2) If, pursuant to an assessment
required under paragraph (a)(1) of this section, the covered company
determines that one or more of the factors of paragraph (b)(2) or
(c)(1) of this section are met with respect to one or more counterparties,
or the Board determines pursuant to paragraph (d) of this section
that one or more other counterparties of a covered company are economically
interdependent or that one or more other counterparties of a covered
company are connected by a control relationship, the covered company
must aggregate its net credit exposure to the counterparties for all
purposes under this subpart, including, but not limited to, section
238.152.
(3) In connection with
any request pursuant to paragraph (b)(3) or (c)(2) of this section,
the Board may require the covered company to provide additional information.
(b) Aggregation of exposures
to more than one counterparty due to economic interdependence.
(1) For purposes of
this paragraph, two counterparties are economically interdependent
if the failure, default, insolvency, or material financial distress
of one counterparty would cause the failure, default, insolvency,
or material financial distress of the other counterparty, taking into
account the factors in paragraph (b)(2) of this section.
(2) A covered company must assess whether
the financial distress of one counterparty (counterparty A) would
prevent the ability of the other counterparty (counterparty B) to
fully and timely repay counterparty B’s liabilities and whether the
insolvency or default of counterparty A is likely to be associated
with the insolvency or default of counterparty B and, therefore, these
counterparties are economically interdependent, by evaluating the
following:
(i) Whether
50 percent or more of one counterparty’s gross revenue is derived
from, or gross expenditures are directed to, transactions with the
other counterparty;
(ii) Whether
counterparty A has fully or partly guaranteed the credit exposure
of counterparty B, or is liable by other means, in an amount that
is 50 percent or more of the covered company’s net credit exposure
to counterparty A;
(iii) Whether
25 percent or more of one counterparty’s production or output is sold
to the other counterparty, which cannot easily be replaced by other
customers;
(iv) Whether the expected
source of funds to repay the loans of both counterparties is the same
and neither counterparty has another independent source of income
from which the loans may be serviced and fully repaid;
1 and
(v) Whether two or more counterparties
rely on the same source for the majority of their funding and, in
the event of the common provider’s default, an alternative provider
cannot be found.
(3) (i) Notwithstanding paragraph
(b)(2) of this section, if a covered company determines that one or
more of the factors in paragraph (b)(2) is met, the covered company
may request in writing a determination from the Board that those counterparties
are not economically interdependent and that the covered company is
not required to aggregate those counterparties.
(ii) Upon a request by a covered company
pursuant to paragraph (b)(3) of this section, the Board may grant
temporary relief to the covered company and not require the covered
company to aggregate one counterparty with another counterparty provided
that the counterparty could promptly modify its business relationships,
such as by reducing its reliance on the other counterparty, to address
any economic interdependence concerns, and provided that such relief
is in the public interest and is consistent with the purpose of this
subpart.
(c) Aggregation of exposures to more than one counterparty due to certain
control relationships.
(1) For purposes of this subpart, one counterparty (counterparty
A) is deemed to control the other counterparty (counterparty B) if:
(i) Counterparty A
owns, controls, or holds with the power to vote 25 percent or more
of any class of voting securities of counterparty B; or
(ii) Counterparty A controls in any
manner the election of a majority of the directors, trustees, or general
partners (or individuals exercising similar functions) of counterparty
B.
(2) (i) Notwithstanding paragraph (c)(1) of this section, if a covered
company determines that one or more of the factors in paragraph (c)(1)
is met, the covered company may request in writing a determination
from the Board that counterparty A does not control counterparty B
and that the covered company is not required to aggregate those counterparties.
(ii) Upon a request by a covered
company pursuant to paragraph (c)(2) of this section, the Board may
grant temporary relief to the covered company and not require the
covered company to aggregate counterparty A with counterparty B provided
that, taking into account the specific facts and circumstances, such
indicia of control does not result in the entities being connected
by control relationships for purposes of this subpart, and provided
that such relief is in the public interest and is consistent with
the purpose of this subpart.
(d) Board determinations for aggregation of counterparties
due to economic interdependence or control relationships. The
Board may determine, after notice to the covered company and opportunity
for hearing, that one or more counterparties of a covered company
are:
(1) Economically interdependent
for purposes of this subpart, considering the factors in paragraph
(b)(2) of this section, as well as any other indicia of economic interdependence
that the Board determines in its discretion to be relevant; or
(2) Connected by control relationships
for purposes of this subpart, considering the factors in paragraph
(c)(1) of this section and whether counterparty A:
(i) Controls the power to vote 25
percent or more of any class of voting securities of Counterparty
B pursuant to a voting agreement;
(ii) Has significant influence on the appointment or dismissal of
counterparty B’s administrative, management, or governing body, or
the fact that a majority of members of such body have been appointed
solely as a result of the exercise of counterparty A’s voting rights;
or
(iii) Has the power to exercise
a controlling influence over the management or policies of counterparty
B.
(e) Board
determinations for aggregation of counterparties to prevent evasion. Notwithstanding paragraphs (b) and (c) of this section, a covered
company must aggregate its exposures to a counterparty with the covered
company’s exposures to another counterparty if the Board determines
in writing after notice and opportunity for hearing, that the exposures
to the two counterparties must be aggregated to prevent evasions of
the purposes of this subpart, including, but not limited to section
238.156.
