(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
252.72.
(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;
2 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 and 12 U.S.C. 5365(e).
(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 and 12 U.S.C. 5365(e).
(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 252.76 and 12 U.S.C. 5365(e).
