(a) Conformance period.
(1) In general. Except as provided in paragraph (b)(2) or (3) of this section, a
banking entity shall bring its activities and investments into compliance
with the requirements of section 13 of the Bank Holding Company Act
(12 U.S.C. 1851) and this subpart no later than 2 years after the
earlier of:
(i) July 21, 2012; or
(ii) Twelve months after the date on
which final rules adopted under section 13(b)(2) of the Bank Holding
Company Act (12 U.S.C. 1851(b)(2)) are published in the Federal
Register.
(2) New banking
entities. A company that was not a banking entity, or a subsidiary
or affiliate of a banking entity, as of July 21, 2010, and becomes
a banking entity, or a subsidiary or affiliate of a banking entity,
after that date shall bring its activities and investments into compliance
with the requirements of section 13 of the Bank Holding Company Act
(12 U.S.C. 1851) and this subpart before the later of—
(i) The
conformance date determined in accordance with paragraph (a)(1) of
this section; or
(ii) Two years after the date on which the company becomes a banking
entity or a subsidiary or affiliate of a banking entity.
(3) Extended conformance period. The Board
may extend the two-year period under paragraph (a)(1) or (2) of this
section by not more than three separate one-year periods, if, in the
judgment of the Board, each such one-year extension is consistent
with the purposes of section 13 of the Bank Holding Company Act (12
U.S.C. 1851) and this subpart and would not be detrimental to the
public interest.
(b) Illiquid funds.
(1) Extended
transition period. The Board may further extend the period provided
by paragraph (a) of this section during which a banking entity may
acquire or retain an equity, partnership, or other ownership interest
in, or otherwise provide additional capital to, a private equity fund
or hedge fund if—
(i) The fund is an illiquid fund; and
(ii) The acquisition
or retention of such interest, or provision of additional capital,
is necessary to fulfill a contractual obligation of the banking entity
that was in effect on May 1, 2010.
(2) Duration
limited. The Board may grant a banking entity only one extension
under paragraph (b)(1) of this section and such extension—
(i) May
not exceed 5 years beyond any conformance period granted under paragraph
(a)(3) of this section; and
(ii) Shall terminate automatically on
the date during any such extension on which the banking entity is
no longer under a contractual obligation described in paragraph (b)(1)(ii).
(3) Contractual obligation. For purposes of
this paragraph (b)—
(i) A banking entity has a contractual
obligation to take or retain an equity, partnership, or other ownership
interest in an illiquid fund if the banking entity is prohibited from
redeeming all of its equity, partnership, or other ownership interests
in the fund, and from selling or otherwise transferring all such ownership
interests to a person that is not an affiliate of the banking entity—
(A) Under the terms of the banking entity’s equity, partnership,
or other ownership interest in the fund or the banking entity’s other
contractual arrangements with the fund or unaffiliated investors in
the fund; or
(B) If the
banking entity is the sponsor of the fund, under the terms of a written
representation made by the banking entity in the fund’s offering materials
distributed to potential investors;
(ii) A banking entity has a contractual
obligation to provide additional capital to an illiquid fund if the
banking entity is required to provide additional capital to such fund—
(A) Under the terms of its equity, partnership or other ownership
interest in the fund or the banking entity’s other contractual arrangements
with the fund or unaffiliated investors in the fund; or
(B) If the banking entity is
the sponsor of the fund, under the terms of a written representation
made by the banking entity in the fund’s offering materials distributed
to potential investors; and
(iii) A banking entity shall be considered
to have a contractual obligation for purposes of paragraph (b)(3)(i)
or (ii) of this section only if—
(A) The obligation may not be
terminated by the banking entity or any of its subsidiaries or affiliates
under the terms of its agreement with the fund; and
(B) In the case of an obligation that may
be terminated with the consent of other persons, the banking entity
and its subsidiaries and affiliates have used their reasonable best
efforts to obtain such consent and such consent has been denied.
(c) Approval required to hold interests in excess
of time limit. The conformance period in paragraph (a) of this
section may be extended in accordance with paragraph (a)(3) or (b)
of this section only with the approval of the Board. A banking entity
that seeks the Board’s approval for an extension of the conformance
period under paragraph (a)(3) or for an extended transition period
under paragraph (b)(1) must—
(1) Submit a request in writing to the
Board at least 180 days prior to the expiration of the applicable
time period;
(2) Provide
the reasons why the banking entity believes the extension should be
granted, including information that addresses the factors in paragraph
(d)(1) of this section; and
(3) Provide a detailed explanation of the
banking entity’s plan for divesting or conforming the activity or
investment(s).
(d) Factors governing Board determinations.
(1) Extension requests generally. In reviewing any application by
a specific company for an extension under paragraph (a)(3) or (b)(1)
of this section, the Board may consider all the facts and circumstances
related to the activity, investment, or fund, including, to the extent
relevant—
(i) Whether the activity or investment—
(A) Involves or results in material conflicts of interest between
the banking entity and its clients, customers or counterparties;
(B) Would result, directly
or indirectly, in a material exposure by the banking entity to high-risk
assets or high-risk trading strategies;
(C) Would pose a threat to the safety and
soundness of the banking entity; or
(D) Would pose a threat to the financial stability
of the United States;
(ii) Market conditions;
(iii) The nature of the
activity or investment;
(iv) The date that the banking entity’s
contractual obligation to make or retain an investment in the fund
was incurred and when it expires;
(v) The contractual terms governing
the banking entity’s interest in the fund;
(vi) The degree of control held by the
banking entity over investment decisions of the fund;
(vii) The types of assets held by the
fund, including whether any assets that were illiquid when first acquired
by the fund have become liquid assets, such as, for example, because
any statutory, regulatory, or contractual restrictions on the offer,
sale, or transfer of such assets have expired;
(viii) The date on which the fund is
expected to wind up its activities and liquidate, or its investments
may be redeemed or sold;
(ix) The total exposure of the banking
entity to the activity or investment and the risks that disposing
of, or maintaining, the investment or activity may pose to the banking
entity or the financial stability of the United States;
(x) The cost to the banking
entity of divesting or disposing of the activity or investment within
the applicable period;
(xi) Whether the divestiture or conformance of the activity or investment
would involve or result in a material conflict of interest between
the banking entity and unaffiliated clients, customers or counterparties
to which it owes a duty;
(xii) The banking entity’s prior efforts
to divest or conform the activity or investment(s), including, with
respect to an illiquid fund, the extent to which the banking entity
has made efforts to terminate or obtain a waiver of its contractual
obligation to take or retain an equity, partnership, or other ownership
interest in, or provide additional capital to, the illiquid fund;
and
(xiii) Any other
factor that the Board believes appropriate.
(2) Timing of Board review. The Board will seek to act on any request
for an extension under paragraph (a)(3) or (b)(1) of this section
no later than 90 calendar days after the receipt of a complete record
with respect to such request.
(3) Consultation. In the case of a banking entity that is primarily supervised by
another Federal banking agency, the Securities and Exchange Commission,
or the Commodity Futures Trading Commission, the Board will consult
with such agency prior to the approval of a request by the banking
entity for an extension under paragraph (a)(3) or (b)(1) of this section.
(e) Authority
to impose restrictions on activities or investments during any extension
period.
(1) In general. The Board may impose such conditions on any extension approved under
paragraph (a)(3) or (b)(1) of this section as the Board determines
are necessary or appropriate to protect the safety and soundness of
the banking entity or the financial stability of the United States,
address material conflicts of interest or other unsound banking practices,
or otherwise further the purposes of section 13 of the Bank Holding
Company Act (12 U.S.C. 1851) and this subpart.
(2) Consultation. In the case of a banking entity that is primarily supervised by
another Federal banking agency, the Securities and Exchange Commission,
or the Commodity Futures Trading Commission, the Board will consult
with such agency prior to imposing conditions on the approval of a
request by the banking entity for an extension under paragraph (a)(3)
or (b)(1) of this section.
