Proposed Rulemaking to Remove References to Credit Ratings from the FDIC'S International Banking Regulations

This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules

Federal Register

41877

Vol. 81, No. 124

Tuesday, June 28, 2016

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 347

RIN 3064–AE36

Alternatives to References to Credit

Ratings With Respect to Permissible

Activities for Foreign Branches of

Insured State Nonmember Banks and

Pledge of Assets by Insured Domestic

Branches of Foreign Banks

AGENCY: Federal Deposit Insurance

Corporation (‘‘FDIC’’).

ACTION: Notice of Proposed Rulemaking

(‘‘NPR’’).

SUMMARY: The FDIC is seeking public

comment on a proposed rule to amend

its international banking regulations

(‘‘Part 347’’) consistent with section

939A (‘‘section 939A’’) of the Dodd-

Frank Wall Street Reform and Consumer

Protection Act (‘‘Dodd-Frank Act’’) and

the FDIC’s authority under section 5(c)

of the Federal Deposit Insurance Act

(‘‘FDI Act’’). Section 939A directs each

federal agency to review and modify

regulations that reference credit ratings.

The proposed rule would amend the

provisions of subparts A and B of Part

347 that reference credit ratings.

Subpart A, which sets forth the FDIC’s

requirements for insured state

nonmember banks that operate foreign

branches, would be amended to replace

references to credit ratings in the

definition of ‘‘investment grade’’ with a

standard of creditworthiness that has

been adopted in other federal

regulations that conform with section

939A. Subpart B would be amended to

revise the FDIC’s asset pledge

requirement for insured U.S. branches

of foreign banks

ed state

nonmember banks that operate foreign

branches, would be amended to replace

references to credit ratings in the

definition of ‘‘investment grade’’ with a

standard of creditworthiness that has

been adopted in other federal

regulations that conform with section

939A. Subpart B would be amended to

revise the FDIC’s asset pledge

requirement for insured U.S. branches

of foreign banks. The eligibility criteria

for the types of assets that foreign banks

may pledge would be amended by

replacing the references to credit ratings

with the revised definition of

‘‘investment grade.’’ The proposed rule

would apply this investment grade

standard to each type of pledgeable

asset, establish a liquidity requirement

for such assets, and subject them to a

fair value discount. The proposed rule

would also introduce cash as a new

asset type that foreign banks may pledge

under subpart B and create a separate

asset category expressly for debt

securities issued by government

sponsored enterprises.

DATES: Comments must be received by

August 29, 2016.

ADDRESSES: You may submit comments,

identified by RIN 3064–AE36, by any of

the following methods:

• Agency Web site: http://

www.fdic.gov/regulations/laws/federal/.

Follow instructions for submitting

comments on the Agency Web site.

• Email: Comments@fdic.gov. Include

the RIN 3064–AE36 on the subject line

of the message.

• Mail: Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal

Deposit Insurance Corporation, 550 17th

Street NW., Washington, DC 20429.

• Hand Delivery: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street Building

(located on F Street) on business days

between 7:00 a.m. and 5:00 p.m.

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

• Public Inspection: All comments

received must include the agency name

and RIN 3064–AE36 for this rulemaking

very: Comments may be

hand delivered to the guard station at

the rear of the 550 17th Street Building

(located on F Street) on business days

between 7:00 a.m. and 5:00 p.m.

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

• Public Inspection: All comments

received must include the agency name

and RIN 3064–AE36 for this rulemaking.

All comments received will be posted

without change to http://www.fdic.gov/

regulations/laws/federal/, including any

personal information provided. Paper

copies of public comments may be

ordered from the FDIC Public

Information Center, 3501 North Fairfax

Drive, Room E–1002, Arlington, VA

22226 by telephone at 1 (877) 275–3342

or 1 (703) 562–2200.

FOR FURTHER INFORMATION CONTACT: Eric

Reither, Senior Capital Markets

Specialist, Capital Markets Branch,

Division of Risk Management

Supervision, EReither@fdic.gov; Lanu

Duffy, Senior International Advisor,

International Affairs Branch, Division of

Insurance and Research, LDuffy@

fdic.gov; Catherine Topping, Counsel,

CTopping@fdic.gov; Benjamin Klein,

Senior Attorney, BKlein@fdic.gov, Legal

Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

The intent of the proposed rule is to

conform part 347 with section 939A’s

directive to reduce reliance on credit

ratings. By removing references to credit

ratings in part 347 and adopting an

alternative standard of creditworthiness,

the proposed rule would encourage

regular, in-depth analysis of the credit

risks associated with specific types of

securities held by foreign branches of

state nonmember banks under subpart

A, or pledged for the benefit of the FDIC

by the insured U.S. branches of foreign

banks under subpart B. The proposed

rule supports these objectives by

establishing an ‘‘investment grade’’

definition that would be applied in both

subparts A and B

depth analysis of the credit

risks associated with specific types of

securities held by foreign branches of

state nonmember banks under subpart

A, or pledged for the benefit of the FDIC

by the insured U.S. branches of foreign

banks under subpart B. The proposed

rule supports these objectives by

establishing an ‘‘investment grade’’

definition that would be applied in both

subparts A and B.

The financial crisis in 2008

highlighted the importance of

considering the liquidity of a security

when assessing its overall risk. To

address this concern, the proposed

revisions to the asset pledge

requirement in subpart B would include

the application of a liquidity standard to

the securities pledged to the FDIC by the

insured U.S. branches of foreign banks,

and would subject such pledged assets

to a fair value discount. These

amendments would support the

objective of the asset pledge

requirement, which is to ensure orderly

asset liquidation at maximum value in

the event such assets need to be

liquidated to pay the insured deposits of

the U.S. branch of the foreign bank.

II. Background

In the decades prior to the financial

crisis in 2008, third party credit risk

assessments by nationally recognized

statistical ratings organizations

(‘‘NRSROs’’) helped to provide

transparency and efficiency to the

securities markets. Their assessments of

creditworthiness allowed originators

and investors to more accurately and

readily meet their risk tolerances and

investment strategies. Many financial

regulations used these external credit

risk ratings to set limits on the activities

of regulated entities in order to foster

safe and sound investment practices.

However, during the run up to the crisis

many regulated institutions overly

relied on the credit risk assessments of

NRSROs, often neglecting to do a

thorough analysis of their own

ances and

investment strategies. Many financial

regulations used these external credit

risk ratings to set limits on the activities

of regulated entities in order to foster

safe and sound investment practices.

However, during the run up to the crisis

many regulated institutions overly

relied on the credit risk assessments of

NRSROs, often neglecting to do a

thorough analysis of their own. At the

same time, flaws in the NRSROs’

business model (including certain

commercial relationships with the

originators of securities and strong

competition by NRSROs for market

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Federal Register / Vol. 81, No. 124 / Tuesday, June 28, 2016 / Proposed Rules

1 Pub. L. 111–203, section 939A, 124 Stat. 1376,

1887 (July 21, 2010).

2 A state nonmember bank may establish a non-

U.S. branch with the approval of the FDIC (12

U.S.C. 1828(d)(2)). National banks must gain the

approval of the Board of Governors of the Federal

Reserve System (‘‘Federal Reserve’’) to open a non-

U.S. branch. These branches may engage in any

activity that is permitted in the United States, as

well as those that are usual in connection with the

banking business in the foreign country where it is

located. State member banks may establish foreign

branches with the approval of the Federal Reserve.

U.S. banking organizations may also conduct

international banking activities through Edge and

agreement corporations. (12 U.S.C. 611–631) (‘‘Edge

corporations’’); (12 U.S.C. 601–604(a) (‘‘agreement

corporations’’).

3 12 U.S.C. 1828(d)(2).

4 12 U.S.C. 1828(l).

5 The limitations on international investments

and the definition of permissible activities found in

the FDIC’s regulations in part 347 are similar to, but

not exactly, those found in Regulation K of the

Federal Reserve.

6 12 CFR 324.20, et seq.

7 An NRSRO is an entity registered with the U.S

(12 U.S.C. 601–604(a) (‘‘agreement

corporations’’).

3 12 U.S.C. 1828(d)(2).

4 12 U.S.C. 1828(l).

5 The limitations on international investments

and the definition of permissible activities found in

the FDIC’s regulations in part 347 are similar to, but

not exactly, those found in Regulation K of the

Federal Reserve.

6 12 CFR 324.20, et seq.

7 An NRSRO is an entity registered with the U.S.

Securities and Exchange Commission as an NRSRO

under section 15E of the Securities Exchange Act

of 1934. See 15 U.S.C. 78o–7, as implemented by

17 CFR 240.17g–1.

8 Pub. L. 95–369, 92 Stat. 607 (Sept. 17, 1978)

(codified at 12 U.S.C. 3101 et seq.).

9 U.S. branches of foreign banks may be licensed

by the Office of the Comptroller of the Currency

(‘‘OCC’’) or by an individual state. The Federal

Reserve is required to approve any new foreign

bank branch. The Federal Reserve, among other

things, is required to certify that the country from

which the foreign bank is located subjects its banks,

including the applicant, to comprehensive,

consolidated supervision. 12 U.S.C. 3105(d).

10 The FDIC requires that an insured branch of a

foreign bank maintain, on a daily basis, eligible U.S.

dollar-denominated assets in an amount not less

than 106% of the preceding quarter’s average book

value of the branch’s liabilities excluding those due

to other offices or wholly owned subsidiaries of the

foreign bank. 12 CFR 347.210.

11 Although U.S. branches and agencies of foreign

banks have no capital of their own, those that are

federally licensed must deposit cash or eligible

securities at approved insured banks to satisfy the

‘‘capital equivalency requirement’’ specified by the

IBA. The amount of the deposit is required to be

at least 5% of the total liabilities of the branch or

agency office, or the capital that would be required

if it were a freestanding national bank. 12 U.S.C.

3102(g)(2)

own, those that are

federally licensed must deposit cash or eligible

securities at approved insured banks to satisfy the

‘‘capital equivalency requirement’’ specified by the

IBA. The amount of the deposit is required to be

at least 5% of the total liabilities of the branch or

agency office, or the capital that would be required

if it were a freestanding national bank. 12 U.S.C.

3102(g)(2). The underlying purpose of the IBA

provision is to ensure that branches and agencies

of a foreign bank maintain a minimum level of

unencumbered assets in the United States that

would be available in a liquidation of the branch

or agency. State-licensed branches and agencies

also must meet capital equivalency requirements,

which vary from state to state. See, e.g., N.Y.

Banking Law § 202–b.

12 Since the enactment of FBSEA, a foreign bank

seeking to accept retail deposits (initial deposits

under $250,000) in the United States may do so

only by establishing a U.S. subsidiary bank (or

savings association) whose deposits are insured by

the FDIC. Before FBSEA, a small number of foreign

bank branches had obtained FDIC insurance under

the provisions of the IBA and thus were permitted

to accept retail deposits. These branches (insured

branches) are ‘‘grandfathered’’, i.e., they may

continue to receive insured retail deposits pursuant

to section 6(d)(2) of the IBA (12 U.S.C. 3104(d)(2)).

13 12 U.S.C. 1821(f).

14 The Economic Growth and Regulatory

Paperwork Reduction Act of 1996 (‘‘EGRPRA’’)

requires that regulations prescribed by the Federal

Financial Institutions Examination Council, OCC,

FDIC, and Federal Reserve (collectively, the

Agencies) be reviewed by the Agencies to identify

outdated, unnecessary, or unduly burdensome

regulations. The EGRPRA review is currently

ongoing, and will be conducted in four separate

notices, with each notice focusing on certain

categories of regulations. The first notice, published

on June 4, 2014, included a review of part 347,

subpart A

,

FDIC, and Federal Reserve (collectively, the

Agencies) be reviewed by the Agencies to identify

outdated, unnecessary, or unduly burdensome

regulations. The EGRPRA review is currently

ongoing, and will be conducted in four separate

notices, with each notice focusing on certain

categories of regulations. The first notice, published

on June 4, 2014, included a review of part 347,

subpart A. 79 FR 32172 (June 4, 2014). The FDIC

received one comment on part 347, subpart A,

where the commenter requested that the Agencies

increase the capital-based limits on investments in

foreign organizations. The FDIC is considering this

comment as part of its EGRPRA review efforts, and

not as a part of this proposed rulemaking.

share) undermined the accuracy of the

credit ratings. Consequently, many

investors, including banking

organizations, experienced significant

losses on securities with ratings that

implied credit losses would be very

unlikely and minimal. This prompted

Congress to enact section 939A, which

directs each federal agency to review

and modify regulations that reference

credit ratings.

Section 939A 1 requires each federal

agency to review its regulations that

require the use of an assessment of

creditworthiness of a security or money

market instrument and any references to

or requirements in such regulations

regarding credit ratings. Each agency

must modify its regulations identified in

the review by removing references to, or

requirements of reliance on, credit

ratings and substituting appropriate

standards of creditworthiness

gulations that

require the use of an assessment of

creditworthiness of a security or money

market instrument and any references to

or requirements in such regulations

regarding credit ratings. Each agency

must modify its regulations identified in

the review by removing references to, or

requirements of reliance on, credit

ratings and substituting appropriate

standards of creditworthiness.

Subpart A of Part 347—Foreign Banking

and Investment by Insured State

Nonmember Banks

Subpart A of part 347, 12 CFR

347.101, et seq., addresses the

international banking and investment

activities of state nonmember banks,

including the establishment and

operations of foreign branches and

subsidiaries.2 In general, these

regulations implement the FDIC’s

statutory authority under section

18(d)(2) of the FDI Act 3 regarding

branches of insured state nonmember

banks in foreign countries, and section

18(l) of the FDI Act 4 regarding insured

state nonmember bank investments in

foreign entities.

In addition to their general banking

powers, banks with foreign branches are

permitted to conduct a broad range of

investment activities, including

investment services and underwriting of

debt and equity securities.5 Under 12

CFR 347.115(b), a foreign branch of a

bank may invest in, underwrite,

distribute and deal, or trade foreign

government obligations that have an

investment grade rating, up to an

aggregate limit of ten percent of the

bank’s Tier 1 capital, as calculated

under the Basel III capital rules in 12

CFR part 324, subpart C.6 Section

347.102(o) currently defines

‘‘investment grade’’ to mean a security

that is rated in one of the four highest

categories by two or more NRSROs or

one NRSRO if the security is rated by

only one NRSRO.7

Subpart B of Part 347—Foreign Banks

The regulations contained in subpart

B of part 347 primarily implement

provisions of the FDI Act and the

International Banking Act (‘‘IBA’’) 8

concerning insured and noninsured U.S

‘‘investment grade’’ to mean a security

that is rated in one of the four highest

categories by two or more NRSROs or

one NRSRO if the security is rated by

only one NRSRO.7

Subpart B of Part 347—Foreign Banks

The regulations contained in subpart

B of part 347 primarily implement

provisions of the FDI Act and the

International Banking Act (‘‘IBA’’) 8

concerning insured and noninsured U.S.

branches of foreign banks.9 Each foreign

banking organization maintaining an

insured branch must comply with

specific FDIC asset maintenance 10 and

asset pledge requirements under section

5(c) of the FDI Act. These requirements

are separate and apart from other capital

equivalency requirements of the federal

or state licensing authorities.11 The

FDIC no longer insures the deposits

accepted by branches of foreign banks,

except for deposits made in branches of

foreign banks that are insured by

operation of the grandfathering

provisions of the IBA, as amended by

the Foreign Bank Supervision

Enhancement Act of 1991 (‘‘FBSEA’’).12

The universe of these grandfathered

branches is very limited. There are

currently only ten insured U.S. branches

of foreign banks in operation (four

federal branches and six state branches).

A foreign bank that has an insured

branch must pledge assets for the

benefit of the FDIC to protect the DIF in

the event the FDIC is obligated to pay

the insured deposits of an insured

branch under section 11(f) of the FDI

Act.13 Section 347.209(d) provides a list

of the types of assets that a foreign bank

may pledge for the benefit of the FDIC.

In describing certain asset types, 12 CFR

347.209(d) references credit ratings

issued by a nationally recognized rating

service in connection with a

determination of the credit quality of

the assets that a foreign bank may

pledge.

The proposed amendments and

revisions are discussed below, by

subpart

list

of the types of assets that a foreign bank

may pledge for the benefit of the FDIC.

In describing certain asset types, 12 CFR

347.209(d) references credit ratings

issued by a nationally recognized rating

service in connection with a

determination of the credit quality of

the assets that a foreign bank may

pledge.

The proposed amendments and

revisions are discussed below, by

subpart. The FDIC invites public

comment on all aspects of the proposal,

including the potential costs and

benefits of the proposed rule.14

III. Description of the Proposed

Revisions to Part 347—International

Banking Subpart A—Foreign Banking

and Investment by Insured State

Nonmember Banks

A. Section 347.102. Definitions

The FDIC’s rules in 12 CFR 347.102(o)

define the term ‘‘investment grade’’ as a

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15 70 FR 17550 (April 6, 2005).

16 See 12 CFR 211.4(a)(2)(C)–(D) (providing that a

foreign branch of a member bank may underwrite,

distribute, buy, sell, and hold obligations of (1) the

national government or political subdivision of any

country, where such obligations are rated

investment grade, and (2) an agency or

instrumentality of any national government where

such obligations are rated investment grade and are

supported by the taxing authority, guarantee or full

faith and credit of that government).

17 66 FR 54346 (Oct. 26, 2001).

18 See 78 FR 62018 (Oct. 11, 2013) (Federal

Reserve and OCC) (final rule); 78 FR 55340 (Sept.

10, 2013)(interim final rule)(FDIC); 79 FR 20754

(April 14, 2014)(final rule)(FDIC). In finalizing the

Basel III capital rules, Federal Reserve and OCC

issued a joint final rule, and the FDIC separately

issued a substantively identical interim final rule,

which was later made final without substantive

changes

62018 (Oct. 11, 2013) (Federal

Reserve and OCC) (final rule); 78 FR 55340 (Sept.

10, 2013)(interim final rule)(FDIC); 79 FR 20754

(April 14, 2014)(final rule)(FDIC). In finalizing the

Basel III capital rules, Federal Reserve and OCC

issued a joint final rule, and the FDIC separately

issued a substantively identical interim final rule,

which was later made final without substantive

changes.

19 See Permissible Investments for Federal and

State Savings Associations: Corporate Debt

Securities, 77 FR 43151 (July 24, 2012).

20 See Alternatives to the Use of External Credit

Ratings in the Regulations of the OCC, 77 FR 35253

(June 13, 2012).

21 See Alternatives to the Use of External Credit

Ratings in the Regulations of the OCC, 77 FR 35253

(June 13, 2012).

security that is rated in one of the four

highest categories by two or more

NRSROs; or one NRSRO if the security

is rated by only one NRSRO. The

proposed rule would amend the

definition of ‘‘investment grade’’ by

deleting the references to credit ratings

and NRSROs. The new definition in the

proposed rule would define

‘‘investment grade’’ as a security whose

issuer has adequate capacity to meet all

financial commitments under the

security for the projected life of the

exposure. Such an entity has adequate

capacity to meet financial commitments

if the risk of its default is low and the

full and timely repayment of principal

and interest is expected.

B. Section 347.115. Permissible

Activities for a Foreign Branch of an

Insured State Nonmember Bank

Section 347.115 defines the particular

activities that a foreign branch of an

insured state nonmember bank may

conduct. These activities are subject to

safety and soundness limitations and

are limited by the extent to which the

activities are consistent with banking

practices in the foreign country where

the bank maintains a branch

for a Foreign Branch of an

Insured State Nonmember Bank

Section 347.115 defines the particular

activities that a foreign branch of an

insured state nonmember bank may

conduct. These activities are subject to

safety and soundness limitations and

are limited by the extent to which the

activities are consistent with banking

practices in the foreign country where

the bank maintains a branch. The

proposed rule would retain the language

of 12 CFR 347.115(b), but § 347.115(b)

would be affected by the proposed rule

insofar as § 347.115(b) uses the

proposed definition of the term

‘‘investment grade’’ in 12 CFR

347.102(o). Section 347.115(b) allows

the foreign branch of an insured state

nonmember bank to engage in certain

types of transactions with respect to the

obligations of foreign countries, so long

as aggregate investments, securities held

in connection with distribution and

dealing, and underwriting commitments

do not exceed ten percent of the bank’s

Tier 1 capital. More specifically, a

foreign branch of a bank may

underwrite, distribute and deal, invest

in, or trade obligations of the national

government of the country in which the

branch is located, as well as obligations

of political subdivisions of such

national government, and certain

agencies or instrumentalities of such

national government. Furthermore,

foreign branches may, subject to the law

of the issuing foreign country,

underwrite, distribute and deal, invest

in, or trade investment grade obligations

of other foreign countries, political

subdivisions, and certain agencies and

instrumentalities. As provided for in the

existing rule, if the obligation is an

equity interest, it must be held through

a subsidiary of the foreign branch and

the insured state nonmember bank must

meet its minimum capital requirements

rwrite, distribute and deal, invest

in, or trade investment grade obligations

of other foreign countries, political

subdivisions, and certain agencies and

instrumentalities. As provided for in the

existing rule, if the obligation is an

equity interest, it must be held through

a subsidiary of the foreign branch and

the insured state nonmember bank must

meet its minimum capital requirements.

The definition of ‘‘investment grade’’

for obligations of governments other

than the host government was adopted

in 2005 when the FDIC amended its

international banking regulations, part

347.15 The definition was derived from

the limitations and definitions of

Regulation K of the Federal Reserve,

which governs the international

operations of foreign branches of

member banks. Under the Federal

Reserve regulations, a foreign branch of

a member bank may underwrite,

distribute, buy, sell, and hold certain

government debt obligations only if

such obligations are rated investment

grade.16 The Federal Reserve adopted

the definition of investment grade in its

revisions to Regulation K in 2001. The

investment grade rating requirement for

obligations of governments other than

the host government was considered

appropriate because it limited cross-

border transfer risk.17

The revisions in the proposed rule to

the regulatory definition of ‘‘investment

grade’’ will remove references to credit

ratings consistent with section 939A but

will not affect the general consistency

between the Federal Reserve’s

Regulation K and the FDIC’s part 347

with regard to permissible activities. For

purposes of the proposed rule, an issuer

would satisfy this requirement or new

standard if the state nonmember bank

appropriately determines that the

obligor presents low default risk and is

expected to make timely payments of

principal and interest

affect the general consistency

between the Federal Reserve’s

Regulation K and the FDIC’s part 347

with regard to permissible activities. For

purposes of the proposed rule, an issuer

would satisfy this requirement or new

standard if the state nonmember bank

appropriately determines that the

obligor presents low default risk and is

expected to make timely payments of

principal and interest. The definition

addresses the safety and soundness

concerns of this activity of foreign

branches—namely the exposure of the

foreign branch and the DIF to the entity

issuing the security—without reference

to a credit rating or an NRSRO. The

FDIC believes that the proposed

standard provides a flexible,

straightforward measure of

creditworthiness that is consistent with

existing policy.

C. Consistency With Other Federal

Regulations

The proposed definition of

investment grade in 12 CFR 347.102(o)

is consistent with the definition of

investment grade that was adopted by

the FDIC, OCC, and Federal Reserve in

the promulgation of regulatory capital

rules that implement the Basel III

framework (‘‘Basel III capital rules’’).18

This definition is also consistent with

the non-ratings based, creditworthiness

standard applicable to permissible

corporate debt securities investments of

savings associations adopted by the

FDIC in 12 CFR part 362 19 and the

credit quality standards regarding

permissible investments for national

banks adopted by the OCC under 12

CFR parts 1, 16, and 160.20 In addition,

it is consistent with the final rules

adopted by the OCC that remove

references to credit ratings from its

regulations pertaining to foreign bank

capital equivalency deposits for federal

branches under 12 CFR 28.15. The

OCC’s regulations previously allowed

for the use of certificates of deposit

(‘‘CDs’’) or bankers’ acceptances as part

of the deposit if the issuer of the

instrument was rated ‘‘investment

grade’’ by an internationally recognized

rating organization

s to credit ratings from its

regulations pertaining to foreign bank

capital equivalency deposits for federal

branches under 12 CFR 28.15. The

OCC’s regulations previously allowed

for the use of certificates of deposit

(‘‘CDs’’) or bankers’ acceptances as part

of the deposit if the issuer of the

instrument was rated ‘‘investment

grade’’ by an internationally recognized

rating organization. Under the revised

regulation, the issuer of the certificate of

deposit or banker’s acceptance must

have ‘‘an adequate capacity to meet

financial commitments under the

security for the projected life of the asset

or exposure.’’ 21

D. Request for Comment

This NPR seeks comment on whether:

• This standard of creditworthiness is

sufficient to address safety and

soundness concerns of this activity of

foreign branches of state nonmember

banks regarding exposure to obligations

of foreign countries, and

• The proposed revisions would

address the FDIC’s objective of applying

a standard of creditworthiness, other

than the exclusive use of credit ratings,

that is transparent, well defined,

differentiates credit risk, and provides

for the timely measurement of changes

to the credit profile of the investment.

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22 12 U.S.C. 3104(d).

23 The pledged assets must be placed at a

depository approved by the FDIC. Generally, each

insured branch of the foreign bank must meet the

asset pledge requirement separately; however, a

foreign bank with more than one insured branch in

any state may treat all of its insured branches in the

state as one entity for purposes of complying with

this requirement. See 12 CFR 347.209(b)(5).

24 12 CFR 347.209(b). Generally, an insured

branch must maintain a level of assets that exceeds

106 percent of its liabilities. 12 CFR 347.210

e

asset pledge requirement separately; however, a

foreign bank with more than one insured branch in

any state may treat all of its insured branches in the

state as one entity for purposes of complying with

this requirement. See 12 CFR 347.209(b)(5).

24 12 CFR 347.209(b). Generally, an insured

branch must maintain a level of assets that exceeds

106 percent of its liabilities. 12 CFR 347.210.

25 P–1 and P–2 are Moody’s top two rating bands

for short-term obligations.

26 See 12 CFR 347.209(d)(1), (2), (5), and (6).

27 70 FR 17550 (April 6, 2005).

28 See 43 FR 60279,60281 (Dec. 27, 1978).

29 See 49 FR 49614, 49615 (Dec. 21, 1984).

30 The investment grade standard is consistent

with that adopted by the FDIC, OCC, and Federal

Reserve in their issuance of Basel III capital rules;

as adopted by the OCC under 12 CFR parts 1, 16,

28, 160; and as adopted by the FDIC under part 362

for corporate bonds held by savings associations.

31 The definition of a highly liquid asset is

consistent with the definition established in 12 CFR

part 252 subpart O Enhanced Prudential Standards

for Foreign Banking Organizations (The Federal

Reserve’s Regulation YY).

IV. Description of the Proposed

Revisions to Part 347—International

Banking Subpart B—Foreign Banks

A. Section 347.209. Pledge of Assets

The asset pledge requirement in 12

CFR 347.209 applies to insured U.S.

branches of foreign banks. There are ten

such branches that exist by authority of

the statutory grandfathering established

by FBSEA.22 The foreign banks that

have branches covered by this

grandfathering must pledge assets for

the benefit of the FDIC.23 The amount

that each foreign bank must pledge is

determined by the supervisory risk

posed by each U.S. branch and the U.S.

branch’s asset maintenance level.24 The

amount of assets that a U.S

s that exist by authority of

the statutory grandfathering established

by FBSEA.22 The foreign banks that

have branches covered by this

grandfathering must pledge assets for

the benefit of the FDIC.23 The amount

that each foreign bank must pledge is

determined by the supervisory risk

posed by each U.S. branch and the U.S.

branch’s asset maintenance level.24 The

amount of assets that a U.S. branch of

a foreign bank must pledge varies from

two percent to eight percent of the

branch’s liabilities and is determined by

reference to the risk-based assessment

schedule provided in 12 CFR

347.209(b)(1).

FDIC rules in 12 CFR 347.209(d)

describe the types of assets that may be

pledged, and require that certain of

these asset types have credit ratings

within the top rating bands of an

NRSRO. Under the existing rule,

commercial paper may be eligible for

pledging purposes if it is rated P–1 or

P–2, or their equivalent, by an

NRSRO.25 Municipal general obligations

are eligible under the existing rule if

they have a credit rating within the top

two rating bands of a NRSRO. Notes

issued by bank and thrift holding

companies, banks, or savings

associations must also be rated within

the top two rating bands of an NRSRO

in order to be eligible under the asset

pledge requirement of the existing rule.

The other types of eligible assets, which

must be U.S. dollar denominated, are:

bank CDs with maturities of not greater

than one year; Treasury bills, interest

bearing bonds, notes, debentures, or

other direct obligations of or fully

guaranteed by the United States or any

agency thereof; banker’s acceptances

with a maturity not greater than 180

days; and obligations of certain

international development banks.26

The FDIC’s asset pledge requirement

has been in place since 1978

with maturities of not greater

than one year; Treasury bills, interest

bearing bonds, notes, debentures, or

other direct obligations of or fully

guaranteed by the United States or any

agency thereof; banker’s acceptances

with a maturity not greater than 180

days; and obligations of certain

international development banks.26

The FDIC’s asset pledge requirement

has been in place since 1978. The FDIC

adopted the current risk-based, asset

pledge requirements in part 347 in

2005.27 The asset pledge requirement

was established to provide the DIF

protection against losses on insured

deposit claims by depositors of U.S.

branches of foreign banks. Since the

adoption of its initial foreign banking

regulation implementing the IBA and

FDI Act’s requirements, the FDIC has

focused on the quality and marketability

of assets pledged, as well as the

assurance of payment within the United

States, in determining whether the

assets are acceptable to be pledged.28

The FDIC has made clear that the

essence of the asset pledge requirement

is that pledged assets be as free from

risk and as liquid as possible in order

to provide protection to the DIF.29

Under the FDIC’s deposit insurance

authority in the FDI Act, the FDIC may

impose requirements determined to be

necessary to mitigate the risks

associated with providing deposit

insurance to an insured U.S. branch of

a foreign bank. Consistent with section

939A and the FDIC’s authority in the

FDI Act, the proposed rule would revise

the categories of assets in 12 CFR

347.209(d) that may be used for

pledging. In so doing, the proposed rule

would remove the references to credit

ratings issued by NRSROs and

substitute an investment grade standard

to ensure the assets have appropriate

credit quality. In addition, the proposed

rule would permit only highly liquid

assets to be pledged, and would submit

these instruments to fair value haircuts

ets in 12 CFR

347.209(d) that may be used for

pledging. In so doing, the proposed rule

would remove the references to credit

ratings issued by NRSROs and

substitute an investment grade standard

to ensure the assets have appropriate

credit quality. In addition, the proposed

rule would permit only highly liquid

assets to be pledged, and would submit

these instruments to fair value haircuts.

The three instances in subpart B that

must be revised contain references not

to investment grade ratings, but to the

highest subset of rating bands within the

investment grade categories established

by the ratings agencies. In other words,

subpart B embodies a standard for

protection of the DIF from the pledged

assets that goes beyond that of simply

being investment grade. The FDIC

believes that adopting the investment

grade and highly liquid criteria, as well

as the fair value haircut, would ensure

that pledged assets continue to provide

a high degree of protection to the DIF.

The proposed credit and liquidity

standards are discussed below.

Credit and Liquidity Standards

Under the proposed rule, instruments

falling within the relevant asset

categories would be eligible for pledging

if they are ‘‘investment grade.’’ The

proposed rule would add the definition

of ‘‘investment grade’’ to the definitions

section of subpart B, 12 CFR 347.202.

Consistent with the proposed

amendment to subpart A of part 347, the

proposed rule would define

‘‘investment grade’’ as a security issued

by an entity that has adequate capacity

to meet financial commitments under

the security for the projected life of the

security or exposure. To meet this

standard for asset pledge purposes, the

insured branch or foreign bank would

need to determine whether the risk of

default by the obligor is low and full

and timely repayment of principal and

interest is expected

’’ as a security issued

by an entity that has adequate capacity

to meet financial commitments under

the security for the projected life of the

security or exposure. To meet this

standard for asset pledge purposes, the

insured branch or foreign bank would

need to determine whether the risk of

default by the obligor is low and full

and timely repayment of principal and

interest is expected. Using this

‘‘investment grade’’ standard as defined

would be consistent with existing

regulations and policies.30

Also, under the proposed rule,

instruments falling within the relevant

asset categories would be eligible for

pledging only if they are ‘‘highly

liquid.’’ The proposed rule would

define ‘‘highly liquid’’ securities as

those that:

• Exhibit low credit and market risk;

• are traded in an active secondary

two-way market that has committed

market makers and independent bona

fide offers to buy and sell so that a price

reasonably related to the last sales price

or current bona fide competitive bid and

offer quotations can be determined

within one day and settled at that price

within a reasonable time period

conforming with trade custom; and

• are a type of asset that investors

historically have purchased in periods

of financial market distress during

which market liquidity has been

impaired.31

A foreign bank would be required to

demonstrate that the instrument meets

the highly liquid standard.

Fair Value Discount

In addition, the FDIC is proposing

that the fair values of the investment

grade and highly liquid pledged assets

be discounted to reflect the credit risk

and market price volatility of the asset.

The discounted fair value of the assets

would determine the pledged dollar

amount. The FDIC would expect that

the valuations of the pledged assets be

updated at least quarterly

ir Value Discount

In addition, the FDIC is proposing

that the fair values of the investment

grade and highly liquid pledged assets

be discounted to reflect the credit risk

and market price volatility of the asset.

The discounted fair value of the assets

would determine the pledged dollar

amount. The FDIC would expect that

the valuations of the pledged assets be

updated at least quarterly. Quarterly

valuation updates are consistent with

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32 12 CFR 347.209(e) provides that a foreign bank

shall not pledge any assets unless a pledge

agreement in a form and substance satisfactory to

the FDIC has been executed by the foreign bank and

the depository.

33 FDIC-supervised institutions may use the risk-

mitigating effects of financial collateral, subject to

a market price volatility haircut, in determining the

exposure amount of such transactions for risk-

weighting purposes. See 79 FR 20760 (April 14,

2014).

34 In 12 CFR 324.37(c)(3), the FDIC established

requirements for applying standardized haircuts for

market price volatility which are scheduled on

Table 1 to § 324.37—Standard Supervisory Market

Price Volatility Haircuts (Table 1). A portion of

Table 1 concerning haircuts for non-sovereign

issuers serves as the basis for the reference table

included in the proposed rule.

35 See 12 CFR 324.32 for general risk weights.

36 Assets with zero percent risk weight include

cash; Treasury bills, interest bearing bonds, notes,

debentures, or other direct obligations of or

obligations fully guaranteed as to principal and

interest by the United States or any agency thereof;

and obligations of the African Development Bank,

Asian Development Bank, Inter-American

Development Bank, and the International Bank for

Reconstruction and Development

ent risk weight include

cash; Treasury bills, interest bearing bonds, notes,

debentures, or other direct obligations of or

obligations fully guaranteed as to principal and

interest by the United States or any agency thereof;

and obligations of the African Development Bank,

Asian Development Bank, Inter-American

Development Bank, and the International Bank for

Reconstruction and Development.

37 12 CFR part 252 subpart O.

38 12 CFR 324.32(a) and (c).

39 The FDIC also reserves the right to require the

substitution of pledged assets with other assets

deemed more acceptable to the FDIC, as currently

provided in 12 CFR 347.209(d).

40 A direct debt obligation issued by a U.S.

government-sponsored enterprise or an asset-

backed security guaranteed by a U.S. GSE will

categorically satisfy the investment grade standard

only if the GSE is operating with capital support or

another form of direct financial assistance from the

U.S. government. All GSEs will categorically satisfy

the liquidity standard.

the quarterly valuations currently

required in the pledge agreement

between each of the foreign banks and

the FDIC.32 The proposed method for

discounting fair values is consistent

with the haircuts applied to financial

collateral pledged to certain transactions

under the Basel III capital rules as

adopted by the FDIC.33

Further, the FDIC proposes to include

a standardized haircut table, consistent

with the Basel III capital rules, to

promote simplicity and ease of

reference.34 Under this approach, the

applicable haircut would be determined

by reference to the asset’s risk-weight

and remaining maturity.35 For example,

a foreign insured branch may elect to

pledge investment grade commercial

paper with a fair value of $100,000 and

remaining maturity of less than one

year. These instruments are risk-

weighted at 100 percent under the Basel

III capital rules

nce.34 Under this approach, the

applicable haircut would be determined

by reference to the asset’s risk-weight

and remaining maturity.35 For example,

a foreign insured branch may elect to

pledge investment grade commercial

paper with a fair value of $100,000 and

remaining maturity of less than one

year. These instruments are risk-

weighted at 100 percent under the Basel

III capital rules. Under the proposed

reference table, the corresponding

haircut would be 4 percent; therefore,

the amount of the $100,000 asset that

would count towards the satisfaction of

the asset pledge requirement would be

$100,000 multiplied by 0.96 (1 ¥ 0.04),

or $96,000. Consistent with the haircut

requirements in the risk-based capital

rules, pledged assets that receive a zero

percent risk weight will generally not

require a fair value haircut.36

Assets That May Be Pledged

The proposed rule also amends 12

CFR 347.209(d) by adding cash as a new

asset type that foreign banks may pledge

under subpart B and creating a separate

asset category expressly for debt

securities issued by government

sponsored enterprises (‘‘GSEs’’). Cash

and securities issued by GSEs are

included in the definition of highly

liquid assets in the Federal Reserve’s

regulation prescribing enhanced

prudential standards for foreign banking

organizations.37 With respect to debt

securities issued by GSEs, the FDIC

understands that some insured branches

of foreign banks currently pledge such

instruments under 12 CFR 347.209(d)(2)

because they qualify as obligations of a

U.S. government ‘‘instrumentality.’’ The

Basel III capital rules recognize that the

risk characteristics of GSE securities

differ from those guaranteed by the U.S.

government. The capital rules bear this

out by assigning the former a twenty

percent risk weight and the latter a zero

percent risk weight.38 Therefore, the

proposed rule would eliminate the

reference to obligations of U.S

f a

U.S. government ‘‘instrumentality.’’ The

Basel III capital rules recognize that the

risk characteristics of GSE securities

differ from those guaranteed by the U.S.

government. The capital rules bear this

out by assigning the former a twenty

percent risk weight and the latter a zero

percent risk weight.38 Therefore, the

proposed rule would eliminate the

reference to obligations of U.S.

‘‘instrumentalities’’ in 12 CFR

347.209(d)(2), and would create a

separate category expressly for GSE

securities. Creating a separate category

for GSE securities is necessary because

such securities would be subject to a

haircut under the proposed rule to

account for their twenty percent risk

weight under the Basel III capital rules,

whereas securities guaranteed by the

U.S. government would not be subject to

a haircut given their zero percent risk

weight.

Under the proposed rule, a foreign

bank would be permitted to pledge the

assets listed below, provided that such

assets are denominated in United States

dollars, and satisfy both the investment

grade and highly liquid standards.

Further, such assets would be

discounted at the rates set forth in the

haircut table.

The proposed pledgeable asset

categories include:

(1) Cash;

(2) Treasury bills, interest bearing

bonds, notes, debentures, or other direct

obligations of or obligations fully

guaranteed as to principal and interest

by the United States or any agency

thereof;

(3) Obligations of U.S. GSEs;

standards.

Further, such assets would be

discounted at the rates set forth in the

haircut table.

The proposed pledgeable asset

categories include:

(1) Cash;

(2) Treasury bills, interest bearing

bonds, notes, debentures, or other direct

obligations of or obligations fully

guaranteed as to principal and interest

by the United States or any agency

thereof;

(3) Obligations of U.S. GSEs;

(4) Negotiable CDs that are payable in

the United States and that are issued by

any state bank, national bank, state or

federal savings association, or branch or

agency of a foreign bank which has

executed a valid waiver of offset

agreement or similar debt instruments

that are payable in the United States;

provided, that the maturity of any

certificate or issuance is not greater than

one year; and provided further, that the

issuing branch or agency of a foreign

bank is not an affiliate of the pledging

bank or from the same country as the

pledging bank’s domicile;

(5) Obligations of the African

Development Bank, Asian Development

Bank, Inter-American Development

Bank, and the International Bank for

Reconstruction and Development;

(6) Commercial paper;

(7) Notes issued by bank and savings

and loan holding companies, banks, or

savings associations organized under

the laws of the United States or any

state thereof or notes issued by branches

or agencies of foreign banks, provided

that the notes are payable in the United

States, and provided further, that the

issuing branch or agency of a foreign

bank is not an affiliate of the pledging

bank or from the same country as the

pledging bank’s domicile;

s, banks, or

savings associations organized under

the laws of the United States or any

state thereof or notes issued by branches

or agencies of foreign banks, provided

that the notes are payable in the United

States, and provided further, that the

issuing branch or agency of a foreign

bank is not an affiliate of the pledging

bank or from the same country as the

pledging bank’s domicile;

(8) Banker’s acceptances that are

payable in the United States and that are

issued by any state bank, national bank,

state or federal savings association, or

branch or agency of a foreign bank;

provided, that the maturity of any

acceptance is not greater than 180 days;

and provided further, that the branch or

agency issuing the acceptance is not an

affiliate of the pledging bank or from the

same country as the pledging bank’s

domicile;

(9) General obligations of any state of

the United States, or any county or

municipality of any state of the United

States, or any agency, instrumentality,

or political subdivision of the foregoing

or any obligation guaranteed by a state

of the United States or any county or

municipality of any state of the United

States; and

(10) Any other asset determined by

the FDIC to be acceptable.39

Cash, treasury bills or other direct

obligations of or fully guaranteed by the

United States or any agency thereof, and

the obligations of the stated

international development banks will

categorically satisfy the investment

grade and highly liquid standards

discussed above.40 Therefore, foreign

banks that pledge these assets will not

be required to perform individual

analyses to verify that the assets meet

the investment grade and highly liquid

standards. Pledgeable assets that receive

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iscussed above.40 Therefore, foreign

banks that pledge these assets will not

be required to perform individual

analyses to verify that the assets meet

the investment grade and highly liquid

standards. Pledgeable assets that receive

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41 12 U.S.C. 3101(1). The proposed definition is

also consistent with the definition of agency in the

Federal Reserve’s and OCC’s international banking

regulations. See 12 CFR 211.21(b) (Federal Reserve)

and 12 CFR 28.11(g) (OCC).

42 12 CFR 347.202(b).

43 70 FR 17550 (April 6, 2005).

a zero percent risk weight will generally

not require a fair value haircut.

Foreign banks pledging assets that do

not categorically satisfy the investment

grade and highly liquid standards, will

need to demonstrate that the assets

being pledged meet the investment

grade and highly liquid standards.

Foreign banks can find the appropriate

haircut by identifying the risk weight

associated with the asset in the capital

rules. Although requiring foreign banks

to verify that pledged assets satisfy these

standards may require some adjustment

of existing processes, the FDIC believes

that it will impose minimal additional

burden. The FDIC believes that

conducting credit analysis on these

instruments will ensure they satisfy the

investment grade standard necessary for

pledging. In addition, market data (e.g.,

price quotes, bid/ask spreads, trade

activity levels, or other price discovery

information) are accessible through an

insured branch’s normal data source

channels used in pre-purchase and

ongoing investment due diligence.

These resources and others should be

available to confirm whether the assets

pledged meet the highly liquid asset

standard

or

pledging. In addition, market data (e.g.,

price quotes, bid/ask spreads, trade

activity levels, or other price discovery

information) are accessible through an

insured branch’s normal data source

channels used in pre-purchase and

ongoing investment due diligence.

These resources and others should be

available to confirm whether the assets

pledged meet the highly liquid asset

standard.

For purposes of carrying out the

section 939A review related to subpart

B, the FDIC surveyed the insured U.S.

branches of foreign banks to examine

the composition of assets pledged. At

the time of the review, treasury bills,

bank notes, and CDs were the primary

instruments pledged. Consequently, the

haircut provision could impact foreign

banks that pledge bank notes or CDs

because they may need to pledge

additional collateral under the proposed

rule compared with the pledge

requirements under the existing rule.

The FDIC views the proposed

amendments to the pledgeable asset

criteria as resulting in minimal impact

on the insured U.S. branches of foreign

banks.

Other Technical Revisions

The proposed rule would also add a

definition of ‘‘agency’’ to the definitions

section of subpart B, 12 CFR 347.202,

which already contains a definition of

‘‘branch’’ under the existing regulation,

in order to clarify that negotiable CDs,

banker’s acceptances, and notes issued

by a branch or agency of a foreign bank

located only in the United States would

be eligible for pledging. The definition

is not currently in existing subpart B.

The term agency is used in 12 CFR

347.209(d)(1), (d)(4), and (d)(7) to

describe the types of bank CDs, banker’s

acceptances, and notes issued by a

branch or agency of a foreign bank that

are eligible for pledging by a U.S.

branch of a foreign bank

ncy of a foreign bank

located only in the United States would

be eligible for pledging. The definition

is not currently in existing subpart B.

The term agency is used in 12 CFR

347.209(d)(1), (d)(4), and (d)(7) to

describe the types of bank CDs, banker’s

acceptances, and notes issued by a

branch or agency of a foreign bank that

are eligible for pledging by a U.S.

branch of a foreign bank. The proposed

rule would use the definition of

‘‘agency’’ found in section 1(b)(1) of the

IBA, which defines ‘‘agency’’ to mean

‘‘any office or any place of business of

a foreign bank located in any State of

the United States at which credit

balances are maintained incidental to or

arising out of the exercise of banking

powers, checks are paid, or money is

lent but at which deposits may not be

accepted from citizens or residents of

the United States’’.41 This definition

makes clear that only negotiable CDs,

banker’s acceptances, or notes issued by

an agency of a foreign bank located in

the United States are eligible pledged

assets. The FDIC does not allow for the

pledging of these instruments unless

they are issued by an agency of a foreign

bank located in the United States. It is

also consistent with the definition of

‘‘branch’’ in subpart B, which means

any office or place of business of a

foreign bank located in any state of the

United States.42 The proposed rule

would also amend 12 CFR 347.209(d)(7)

to remove the reference to ‘‘United

States’’ in the description of branches or

agencies of foreign banks because those

terms as defined in existing subpart B,

and as proposed, necessarily mean an

office or place of business of a foreign

bank located in the United States.

Furthermore, the proposed rule would

amend 12 CFR 347.209(d)(7) to clarify

that, consistent with requirements

associated with pledging CDs and

banker’s acceptances in (d)(1) and (d)(4),

a pledging U.S

ncies of foreign banks because those

terms as defined in existing subpart B,

and as proposed, necessarily mean an

office or place of business of a foreign

bank located in the United States.

Furthermore, the proposed rule would

amend 12 CFR 347.209(d)(7) to clarify

that, consistent with requirements

associated with pledging CDs and

banker’s acceptances in (d)(1) and (d)(4),

a pledging U.S. branch of a foreign bank

may not pledge a note issued by a

branch or agency of a foreign bank that

has the same country of domicile as the

pledging bank. This requirement avoids

potential same-country risks

represented by the branches and

agencies as direct extensions of foreign

banks.

The FDIC proposes to amend the list

of eligible collateral to eliminate the

obsolete exception for non-negotiable

CDs that were ‘‘pledged as collateral to

the FDIC on March 18, 2005, until

maturity according to the original terms

of the existing deposit agreement.’’ In

2005, when the FDIC amended its

international banking regulations in part

347, it adopted 12 CFR 347.209(d)(1)(i)

requiring only negotiable CDs.43 The

FDIC surveyed the composition of assets

pledged by insured branches in 2005

before finalizing the regulations and

found that only one branch had pledged

a non-negotiable CD. In addition, the

maturity date for any non-negotiable CD

that was grandfathered under this

provision has passed. Consequently, the

provision by its terms is obsolete and no

longer serves a useful purpose.

B. Request for Comment

The FDIC seeks comment on all

aspects of this proposal, and specifically

whether:

• The proposed investment grade and

liquidity standards and haircut

requirements for pledged assets under

subpart B of part 347 are reasonable

provisions.

• The removal of references to

external credit ratings required under

section 939A should be implemented as

proposed or whether there are

alternatives that would achieve a

creditworthiness standard that is

sufficiently risk sensitive

• The proposed investment grade and

liquidity standards and haircut

requirements for pledged assets under

subpart B of part 347 are reasonable

provisions.

• The removal of references to

external credit ratings required under

section 939A should be implemented as

proposed or whether there are

alternatives that would achieve a

creditworthiness standard that is

sufficiently risk sensitive.

• Pledged assets should be subject to

the highly liquid standard as proposed

and whether the criteria for highly

liquid assets provide reasonable

standards of assurance, or whether other

criteria should be considered in

addition to, or in lieu of, the criteria

proposed.

• Pledged assets be discounted as

proposed, or whether the full fair values

of assets pledged under the existing

risk-based assessment schedule already

provide sufficient protection to the DIF.

• Pledged assets should be

discounted using the table of risk

weights and remaining maturities as

proposed, or whether pledged assets

should be discounted by each foreign

bank based on an internal assessment of

any credit risk and market price

volatility for each asset pledged.

• Another method of discounting

would advance the objective of ensuring

that pledged assets be as free from risk

and as liquid as possible.

• The types of assets that may be

pledged should be expanded to include

cash and obligations of U.S. GSEs as

proposed and whether these asset types

constitute appropriate additions to the

assets that currently may be pledged.

• There are any other asset types that

should be considered for inclusion as a

pledgeable asset.

• The proposed provisions would

have a material economic impact on

foreign banking organizations subject to

part 347.

• Imposing the highly liquid standard

and haircut requirement would cause

undue regulatory burden.

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eable asset.

• The proposed provisions would

have a material economic impact on

foreign banking organizations subject to

part 347.

• Imposing the highly liquid standard

and haircut requirement would cause

undue regulatory burden.

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41883

Federal Register / Vol. 81, No. 124 / Tuesday, June 28, 2016 / Proposed Rules

44 44 U.S.C. 3501 et seq.

V. Expected Effects

A. Subpart A

The applicability of the proposed

revision to subpart A of part 347 would

be limited to state nonmember banks

that operate branches in foreign

countries. As of March 31, 2016, there

were nine state nonmember banks

operating 16 foreign branches in seven

countries. The majority of the state

nonmember banks with foreign

branches consist of larger multi-billion

dollar financial institutions with

commensurate systems and capabilities,

while two of the foreign branches

operated by the smaller state

nonmember banks are limited-service

facilities. The revision to subpart A

would therefore apply to a small

number of generally larger nonmember

banks with more sophisticated

operations, and the effect of the revision

to the definition of ‘‘investment grade’’

would impose minimal additional

burden. Note that prior to the enactment

of the Dodd-Frank Act and

implementation of section 939A, state

nonmember banks were expected to

have a credit risk management

framework for securities and

investments that included robust pre-

purchase analysis and ongoing

monitoring by the banking organization.

The proposed revision in subpart A will

shift the focus away from reliance on

credit ratings and onto this in-depth

analysis and monitoring

ank Act and

implementation of section 939A, state

nonmember banks were expected to

have a credit risk management

framework for securities and

investments that included robust pre-

purchase analysis and ongoing

monitoring by the banking organization.

The proposed revision in subpart A will

shift the focus away from reliance on

credit ratings and onto this in-depth

analysis and monitoring. The revision to

the definition of ‘‘investment grade’’ in

part 347 would encourage regular, in-

depth analysis by the banking

organization of credit risks of securities,

which is a prudent practice already

expected of banks. This would likely

result in little or no additional costs

associated with credit risk analysis over

those currently expended. However,

potential credit losses will likely

decline as covered institutions are more

diligent in assessing their credit risk

exposure, which would provide a

benefit.

B. Subpart B

The revisions to subpart B of part 347

would apply only to the insured U.S.

branches of foreign banks. As of March

31, 2016, there were ten insured

branches of foreign banks. The FDIC

would expect the revisions to subpart B

to have the effect of ensuring that

collateral pledged by these institutions

is very low risk and as liquid as possible

in order to provide protection to the

DIF. The FDIC expects that these

revisions would do so while imposing

minimal additional burden and with

little or no alteration of the composition

or types of assets that insured branches

of foreign banks currently pledge, or

have pledged in the recent past, under

the current provisions of subpart B.

VI. Alternatives Considered

Section 939A requires that agencies

adopt standards of creditworthiness

that, to the extent feasible, are uniform.

The adoption of an alternative

definition of ‘‘investment grade’’ would

be inconsistent with section 939A’s

directive to adopt uniform standards

banks currently pledge, or

have pledged in the recent past, under

the current provisions of subpart B.

VI. Alternatives Considered

Section 939A requires that agencies

adopt standards of creditworthiness

that, to the extent feasible, are uniform.

The adoption of an alternative

definition of ‘‘investment grade’’ would

be inconsistent with section 939A’s

directive to adopt uniform standards.

In addition to adopting the definition

of ‘‘investment grade,’’ the proposal

would amend subpart B of part 347 to

impose liquidity and discounting

requirements for assets pledged by

insured branches of foreign banks

operating in the United States.

Alternatives to the proposed definition

of ‘‘highly liquid’’ would contradict the

definition of highly liquid assets as

adopted in other Dodd-Frank Act

rulemakings, thereby creating different

treatment of the same securities.

Similarly, the calculation of fair value

discounts for pledged assets is based on

the risk weights assigned to such assets

in the capital rules. The FDIC welcomes

and requests public comment on all

aspects of the proposed rule, including

the presentation of alternatives that

would advance the FDIC’s objective of

ensuring that assets pledged under

subpart B of part 347 be free from risk

and as liquid as possible in order to

provide protection to the DIF.

VII. Regulatory Analyses

A. Paperwork Reduction Act

In accordance with the requirements

of the Paperwork Reduction Act of 1995

(‘‘PRA’’) 44 the FDIC may not conduct or

sponsor, and the respondent is not

required to respond to, an information

collection unless it displays a currently

valid Office of Management and Budget

(‘‘OMB’’) control number. The

collection of information associated

with subpart A is entitled Foreign

Branching and Investment by Insured

State Nonmember Banks (OMB No.

3064–0125)

on Act of 1995

(‘‘PRA’’) 44 the FDIC may not conduct or

sponsor, and the respondent is not

required to respond to, an information

collection unless it displays a currently

valid Office of Management and Budget

(‘‘OMB’’) control number. The

collection of information associated

with subpart A is entitled Foreign

Branching and Investment by Insured

State Nonmember Banks (OMB No.

3064–0125). This information collection

consists of applications related to

establishing and closing a foreign

branch; applications related to acquiring

stock of a foreign organization; and

records and reports which a nonmember

bank must maintain once it has

established a foreign branch or foreign

organization. As described above, the

proposed rule’s revision to subpart A

consists of a change to the definition of

‘‘investment grade’’ and imposes no

additional reporting burden on insured

state nonmember banks. Therefore, the

FDIC expects that the PRA burden

estimates of this collection will not be

affected by this proposed rule.

Accordingly, the FDIC will not be

submitting any information collection

request to OMB relating to the

information collection associated with

subpart A (OMB 3064–0125).

The collection of information

associated with subpart B is entitled

Foreign Banks (OMB No. 3064–0114).

This information collection consists of,

among other things, internal

recordkeeping by insured branches of

foreign banks, and reporting

requirements related to an insured

branch’s pledge of assets to the FDIC.

Under the proposed rule, all assets

pledged to the FDIC under subpart B

must be investment grade, highly liquid,

and subject to a fair value discount.

Several types of assets pledged by banks

under subpart B would be categorically

investment grade and highly liquid, and

subject to a zero percent discount under

the proposed rule. Insured branches of

foreign banks would be able to continue

to pledge these assets without any

adjustment to their reporting and

recordkeeping requirements

, highly liquid,

and subject to a fair value discount.

Several types of assets pledged by banks

under subpart B would be categorically

investment grade and highly liquid, and

subject to a zero percent discount under

the proposed rule. Insured branches of

foreign banks would be able to continue

to pledge these assets without any

adjustment to their reporting and

recordkeeping requirements. To the

extent that an insured branch of a

foreign bank pledges an asset that would

not be categorically investment grade,

highly liquid, or that would not receive

a zero percent discount, the FDIC would

expect minimal additional burden to

accompany such a pledge of assets.

Recordkeeping associated with the

diligence that would be required for

determining that an asset is highly

liquid and investment grade is already

expected of these institutions as part of

their pre-purchase and ongoing

investment due diligence. Similarly, the

calculation of the applicable fair value

discount is based on the risk weight of

the applicable asset under the Basel III

capital rules, which is an analysis that

should already be undertaken by these

institutions. Therefore, the FDIC expects

that any resulting changes in burden

would be so minimal that they would

not alter the existing PRA burden

estimates of this collection.

Notwithstanding the fact that the FDIC

does not expect a change in burden, the

proposed rule may alter to some extent

the nature of the recordkeeping and

reporting requirements associated with

subpart B. Accordingly, the FDIC will be

submitting an information collection

request to OMB relating to the

information collection associated with

subpart B (OMB 3064–0114). The

existing burden estimates for the

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s associated with

subpart B. Accordingly, the FDIC will be

submitting an information collection

request to OMB relating to the

information collection associated with

subpart B (OMB 3064–0114). The

existing burden estimates for the

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41884

Federal Register / Vol. 81, No. 124 / Tuesday, June 28, 2016 / Proposed Rules

45 Subpart J of part 303 contains the procedural

rules that implement part 347. No revisions are

proposed to these rules.

information collection associated with

subpart B are as follows:

Title

Times/year

Respondents

per year

Hours per

response

Total

burden

hours

Moving a branch ..............................................................................................

1

1

8

8

Consent to operate ..........................................................................................

1

1

8

8

Conduct activities .............................................................................................

1

1

8

8

Recordkeeping .................................................................................................

1

10

120

1,200

Pledge of assets

Documents ................................................................................................

4

10

0.25

10

Reports .....................................................................................................

4

10

2

80

Total Burden ......................................................................................

........................

........................

........................

1,314

The FDIC welcomes comment on its

existing information collections

..........

4

10

0.25

10

Reports .....................................................................................................

4

10

2

80

Total Burden ......................................................................................

........................

........................

........................

1,314

The FDIC welcomes comment on its

existing information collections.

Specifically, comments are invited on:

• Whether the collections of

information are necessary for the proper

performance of the Agencies’ functions,

including whether the information has

practical utility;

• The accuracy of the estimates of the

burden of the information collections,

including the validity of the

methodology and assumptions used;

• Ways to enhance the quality, utility,

and clarity of the information to be

collected;

• Ways to minimize the burden of the

information collections on respondents,

including through the use of automated

collection techniques or other forms of

information technology; and

• Estimates of capital or startup costs

and costs of operation, maintenance,

and purchase of services to provide

information.

All comments will become a matter of

public record. A copy of the comments

may also be submitted to the OMB desk

officer for the FDIC by mail to U.S.

Office of Management and Budget, 725

17th Street NW., #10235, Washington,

DC 20503, by facsimile to 202–395–

5806, or by email to oira_submission@

omb.eop.gov, Attention, Federal

Banking Agency Desk Officer.

B. Regulatory Flexibility Act Analysis

The Regulatory Flexibility Act

(‘‘RFA’’) generally requires that, in

connection with a notice of proposed

rulemaking, an agency prepare and

make available for public comment an

initial regulatory flexibility analysis that

describes the impact of a proposed rule

on small entities (defined in regulations

promulgated by the Small Business

Administration to include banking

organizations with total assets of less

than or equal to $550 million)

equires that, in

connection with a notice of proposed

rulemaking, an agency prepare and

make available for public comment an

initial regulatory flexibility analysis that

describes the impact of a proposed rule

on small entities (defined in regulations

promulgated by the Small Business

Administration to include banking

organizations with total assets of less

than or equal to $550 million). A

regulatory flexibility analysis, however,

is not required if the agency certifies

that the rule will not have a significant

economic impact on a substantial

number of small entities, and publishes

its certification and a short explanatory

statement in the Federal Register

together with the proposed rule. For the

reasons provided below, the FDIC

certifies that the proposed rule will not

have a significant economic impact on

a substantial number of small entities.

The proposed rule makes revisions to

the existing rules in subpart A of part

347 consistent with section 939A of the

Dodd-Frank Act.45 The rules in subpart

A of part 347 address issues related to

the international activities and

investments of insured state nonmember

banks. In general, they implement the

FDIC’s statutory authority under section

18(d)(2) of the FDI Act regarding

branches of insured state nonmember

banks in foreign countries, and section

18(l) of the FDI Act regarding insured

state nonmember bank investments in

foreign entities. As of June 30, 2015,

there were nine state nonmember banks

that report having foreign branches.

There are 16 foreign branches between

these nine institutions. Available

information indicates that state

nonmember banks with foreign

investments or foreign branches are not

small entities.

The proposed rule also would amend

subpart B of part 347 as applied to

insured U.S. branches of foreign banks.

As of March 31, 2016, there were ten

insured branches of foreign banks, only

one of which qualifies as a small entity

between

these nine institutions. Available

information indicates that state

nonmember banks with foreign

investments or foreign branches are not

small entities.

The proposed rule also would amend

subpart B of part 347 as applied to

insured U.S. branches of foreign banks.

As of March 31, 2016, there were ten

insured branches of foreign banks, only

one of which qualifies as a small entity.

Therefore, the revisions to subpart B of

part 347 would not have a significant

impact on a substantial number of small

entities.

C. Plain Language

Section 722 of the Gramm-Leach-

Bliley Act requires the FDIC to use plain

language in all proposed and final rules

published after January 1, 2000. The

FDIC invites comment on how to make

this proposed rule easier to understand.

For example:

• Has the FDIC organized the material

to inform your needs? If not, how could

the FDIC present the rule more clearly?

• Are the requirements in the rule

clearly stated? If not, how could the rule

be more clearly stated?

• Do the regulations contain technical

language or jargon that is not clear? If

so, which language requires

clarification?

• Would a different format (grouping

and order of sections, use of headings,

paragraphing) make the regulation

easier to understand? If so, what

changes would achieve that?

• Is this section format adequate? If

not, which of the sections should be

changed and how?

• What other changes can the

agencies incorporate to make the

regulation easier to understand?

List of Subjects in 12 CFR Part 347

Bank deposit insurance, Banks,

banking, Foreign banking, Insured

foreign branches, Investments,

Reporting and recordkeeping

requirements, United States investments

abroad.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons stated in the

preamble, the Federal Deposit Insurance

Corporation proposes to amend part 347

of chapter III of Title 12, Code of Federal

Regulations as follows:

PART 347

■1

g, Insured

foreign branches, Investments,

Reporting and recordkeeping

requirements, United States investments

abroad.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons stated in the

preamble, the Federal Deposit Insurance

Corporation proposes to amend part 347

of chapter III of Title 12, Code of Federal

Regulations as follows:

PART 347

■1. The authority citation for part 347

is revised to read as follows:

Authority: 12 U.S.C. 1813, 1815, 1817,

1819, 1820, 1828, 3103, 3104, 3105, 3108,

3109; Pub. L. No. 111–203, section 939A, 124

Stat. 1376, 1887 (July 21, 2010) (codified 15

U.S.C. 78o–7 note).

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Federal Register / Vol. 81, No. 124 / Tuesday, June 28, 2016 / Proposed Rules

■2. In § 347.102, revise paragraph (o) to

read as follows:

§ 347.102

Definitions.

*

*

*

*

*

(o) Investment grade means a security

issued by an entity that has adequate

capacity to meet financial commitments

for the projected life of the exposure.

Such an entity has adequate capacity to

meet financial commitments if the risk

of its default is low and the full and

timely repayment of principal and

interest is expected.

*

*

*

*

*

■3. In § 347.202, paragraphs (p) through

(y) are redesignated as paragraphs (s)

through (bb), paragraphs (k) through (o)

are redesignated as paragraphs (m)

through (q), paragraphs (b) through (j)

are redesignated as paragraphs (c)

through (k); and new paragraphs (b), (l),

and (r) are added to read as follows:

§ 347.202

Definitions.

*

*

*

*

*

and

interest is expected.

*

*

*

*

*

■3. In § 347.202, paragraphs (p) through

(y) are redesignated as paragraphs (s)

through (bb), paragraphs (k) through (o)

are redesignated as paragraphs (m)

through (q), paragraphs (b) through (j)

are redesignated as paragraphs (c)

through (k); and new paragraphs (b), (l),

and (r) are added to read as follows:

§ 347.202

Definitions.

*

*

*

*

*

(b) Agency means any office or any

place of business of a foreign bank

located in any State of the United States

at which credit balances are maintained

incidental to or arising out of the

exercise of banking powers, checks are

paid, or money is lent but at which

deposits may not be accepted from

citizens or residents of the United

States.

*

*

*

*

*

(l) Highly liquid means, with respect

to a security, that the security has low

credit and market risk; is traded in an

active secondary two-way market that

has committed market makers and

independent bona fide offers to buy and

sell so that a price reasonably related to

the last sales price or current bona fide

competitive bid and offer quotations can

be determined within one day and

settled at that price within a reasonable

time period conforming with trade

custom; is a type of asset that investors

historically have purchased in periods

of financial market distress during

which market liquidity has been

impaired.

*

*

*

*

*

(r) Investment grade means a security

issued by an entity that has adequate

capacity to meet financial commitments

for the projected life of the exposure.

Such an entity has adequate capacity to

meet financial commitments if the risk

of its default is low and the full and

timely repayment of principal and

interest is expected.

*

*

*

*

*

■4. In § 347.209, revise paragraph (d) to

read as follows:

§ 347.209

Pledge of assets.

*

*

*

*

*

y that has adequate

capacity to meet financial commitments

for the projected life of the exposure.

Such an entity has adequate capacity to

meet financial commitments if the risk

of its default is low and the full and

timely repayment of principal and

interest is expected.

*

*

*

*

*

■4. In § 347.209, revise paragraph (d) to

read as follows:

§ 347.209

Pledge of assets.

*

*

*

*

*

(d) Assets that may be pledged. This

paragraph sets forth the kinds of assets

that may be pledged to satisfy the

requirements of this section. A foreign

bank shall be deemed to have pledged

any such assets for the benefit of the

FDIC or its designee at such time as any

such asset is placed with the depository.

The FDIC reserves the right to require

the substitution of pledged assets with

other assets deemed acceptable to the

FDIC.

(1) A foreign bank may pledge the

kinds of assets set forth in this

subparagraph, provided that: Such

assets are denominated in United States

dollars; such assets are investment

grade, as that term is defined in

§ 327.202(q); and such assets are highly

liquid, as that term is defined in

§ 347.202(k). Furthermore, for the

purposes of calculating the amount of

assets required to be pledged under

paragraph (b) of this section, the assets

that are eligible for pledging under

paragraph (d)(2) of this section must be

discounted at the rates set forth in Table

1 to § 347.209.

s that term is defined in

§ 327.202(q); and such assets are highly

liquid, as that term is defined in

§ 347.202(k). Furthermore, for the

purposes of calculating the amount of

assets required to be pledged under

paragraph (b) of this section, the assets

that are eligible for pledging under

paragraph (d)(2) of this section must be

discounted at the rates set forth in Table

1 to § 347.209.

(i) Cash

(ii) Treasury bills, interest bearing

bonds, notes, debentures, or other direct

obligations of or obligations fully

guaranteed as to principal and interest

by the United States or any agency

thereof;

(iii) Obligations of United States

government-sponsored enterprises;

(iv) Negotiable certificates of deposit

that are payable in the United States and

that are issued by any state bank,

national bank, state or federal savings

association, or branch or agency of a

foreign bank which has executed a valid

waiver of offset agreement or similar

debt instruments that are payable in the

United States; provided, that the

maturity of any certificate or issuance is

not greater than one year; and provided

further, that the issuing branch or

agency of a foreign bank is not an

affiliate of the pledging bank or from the

same country as the pledging bank’s

domicile;

(v) Obligations of the African

Development Bank, Asian Development

Bank, Inter-American Development

Bank, and the International Bank for

Reconstruction and Development;

(vi) Commercial paper;

(vii) Notes issued by bank and savings

and loan holding companies, banks, or

savings associations organized under

the laws of the United States or any

state thereof or notes issued by branches

or agencies of foreign banks, provided

that the notes are payable in the United

States, and provided further, that the

issuing branch or agency of a foreign

bank is not an affiliate of the pledging

bank or from the same country as the

pledging bank’s domicile;

s, banks, or

savings associations organized under

the laws of the United States or any

state thereof or notes issued by branches

or agencies of foreign banks, provided

that the notes are payable in the United

States, and provided further, that the

issuing branch or agency of a foreign

bank is not an affiliate of the pledging

bank or from the same country as the

pledging bank’s domicile;

(viii) Banker’s acceptances that are

payable in the United States and that are

issued by any state bank, national bank,

state or federal savings association, or

branch or agency of a foreign bank;

provided, that the maturity of any

acceptance is not greater than 180 days;

and provided further, that the branch or

agency issuing the acceptance is not an

affiliate of the pledging bank or from the

same country as the pledging bank’s

domicile;

(ix) General obligations of any state of

the United States, or any county or

municipality of any state of the United

States, or any agency, instrumentality,

or political subdivision of the foregoing

or any obligation guaranteed by a state

of the United States or any county or

municipality of any state of the United

States;

(x) Any other asset determined by the

FDIC to be acceptable.

*

*

*

*

*

■5. Amend § 347.209, by adding Table

1 to read as follows:

§ 347.209

Pledge of assets.

*

*

*

*

*

TABLE 1 TO § 347.209—SUPERVISORY HAIRCUTS FOR ASSETS PLEDGED UNDER § 347.209(d)

Remaining Maturity

Haircut % Assigned Based on Maturity and Risk Weight

Risk Weight (%) by Issuer as specified in Part 324.32

0%

20%

50%

100%

<= to 1 Year .....................................................................................................

0

1.0

2.0

4.0

> 1 Year but <= 5 Years ..................................................................................

0

4.0

6.0

8.0

> 5 years .........................................................................................................

24.32

0%

20%

50%

100%

<= to 1 Year .....................................................................................................

0

1.0

2.0

4.0

> 1 Year but <= 5 Years ..................................................................................

0

4.0

6.0

8.0

> 5 years ..........................................................................................................

0

8.0

12.0

16.0

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Federal Register / Vol. 81, No. 124 / Tuesday, June 28, 2016 / Proposed Rules

By order of the Board of Directors.

Dated at Washington, DC, this 21st day of

June, 2016.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 2016–15096 Filed 6–27–16; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2015–0831; Directorate

Identifier 2014–NM–061–AD]

RIN 2120–AA64

Airworthiness Directives; Airbus

Airplanes

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Supplemental notice of

proposed rulemaking (NPRM);

reopening of comment period.

SUMMARY: We are revising an earlier

proposed airworthiness directive (AD)

for all Airbus Model A318 and A319

series airplanes, A320–211, –212, –214,

–231, –232, and –233 airplanes, and

A321 series airplanes. The NPRM

proposed to require an inspection to

identify the part number and serial

number of the main landing gear (MLG)

sliding tubes installed on the airplane;

and inspection of affected chromium

plates for damage; an inspection of

affected sliding tube axles for damage;

and replacement of the sliding tube if

necessary. The NPRM was prompted by

a report of a rupture of a MLG sliding

tube axle

M

proposed to require an inspection to

identify the part number and serial

number of the main landing gear (MLG)

sliding tubes installed on the airplane;

and inspection of affected chromium

plates for damage; an inspection of

affected sliding tube axles for damage;

and replacement of the sliding tube if

necessary. The NPRM was prompted by

a report of a rupture of a MLG sliding

tube axle. This action revises the NPRM

by removing certain service information

that does not adequately address the

identified unsafe condition and revising

the compliance method. We are

proposing this supplemental NPRM

(SNPRM) to detect and correct cracks in

the axle and (partial) detachment of the

axle and wheel from the sliding tube,

which could result in failure of an MLG.

Since these actions impose an

additional burden over those proposed

in the NPRM, we are reopening the

comment period to allow the public the

chance to comment on these proposed

changes.

DATES: We must receive comments on

this SNPRM by August 12, 2016.

ADDRESSES: You may send comments,

using the procedures found in 14 CFR

11.43 and 11.45, by any of the following

methods:

• Federal eRulemaking Portal: Go to

http://www.regulations.gov. Follow the

instructions for submitting comments.

• Fax: 202–493–2251.

• Mail: U.S. Department of

Transportation, Docket Operations, M–

30, West Building Ground Floor, Room

W12–140, 1200 New Jersey Avenue SE.,

Washington, DC 20590.

• Hand Delivery: U.S. Department of

Transportation, Docket Operations, M–

30, West Building Ground Floor, Room

W12–140, 1200 New Jersey Avenue SE.,

Washington, DC, between 9 a.m. and 5

p.m., Monday through Friday, except

Federal holidays.

For service information identified in

this SNPRM, contact Airbus,

Airworthiness Office—EIAS, 1 Rond

Point Maurice Bellonte, 31707 Blagnac

Cedex, France; telephone +33 5 61 93 36

96; fax +33 5 61 93 44 51; email

account.airworth-eas@airbus.com;

Internet http://www.airbus.com

New Jersey Avenue SE.,

Washington, DC, between 9 a.m. and 5

p.m., Monday through Friday, except

Federal holidays.

For service information identified in

this SNPRM, contact Airbus,

Airworthiness Office—EIAS, 1 Rond

Point Maurice Bellonte, 31707 Blagnac

Cedex, France; telephone +33 5 61 93 36

96; fax +33 5 61 93 44 51; email

account.airworth-eas@airbus.com;

Internet http://www.airbus.com. You

may view this referenced service

information at the FAA, Transport

Airplane Directorate, 1601 Lind Avenue

SW., Renton, WA. For information on

the availability of this material at the

FAA, call 425–227–1221.

Examining the AD Docket

You may examine the AD docket on

the Internet at http://

www.regulations.gov by searching for

and locating Docket No. FAA–2015–

0831; or in person at the Docket

Management Facility between 9 a.m.

and 5 p.m., Monday through Friday,

except Federal holidays. The AD docket

contains this proposed AD, the

regulatory evaluation, any comments

received, and other information. The

street address for the Docket Office

(telephone: 800–647–5527) is in the

ADDRESSES section. Comments will be

available in the AD docket shortly after

receipt.

FOR FURTHER INFORMATION CONTACT:

Sanjay Ralhan, Aerospace Engineer,

International Branch, ANM–116,

Transport Airplane Directorate, FAA,

1601 Lind Avenue SW., Renton, WA

98057–3356; telephone 425–227–1405;

fax 425–227–1149.

SUPPLEMENTARY INFORMATION:

Comments Invited

We invite you to send any written

relevant data, views, or arguments about

this proposed AD. Send your comments

to an address listed under the

ADDRESSES section. Include ‘‘Docket No.

FAA–2015–0831; Directorate Identifier

2014–NM–061–AD’’ at the beginning of

your comments. We specifically invite

comments on the overall regulatory,

economic, environmental, and energy

aspects of this proposed AD. We will

consider all comments received by the

closing date and may amend this

proposed AD based on those comments

dress listed under the

ADDRESSES section. Include ‘‘Docket No.

FAA–2015–0831; Directorate Identifier

2014–NM–061–AD’’ at the beginning of

your comments. We specifically invite

comments on the overall regulatory,

economic, environmental, and energy

aspects of this proposed AD. We will

consider all comments received by the

closing date and may amend this

proposed AD based on those comments.

We will post all comments we

receive, without change, to http://

www.regulations.gov, including any

personal information you provide. We

will also post a report summarizing each

substantive verbal contact we receive

about this proposed AD.

Discussion

We issued a notice of proposed

rulemaking (NPRM) to amend 14 CFR

part 39 by adding an AD that would

apply to all Airbus Model A318 and

A319 series airplanes, A320–211, –212,

–214, –231, –232, and –233 airplanes,

and A321 series airplanes. The NPRM

published in the Federal Register on

April 24, 2015 (80 FR 22939) (‘‘the

NPRM’’). The NPRM was prompted by

a report of a rupture of a MLG sliding

tube axle. The NPRM proposed to

require an inspection to identify the part

number and serial number of the MLG

sliding tubes installed on the airplane;

and an inspection of the axle on certain

MLG sliding tubes for damage, and

replacement of the sliding tube if

necessary.

Actions Since Previous NPRM Was

Issued

Since we issued the NPRM, we have

determined that Messier-Bugatti-Dowty

Service Bulletin 200–32–313, dated

February 25, 2013, including

Appendices A, B, and C, dated February

25, 2013; and Service Bulletin 201–32–

62, including Appendices A, B, and C,

dated February 25, 2013; do not

adequately address the identified unsafe

condition because this service

information does not include all

Required for Compliance steps required

in Airbus Service Bulletin A320–32–

1416, including Appendix 01, dated

March 10, 2014. Therefore, this SNPRM

proposes revising the service

information specified for accomplishing

the proposed actions

A, B, and C,

dated February 25, 2013; do not

adequately address the identified unsafe

condition because this service

information does not include all

Required for Compliance steps required

in Airbus Service Bulletin A320–32–

1416, including Appendix 01, dated

March 10, 2014. Therefore, this SNPRM

proposes revising the service

information specified for accomplishing

the proposed actions.

The European Aviation Safety Agency

(EASA), which is the Technical Agent

for the Member States of the European

Union, has issued EASA Airworthiness

Directive 2014–0058, dated March 11,

2014 (referred to after this as the

Mandatory Continuing Airworthiness

Information, or ‘‘the MCAI’’), to correct

an unsafe condition for all Airbus

Model A318 and A319 series airplanes,

A320–211, –212, –214, –231, –232, and

–233 airplanes, and A321 series

airplanes. The MCAI states:

A main landing gear (MLG) sliding tube

axle rupture occurred in service.

Investigation of the affected part showed that

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