(a) In general.
(1)
This section applies to a covered foreign entity except as provided
in paragraph (a)(1)(i) of this section.
(i) Until January 1, 2021, paragraphs
(a)(2) through (d) of this section do not apply to a U.S. intermediate
holding company that is a covered foreign entity with less than $250
billion in total consolidated assets as of December 31, 2019.
(ii) [Reserved]
(2) (i) If a covered foreign
entity has an aggregate net credit exposure to any counterparty that
exceeds 5 percent of its tier 1 capital, the covered foreign entity
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
foreign entity 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.
(ii) If, pursuant to an assessment required under paragraph (a)(2)(i)
of this section, the covered foreign entity 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 foreign entity are economically interdependent or that
one or more other counterparties of a covered foreign entity are connected
by a control relationship, the covered foreign entity must aggregate
its net credit exposure to the counterparties for all purposes under
this subpart, including, but not limited to, section 252.172.
(iii) In connection with any request
pursuant to paragraph (b)(3) or (c)(2) of this section, the Board
may require the covered foreign entity 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 foreign entity 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 foreign entity’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;
4 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 foreign entity determines that
one or more of the factors in paragraph (b)(2) is met, the covered
foreign entity may request in writing a determination from the Board
that those counterparties are not economically interdependent and
that the covered foreign entity is not required to aggregate those
counterparties.
(ii) Upon a request
by a covered foreign entity pursuant to paragraph (b)(3) of this section,
the Board may grant temporary relief to the covered foreign entity
and not require the covered foreign entity 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 foreign entity determines
that one or more of the factors in paragraph (c)(1) is met, the covered
foreign entity may request in writing a determination from the Board
that counterparty A does not control counterparty B and that the covered
foreign entity is not required to aggregate those counterparties.
(ii) Upon a request
by a covered foreign entity pursuant to paragraph (c)(2) of this section,
the Board may grant temporary relief to the covered foreign entity
and not require the covered foreign entity 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 foreign entity and
opportunity for hearing, that one or more counterparties of a covered
foreign entity 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 purpose 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 foreign entity must aggregate its exposures
to a counterparty with the covered foreign entity’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 252.176 and 12 U.S.C. 5365(e).
